What we think we know about wealth distribution is far from reality
Moving up the social income ladder isn't as easy as one might think
November 13, 2011 10:00 AM
Michael Norton, a Harvard University professor and expert in behavioral economics.
By Mark Roth Pittsburgh Post-Gazette
Here is the three-word summary of a provocative study that Harvard University's Michael Norton did earlier this year:
America prefers Sweden.
The study, done with Daniel Ariely of Duke University, was designed to find out how much Americans know about the wealthy.
When a broad cross-section of Americans was asked to estimate what proportion of the nation's wealth is in the hands of the top 20 percent of U.S. earners, they guessed it was about 60 percent. Then, when they were asked what they thought the wealth of the top fifth of earners should be, the respondents -- Republican and Democrat, young and old, black and white -- agreed it should be about 32 percent.
The actual number: 84 percent, which means that the bottom 80 percent of earners in America own only 16 percent of the nation's wealth in the form of assets like houses, cars, savings, stocks and bonds.
And that 32-percent level that most Americans said would be ideal? It comes close to the actual number for Sweden, widely known as a high tax, social welfare state.
The most intriguing thing to him, said Mr. Norton, a business professor and expert in behavioral economics, was that almost no one in the survey thought that the wealth that they presumed the richest 20 percent had was appropriate -- they all thought it should be lower, even though they had underestimated the extent of it.
But if anyone thinks that means most Americans would support greater redistribution of the country's wealth by the federal government, he said, they would be wrong.
In some follow-up work his team has done. Mr. Norton said, when people were shown the actual wealth breakdown of the top 20 percent of earners, their political leanings strongly swayed their responses.
"When liberals see that wealth information, they become more in favor of taxes on the wealthy and raising the minimum wage. When conservatives see that, they go the opposite direction, even poor conservatives.
"So raising the specter of changing the distribution of wealth is such a loaded issue for some constituencies, that regardless of how you frame it, they're opposed."
The Harvard researcher thinks part of people's resistance to higher taxes on the wealthy or more aid for the poor or working class is because they have no sense of history.
"One of the funny things about Americans is that we're so quick to adapt to the status quo, that if anybody tries to change it, it's very threatening. So we forget the distribution of wealth was very different in the 1950s than it is now. If someone comes in and says here's a big change [the government could make] and it will help you, a lot of people will still say, 'I don't like change.' "
People also overestimate how easy it is to move up the income ladder.
"People think there's an enormous amount of social mobility, but we can show them data from the last 50 years indicating that there is actually very little mobility.
"To the extent there is mobility in America, it's movement at the low end. There's very little mobility into and out of the top 20 percent of earners.
"People will say, 'But didn't the rich lose the most in this recession?' and the answer is, yes, they lost billions of dollars, but they had tens of billions of dollars to begin with, so they're still in the top 20 percent."