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Our surprising preferences for distribution of income and wealth


Regardless of political affiliation, Americans are remarkably close in their opinions of how wealth would be ideally distributed, according to economists Dan Ariely of Duke University and Michael I. Norton of Harvard Business School.

The results of their survey of 5,522 Americans randomly selected from one million people in 47 states, indicated that most people overestimate the equality in the distribution of wealth and would prefer an even more equal distribution of wealth. The persons polled were asked to divide the population into five groups (“quintiles”) and to estimate how much of the total wealth each quintile owned (in 2005) and how much each group should own in an ideal world. Amazingly, people in all quintiles believe that the two poorest quintiles should have at least twice as much of the total wealth as they now own.

Arielly’s summary of the findings is in his blog, Irrationally Yours, as presented in this graph:

To move from the reality to the ideal in distribution of wealth requires redistribution of income, which can be accomplished through market forces as well as through taxes on incomes and property. In Missouri, the incomes of the lowest-earning quintile grew at a rate of 10.9% over the period from the late 1980s through the mid-2000s, while the incomes of the highest fifth grew by 35.9%, which probably represents a widening of the disparity in wealth.

Many Americans, if not most Americans, have a visceral objection to federal and state governments taking wealth from one class of citizens and giving it to another class. But those of us in the bottom 80% wouldn’t mind if somehow–without any government action–the invisible hand of the market acted as Robin Hood. And we each have our thoughts about the effect of tax policies as incentives for the rich and the poor.

What is it about our economy and our incredibly complicated tax laws that makes the existing distribution of wealth so different from a distribution that we all agree would be better? When considering whether to accept or reject change, the first step in the analysis has to be a critical look at the status quo.

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About Harry Styron

I'm a lawyer who lives in Branson, Missouri, whose professional interests involve real estate, construction and local government.

2 responses »

  1. This study is crap.

    First of all, why did they ask 5,522 people? Did they have sooo~ much money to blow that they could afford to do triple the study that they needed to get reliable descriptive statistics? But their 5,000+ sample was out of a population of one million. What are the characteristics of that one million, and does that one million differ in any material way from the 330 million? I don’t trust the arithmetic of the conclusions.

    The only thing this study reliably suggests is that there is a disparity between what people perceive wealth distribution to be and what it actually is. If you look at the results on the bar graphs, people tend to judge an ideal where the third quintile owns a greater proportion of wealth than the second quintile, which would make them the second quintile. People are giving responses that are nonsense, suggesting that they are not comprehending the survey questions, suggesting that the survey itself is flawed, and that therefore the survey results are flawed and fundamentally in error, so that any presentation of the data would be grossly misleading.

    There is a subtle, but very important, distortion in how this data is presented. The survey is all about disparities in wealth, but if you read the study, they have no definition of wealth in the survey, and don’t talk much about where their data on wealth disparity actually comes from. Are they defining wealth as proportional ownership of the means of production or as values of possessed assets? The survey results are presented in a manner that suggests that a wealth disparity is a bad thing when it is really the disparity in incomes that is socially undesirable and politically destructive. The results seem to be presented in a manner to encourage the reader to confuse the two subjects and walk away with a political conclusion that wealth disparities demand immediate reparations or other treatment.

    I am not saying that I think the wealth disparity is a good thing–it isn’t. But I think the real problem is a systematic income disparity, growing impediments to economic mobility, and the institutionalized diversion of income from productive classes to propertied classes. (I actually think that is at the heart of the current economic depression, but that is just my crack-pot theory.)

    Of course there is wealth disparity. Of course the statistics of the disparity are vastly worse than anybody is able to perceive. Of course there is income disparity. This study is totally hosed and tells us nothing of interest, but simply fuels political flames.

    I will, however, agree with the concluding comment of the study. Public disagreements about the causes of wealth or income inequality may drown out this consensus that there is an inequality or disparity that needs to be addressed politically. Americans exhibit a general disconnect between their attitudes towards economic inequality and public policy preferences, suggesting that even given increased awareness of the gap between ideal and actual wealth distributions, Americans may remain unlikely to advocate for policies that would narrow this gap. (Oddly, though, the study gives no empirical evidence or rationale connecting the survey data and results to this conclusion.)

    I could say more, but I need to go to lunch. . . . .

    Reply
  2. Kelly,
    Thanks for your longish comment.

    Ariely and Norton did define wealth, on page 4, as “the total value of everything that someone owns, minus any debt that he or she owes.”

    Your assertion that “institutionalized diversion of income from productive classes to propertied classes” is a real problem underscores misgivings about the Supreme Court’s decision that allows corporations to provide unrestricted and undisclosed contributions to political campaigns and the refusal of the Senate to adopt legislation to control corporate contributions.

    Reply

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