Wealth Inequality
Wealth Inequality in America
Perform the following thought experiment. Remove yourself for a moment from your present socioeconomic circumstances and imagine that you are to be replaced randomly into society at any class level.
Now, before you know your particular place in society you are told that it is within your powers to redistribute the wealth of that society in any way that you choose. What distribution would you choose? This famous thought experiment is the basis of political philosopher John Rawls, as outlined in his highly influential 1971 work, “A Theory Of Justice,” in which he argues that the lowest class should be made as well off as possible. But this of course assumes that we all come to the same conclusion when we perform the thought experiment ourselves. To test this, Mike Norton and I recently conducted a study in which we asked Americans to first guess at the distribution of wealth in the United States, and then we asked them to perform the thought experiment and lay out what they think would be the ideal distribution of wealth if they were to enter society and be placed randomly in a class.
Here is what we found:
As you can see from the figure, participants rather badly estimated the current state of wealth disparity! Furthermore, they offered an ideal wealth distribution (under a “veil of ignorance”) that was even more different (and more equal) relative to the current state of affairs.
What this tells me is that Americans don’t understand the extent of disparity in the US, and that they (we) desire a more equitable society. It is also interesting to note that the differences between people who make more money and less money, republicans and democrats, men and women — were relatively small in magnitude, and that in general people who fall into these different categories seem to agree about the ideal wealth distribution under the veil of ignorance.
Maybe this suggests that when there are no labels, and we think about the core of our morality in abstract terms (and under the veil of ignorance), we are actually very similar?
My latest book, The Upside of Irrationality, explores some positive and some negative ways that irrationality plays out in our lives.
Fascinating results, would love to see a similar experiment in the UK.
And talking of the UK – does having UK respondents to your studies in any way invalidate or skew your results?
I agree with Gill. I would have estimated the distribution to be much more equitable. Now that I think about it, the actual distribution actually makes sense.
Of course, if your wealth was to be randomly re-assigned, you would want an even distribution. That doesn’t mean we prefer this distribution. You should also ask “Do you prefer the existing distribution or would you like to be randomly reassigned?” I suspect most people believe they have sufficient control over their destiny to get into the top 20% and have more wealth.
In fact, this is a well-diagnosed disorder among Republicans.
I would agree that the nearly uniform distribution that the high-income population selected doesn’t mean that they actually believe that such a distribution would be more fair. In this case, “ideal” means something very different; it refers to what they would prefer if they were to be thrown into this bizarre situation. This preference could be based on other factors, especially the question of “what’s in it for me?”. In considering this question, they might conclude that they don’t want to be much worse off than everyone else. Of course, the best way to ensure this is to choose a uniform distribution.
To me, the part that’s telling in terms of attitudes is that higher income among respondents correlated a stronger preference for a distribution that favors the rich. For example, those surveyed making > $100k decided to give the top quintile > 4x more than the bottom quintile; whereas, those surveyed making < $50k that this wealth ratio should be $100k want > 33% more inequality than those making < $50k. I'd call that difference substantial, but not very surprising; you don't want to respond to a survey with answers that would create alot of cognitive dissonance for yourself.
bleh! Part of my response got cut off (probably my own mistake). The end of my second sentence should have read:
those surveyed making < $50k thought that this wealth ratio should be $100k want > 33% more wealth inequality…
GAH! Looks like this is a bug in WordPress; it seems my “less than” sign is being interpreted as the start of an HTML tag. GRRR!
… Let me try once more:
those surveyed making less than $50k thought this wealth ratio should be less than 3x. By this metric, this means that those making more than $100k want 33% more inequality…
Agreed with BobH.
Prof. Ariely somewhat misrepresents his question in a recent NPR interview when he says, “And the second question we’re interested in [the first being, "What do you think the current distribution looks like?] was if you gave people the right to design the distribution of wealth in the U.S., how would it look like?” Without noting that people were asked to design a society INTO WHICH THEY’D RANDOMLY BE PLACED (Rawls’ proviso), Ariely’s statement of his results gives a false sense that people desire a fairer distribution tout court. Ariely’s result is compatible with their only desiring the fairer scenario when it is the choice that maximizes their personal utility–in other words, it is compatible with self-interest, and not necessarily a scenario that people desire for its own sake. Not everyone, and I suspect not many of the wealthy, agrees with Rawls that justice from our present position equals the distribution discovered under the veil of ignorance.
Being poor and feeling poor are two different things:
A man (or women) may feel happy because they own a yacht, until someone else turns up with bigger yacht. Their happiness will probably turn to unhappiness because the other guy has just pointed out his inadequacy of not being good enough at his work to be able to afford a larger yacht – his social status has just been put into context, into check; the pond just got bigger.
The stress this man would feel could be measurable in almost equal measure to someone who has no money and sees everyone around him with apparently more than they have.
The better question is, therefore, to ask about actual happiness not wealth measures that may indicate a level of happiness, where the utility of money, over and above subsistence, is to store up happiness in a bank account until it can be exchanged for a good or service that we derive happiness from.
Happiness derived from wealth has an upper terminal velocity, somewhere around $150,000 per annum. For every additional $100,000 earned above this, the measure of happiness with ones lot increases only marginally compared to the rise from $25,000 to say $45,000.
The relative increase in social status has a greater benefit when income can jump from $25,000 by $20,000 because it may mean a move to a nicer area or the purchase of a bigger property. A jump of $100,000 over $150,00 may yield no change of address, but a small increase in overall security.
Buffett and Gates are now giving away their wealth because it gives them no measurable happiness to have so much of it and giving most of it away generates greater happiness.
The answer could be to ensure that everyone earns around $150,000. A nice Marxist view, spread the love by spreading the wealth. But what happens to motivation, drive, competition and social improvements in areas like healthcare? How does the human race move forward if innovation ceases to have a financial benefit that can improve ones status within a community? What happens to economists if everyone acts in a rational way because there is a level playing field?
What we should measure is health inequality and happiness inequality, not monetary inequality.
I doubt that the wording of the survey would lead respondents to believe that they were considering non-monetary wealth. I don’t know how a person would even begin to construct an estimate of wealth distribution when dealing with more nebulous concepts like emotional wealth or spiritual wealth. How would you construct the quintiles? Who in their right mind would respond to this survey by saying that the happiest 20% of society enjoys 60% of all happiness?
I’ve had this conversation on relative suffering before. The children of the wealthy that I’ve spoken to feel that the struggles they dealt with growing up – like fitting in socially or fulfilling the expectations of their parents – caused them just as much emotional hardship as the struggles I grew up with – like being terrified that a $50,000 hospital bill would mean I wouldn’t get to attend college, or worrying that improvising my own physical therapy for lack of a means to pay for a professional could mean a lifelong decrease in physical abilities.
It seems like they don’t grasp that the poor deal with social and parental anxieties and more.
To address the other portions of your post –
One (not the only) problem with wealth concentration is that it operates on a positive feedback loop, and economic crises amplify this effect. People with billions of dollars usually (probably universally) employ people to do nothing but manage their wealth, making sure that it fares better than the piddly life savings of the peasantry. The upshot is that the relative wealth of the wealthiest portions of the population always increases.
A nuclear reactor provides a good analogy. Today all of our nuclear reactors are designed with a negative void coefficient. That is, when the reactor goes out of control and gets too hot, the design of the reactor is such that the temperature increase itself causes the reaction to slow, and catastrophe is averted. One example of this kind of reactor is the CANDU, used widely across Canada. Before we had these kinds of reactors, when a reactor got hot, the reaction would speed up even further in response, which would lead to a runaway chain reaction, which would lead to a meltdown. This is what happened at Chernobyl. Our current system of dealing with wealth inequality is more Chernobyl than CANDU.
By the way, Marx’s political theories advocated the abolition of all bourgeois property, not perfectly equal distribution of income. Characterizing mere redistribution as Marxist is intellectually dishonest.
In your graph, what is the “2th 20%”. The “twoth”?
(grin)
I don’t agree with the conclusions. A better experimental set up than a simple survey is not to ASK people what the ideal distribution is, but to ACTUALLY distribute it. That means you have to take it away from someone and give it to someone else in some fashion. Furthermore, “wealth” is something abstract, and it is likely the respondents were trying to look even handed in responding the questions. I’m guessing that if you took ten (or, to make it more dramatic, one hundred) characters, gave them a visual representation of wealth in proporation to the ten deciles of American wealth, and asked people to redistribute it, then they would see how you have to take almost everyone from one person to give everyone else a pittance: this, as Ariely has shown many times, is very displeasing to the human psyche. (Unless you can successfully villify that one person.)
Unfortunately, people measure their wealth relative to others in their community as opposed to looking at absolute levels of wealth the world over and across time. By the absolute measure, the US has virtually eliminated poverty. However, since poverty is defined as a relative income level it is, by definition, impossible to eliminate since there will always be people at the bottom.
It would be interesting to ask people what they feel their absolute level of income would be after their ideal income distribution. If things were redistributed as in the above graph it would drastically lower the absolute level of wealth for everyone as incentives for productivity and the coordination of production through the price system would be greatly inhibited.
“If things were redistributed as in the above graph it would drastically lower the absolute level of wealth for everyone as incentives for productivity and the coordination of production through the price system would be greatly inhibited.”
Of course, you have ample evidence of this, right?
Trevindor,
I wouldn’t know where to start.
The empirical evidence disagrees. The economy grew far more rapidly in the 60′s, when absolute inequality was lower and the GINI was accelerating in the direction of less inequality, than it did in the previous decade, when the GINI was higher and moving in the direction of greater inequality.
This isn’t a proper ‘all-other-things-being-equal’ analysis, but it seems that your claim was that, absolutely and necessarily, redistribution will shrink the economy.
It seems that massive and growing inequality is not a prerequisite for economic growth.
Brandon Adams, I never stated that an increase in equality necessarily causes an economy to shrink. I specifically stated that I was referring to the income distribution in the “ideal” condition in the graph above.
The graph above shows that people would prefer an income distribution that is very very close to egalitarian. The amount of income stays very close across the percentiles.
I stand by my statement that this would have horrendous effects on the economy as incentives would be effectively eliminated and the supply and demand of labor caused by this pricing system would result in an unproductive distribution of labor.
The only positive I see here is a boon for beta male mating prospects.
@Neal W. The last sentence of your first paragraph assumes that the wealth distribution is skewed by logical necessity. It also assumes that even a small skew would produce a big psychological effect in terms of whether people thought of themselves as rich or poor. If people feel that their basic needs are being met, but someone else down the street is making a little more than themselves, that doesn’t mean that they believe they are in dire poverty.
Your second paragraph doesn’t make much sense either. Is a highly non-uniform income distribution the basis of a sound price system? If so, you ought to give some reasons as opposed to making simple assertions. As for people’s incentives, pay is not the only thing that motivates people to work (actually, the survey doesn’t asks about wealth, not income). Dr. Ariely’s books are full of empirical evidence for this.
I was in the audience at RIT yesterday when Professor Ariely mentioned this study and his interpretation of the results. Namely, he concluded that most people would rather live in a country that has wealth distribution patterns similar to those of Sweden than those in the US. Yet, I think the way this question was posed is what (at least in part) accounts for the study results. When you ask someone what the ideal wealth distribution should be in a society where he is “randomly” placed into one of the classes, I think this primes the responder to believe that these classes are immutable (or, at the very least, that his current skills/experiences/attitudes that are his tools for moving up the socioeconomic ladder will no longer be available to him once he is randomly assigned a place in this theoretical society).
Once the responder implicitly (and I think naturally) makes these assumptions, then of course he is more likely to want to minimize the “pain” of being trapped on a lower socio-economic rung.
Many Americans, rightly or wrongly (a debate for another time) believe that they can move up the socio-economic rungs. And probably many more believe that a society that allows people to keep significant portions of the economic rewards from successful innovation, hard-work, risk-taking, etc. is more likely to be kind of society they actually wish to live and work in.
Your points somewhat contradict each other. On the one hand, you’re saying that people believe that their class is fixed from the start (in the random placement scenario); whereas, your third paragraph states that people believe that soci-economic mobility exists in the US.
As for the effect of the “random” placement, I don’t think people infer that the classes will be fixed once things are set in motion; at least, I didn’t think so. I believe the effect of that is to wake up the part of the brain that avoids risk. In that case, it seems best to start off with a more uniform distribution.
My guess as to why high income folks tend to skew the distribution more is that they believe
a) it is more just. It’s a little hard to argue with the principle: those who work harder should have more stuff. On the other hand, if everyone else is also put into random classes, the test subjects sense of justice should guide them toward a uniform distribution.
b) they’ll wind up in the high wealth category eventually anyway, because they believe themselves to be highly capable, since they have been economically successful so far in life.
An interesting question that this data raises is to what degree do the high income subjects believe that where you start off in life influences where you end up (economically) compared to the belief of the middle and low income subjects. If they believe the influence is small, they won’t mind starting things off a little skewed, because socio-economic mobility will allow the distribution to self-correct as time goes on.
My opinion is that where you start off has alot to do with where you end up; furthermore, the high income people have less appreciation for this effect (which I think of as a fact), because more of them had comfortable upbringings, and do not realize the limitations that being more deprived would have had on the class that they ended up in. It’s much more pleasant to think “I’m doing well, because I worked hard” than to think “I worked hard, but I really got lucky to end up where I am”. The preference also has something to do with American culture, because we are a nation that favors independence, and emphasized the individual, but I believe sometimes over glorify the individual.
…Or maybe it just shows that we think of money in logarithmic terms.
As a matter of fact, I am not too surprised. At least in Canada few people seem to realise just how skewed wealth is. At the same time, and contradicting myself, I would be very interested in hearing about any studies like this one for Canada.
Rawls experiment is a little too simple to be practical.
I would adhere to the following. Set up societal rules, and then you are placed as a random person in that society, AND AT A RANDOM TIME IN THE FUTURE.
That changes everything.
“What this tells me is that Americans don’t understand the extent of disparity in the US, and that they (we) desire a more equitable society.”
Interesting experiment. This shows that if you start a charity to collect donations to distribute to the poor, your endeavor should be successful. Right?
That’s the great thing about surveys. They don’t force any hard trade-offs, or involve any notion of reality.
The next survey should be about weight distribution.
Anyways, income is a very bad measure of standards of living, which is really what matters. What I care about is what goods and services are accessible to the poor, not how many dollars they make. That’s how I think for my own life as well, rather than envying the super-rich. Productivity is what helps people live better.
By the way, there is another good question: if you are to randomly spawn in the lower bucket of a society at a random time (great point Brent), which society would it be? Which country? With which kinds of rights and which kinds of norms?
re setting up charities should lead to people’s ideal wealth distribution: Even if you assume people mean what they say when describing their “ideal” wealth distribution (to be clear, these graphs are about wealth, not income), there’s plenty of good reasons that setting up charities does not lead those distributions. The biggest problem is that as an individual, I cannot make the decision to give to charity for the whole of society, which is what would be required in order for the wealth distribution to be completely restructured.
Even if we (i.e. all of Earth’s population) were coordinated enough to make this happen, how do we decide who gives up what amount? Obviously, Bill Gates would have to give up something in order for the distribution to be more uniform, but what amount should he be left with? Even if we preserve people’s rank in the wealth ordering, there are combinatorially many ways of reaching a desired distribution.
Why does the 4th segment (purple) not seem to appear at all in the “actual” distribution?
Julien Couvreur says:
“…This shows that if you start a charity to collect donations to distribute to the poor, your endeavor should be successful. Right?”
How so? The charts indicate that most people believe only the top 20% currently has more than they “should”. So only the people actually in that group would donate (and only if they realize that they are in that group, and even then only if those particular individuals fit the mean answers in the above chart).
@NT: Because the bottom 40% are too small to be visible.
–
Marc.
I think what this study shows the most is that people have lousy mathematical intuation, especially on matters of probability or statistics.
Of course, many of them can’t spell “intuition”, either.
I agree with the last comment.
The biggest problem of the survey is that people in general don’t understand the question. Many people mix wealth and income as one of the commenters did. And the income distribution in the US is very different from the wealth distribution.
Most of the people also don’t understand what arithmetics does to these numbers.
For example, I often encounter people that complain that more than half of the workers have bellow average sallaries. They don’t understand that this is more a result of mathematics, probabilities and statistics than anything else. It is true in US as well as in Sweden. And in adding wealth of individuals you would encounter similar misunderstandings.
So I would find the numerical observations in the survey highly questionable. But the overall picture and the conclusion is probably right.
You need to eliminate the possibility that people have an distorted idea of what “wealth” is. I think that they probably have incorrect intuitions about wealth, and that this is the likely reason for their misestimation of the wealth distribution.
P.S. You seem not to have the facility to subscribe to a comments feed using RSS. This is useful for people who post comments and want to follow up.
Love the blog.
It’s important to note that Rawls idea of “only the worst off matters” is equivalent to a minimal indifference curve (and that, similarly, a utilitarian view represents a diagonal line).
I really want to take the average “ideal” you’ve experimentally deduced and translate it into some sort of utility function. This then would give us indifference curves somewhere between Rawls and utilitarian.
Have you done this sort of analysis on your data, such as with cobb-douglas functions?
I’d draw a different conclusion than the author. It’s not that Americans don’t know the “extent of the wealth disparity”; Americans just don’t understand the concepts of statistics, bell curves, etc. How do I come up with this? Just look at what Americans “think” is ideal:
If all Americans made the same amount, say $40k, and there was no disparity, then each of the 5 segments would be equal in size, 20%. Well, look at the American “ideal”, it’s not far off from that. If you translated their “ideal” distribution into real-world numbers, everyone in America would be making between $30k and $50k, which is silly. Now if you told them this, they’d immediately change their “ideal” distributions to something closer to the real distribution.
Now I might also draw another conclusion: the groups whose answers were furthest from 5 equal quintiles are smarter, because they understand statistical concepts better. Which would mean that the people making more money are smarter, Bush voters are smarter, and men are smarter.
, I’d draw a different conclusion than the author. It’s not that Americans don’t know the “extent of the wealth disparity”; Americans just don’t understand the concepts of statistics, bell curves, etc. How do I come up with this? Just look at what Americans “think” is ideal:
If all Americans made the same amount, say $40k, and there was no disparity, then each of the 5 segments would be equal in size, 20%. Well, look at the American “ideal”, it’s not far off from that. If you translated their “ideal” distribution into real-world numbers, everyone in America would be making between $30k and $50k, which is silly. Now if you told them this, they’d immediately change their “ideal” distributions to something closer to the real distribution.
Now I might also draw another conclusion: the groups whose answers were furthest from 5 equal quintiles are smarter, because they understand statistical concepts better. Which would mean that the people making more money are smarter, Bush voters are smarter, and men are smarter. Generally speaking, of course!
<>
This might lead one to the conclusion that Hank Paulson is smart. ::Does not compute, does not compute, Invalid argument::
While it may be correct that Americans desire a more equitable income distribution, it is incorrect to assert that a more equal distribution is neccessarily more equitable. Furthermore, it is incorrect to conclude that Americans desire a more equitable distribution just from the results of this experiment.
It seems the proper conclusion from this experiment is that Americans want to optimize their own wealth if faced with the chance of being randomly assigned to a wealth quintile, but they constrain that optimization by the belief that their should be some wealth disparity. That constrained optimization leads to a wealth distribution that is more equal than the one we have now.
Gosh, if anyone asked me how 80% of anything would be distributed, regardless of what it was, I’d guess that 20% of the appropriate units would get 80% of whatever it was that was being counted. The 80%-20% rule is almost a law of nature
“The 80%-20% rule is almost a law of nature”
It’s not almost, it is a law of nature. In fact it’s a power law. It even has an awesome name. Anything with the word power in it has to be bad ass.
Anyway it’s only going to become worse because more and more jobs will become scalable. Once that happens jobs become more competitive and everything will become a game of winners and losers, unless of course you hide in a corner someplace. Whether it’s good or bad I don’t know, but I’m willing to bet people are going to get pissed.
Yes, it’s a power law. I didn’t want to get technical.
I love this quote from Wikipedia’s Pareto Principle entry:
Because of the scale-invariant nature of the power law relationship, the relationship applies also to subsets of the income range. Even if we take the ten wealthiest individuals in the world, we see that the top three (Warren Buffett, Carlos Slim Helú, and Bill Gates) own as much as the next seven put together.[5]
People think it SHOULD happen, with the emphasis being on the should. People know that morally, intuitively, this is the right thing to do, the instinct for fair play exists for a reason. Why did mankind spend so many generations working it’s way into (and out of) some sensible balance between progress and equality? because it IS difficult to accept.
However, I don’t think people WANT it to happen. I can laugh at my own greedy little heart that tells me that I should WANT all the pie for myself.
I am not an academic and have nothing to back up these assertions with, but I hope that people are working on it, so at least I would know why I am wrong (if indeed I am).
Has anyone looked closely at what http://www.equalitytrust.org.uk have to say. I would be interested to hear more (ok, reasonably educated) opinions on their assertions.
i wonder how this would change with regarding to how certain groups have concepts of work. Like individuals who work in quantity of hours vs level of stress and demands. I’m in favor drawing my own “distribution” of wealth knowing how masochists view how much they should be earning.
Income range factors a kind of lifestyle, but I think stress/work level are also factors to be considered in how people think what is fair.
Hope more studies on this come up.
Who has the more stress?
a. the executive working 90 hour weeks to keep his employees working and profitable
b. the single mother with four children of school age and no education, income or community support.
Who earns most is obvious.
Which one works hardest? Which one has the most stress?
I don’t think we can know for sure. Ah, because prejudice is not knowledge.
We can attempt to infer answers from outcomes such as health issues linked to lifestyle (called ‘bad choices’ in lower status people, ‘stress’ in high status people).
Those who live a short and unpleasantly masochistic life should earn more? I can see the logic in that! But should it only be the people who ‘consciously’ choose the short and brutish life who are rewarded or everyone who has stress and health issues randomly allotted to them?
Unless you were suggesting people who live balanced, pleasant, harmonious lives should be the highest earners?
Good point Julie. Although I don’t think they have numbers for the single mother. Although, they do have statistics on work hours and work related stress. Using that, we can just use our own intuition regarding cases more difficult to call.
As for the view of masochists and happy people (balanced, pleasant, harmonious etc.) I want to know how what they’ll say. I think, if they have the resources or inclination to make such tests it would be a helpful point of reference but not exactly the standard for understanding how people view social equality.
Just to add a link to a BBC (UK) radio discussion outlining some of the debate (and problems) with the ideas in the link I mentioned in my above comment, for anyone who might be interested. People are looking at inequality in new ways, and this can’t be bad.
http://www.bbc.co.uk/iplayer/episode/b00v6lkp/Analysis_The_Spirit_Level_the_theory_of_everything/#
Ultimately, hwveoer, the most crucial tool for reducing the deficit is not cuts or taxation but growth. The economic case for drastically reducing the size of the state to stimulate growth simply has not been made;The point is that there are no choices at the moment until the deficit is radically reduced. The SLF like Labour also have to understand that there has been too much emphasis on rights and not responsibilities in the past 13 years. The only choice we have is to help those that cannot help themselves and bear down on those that can but won’t. Today a friend told me that he thought people should be given 25k in benefits as a right – he was a very well-paid ticket clerk for LUL on 32k! But it was all too `stressful` – about time these people woke up and smelt the coffee. Another who had just lost his job was told `for Housing Benefit look for a rented place up to 25000 a year!` Don’t know they’re born. Sorry it just seems that the SLF is too `cushy london based`. The people that seem to bearing the hardest burdens are the single renters working poor, the young and divorced men particularly in the North. They just shake their heads in despair when they hear how benefits can’t be reduced or radically changed.It’s time to get real – we need to think the unthinkable and do the unthinkable. You cannot grow your way out of this crisis – only reshape and change. We will have to tell those on middle incomes – no more child benefit after a certain point.
Prof. Ariely, you throw around “equitable” rather loosely for a word so loaded with morality. Where did you get the idea that equal is good?
Meh. It has a lot more to do with how people like you define “wealth distribution” vs. what actually is occurring in reality.
When Bill Gates puts a billion dollars in the bank, you say he has a billion dollars, and you put it on your little chart to show unfair life is.
But in reality, that billion dollars is being loaned out to millions of homeowners, car-owners, and small businesses. To their great benefit.
To say nothing of the $200 million check he cuts to charity. To you, that’s just another rich guy spending money. So unfair!
I don’t think the similarity between Kerry voters and Bush voters is as unusual as you seem to think it is. The main difference between progressives on one hand and conservatives and libertarians on the other is not the desirability of the outcome (a more equitable distribution of wealth) but the desirability of the means to achieve that outcome. As other commenters have pointed out, being anti-redistribution is not the same as being anti-equality.
This is, in fact, progressive fallacy #1: the assumption that it is self evidently true that the proper response to every injustice is government intervention. The resulting corollary is, of course, that those who oppose government action either don’t know (“Conservatives are ignorant.”) or don’t care (“Conservatives are evil.”) about the injustice in question.
“This is, in fact, progressive fallacy #1: the assumption that it is self evidently true that the proper response to every injustice is government intervention.”
Nonsense. Progressives do not believe this. They believe that government intervention is frequently needed, but not that it is the proper response to every situation.
You’d do well to avoid misstating the assumptions of others in your zeal to make a point.
I’m intrigued that, even among this obviously sharp audience (the commenters above), there is little curiosity about the mechanisms that concentrate our nation’s wealth and income in a few pockets, or doubt that those mechanisms are fair, logical, efficient or otherwise good.
130 years ago, a Philadelphia-born economist named Henry George wrote a book that remains the best-selling book yet on political economy — the science which deals with the natural laws governing the production and distribution of wealth and services. It sold about 6 million copies by 1900. Its title was “Progress and Poverty” and it sought to identify the reason why poverty increased with wealth and technological progress. George demonstrated to the satisfaction of many that the ownership of urban land and of natural resources brought to individuals and corporations an unearned income, and that we would be both wise and just to collect that unearned income as (my characterization) NATURAL PUBLIC REVENUE. Far better than redistributing income or wealth after the fact via annual taxes on wages or once-per-generation taxes on estates, however accumulated.
It seems to me that most large concentrations of wealth come from quite legally collecting and privatizing that which in a more justly organized society would be treated as public treasure.
I commend Progress and Poverty to your attention; it is online at http://www.progressandpoverty.org/ and http://www.henrygeorge.org/.
Alan Greenspan made an interesting comment in his memoires on this issue.
He said that there was always an aspect of doubt as to whether capitalism or socialism was the better method to organise a society. The question was answered, he said, when the Berlin Wall went down and Russia opened up – the world could see the devastation that lack of innovation and motivation to succeed had caused.
China is now learning the same thing – Maoism is slowly being replaced with a little Maoism and much more Reganism.
Darwin, almost got the right answer on evolution, according to Brian Hamilton, the second best biologist of all time. Natural selection is really all about the survival of genes, the fundamental currency of life and the purpose of all life. The question, therefore, is how to best organise society so that genes survive and adapt to the changing environment.
To answer this questions, humans have developed a system of co-operation at a macro level and competition amongst individuals for the best genes at a micro-level. How do you define the best genes? That is the colorful question that makes life interesting. Some think that fast cars signal that they have the best genes, some use big houses, some use Chanel No.5, some use intelligence, eye colour, zip-code, their choice of pricey wines, etc.
So macro co-operation, mixed with individual competition seems to answer your question. Like your head is conservative Republican and your heart is Social Democrat.
By the way, as the purpose of life is the continued success of genes, inheritance is not an abstract concept that should be spread around ad lib. It is a personal gift to the future you. It shouldn’t be taxed, that heavily, because you were already taxed once in a previous life when you fought hard to earn it.
Of course the “majority” of us are OK with wealth distribution on paper- after all that means the majority of us will be receiving an inheritance … right? Or does it mean I may have to give away something I already have? And after this wealth distribution is completed… will I be responsible to invest my “inheritance” or can I blow it on a great vacation…an expensive car…a housekeeper … oh I know Vegas Baby? Do I have to maintain my health so I don’t have to ask for more “wealth distribution” to pay for my healthcare when I can’t work (too much partying)? If the fact is I can get something for nothing and have no accountability or responsiblity for preserving it for the future…sure count me in!
One day I played with working out a little story about how a tribal leader, for instance, could work the wealth inequality scam. Here’s how it might work.
The group agrees that the leader gets to divvy up all the pies, where each pie is the worth one person’s work. (Assume 100 people produce 100 identical pies.) Each person appears before the leader to get a piece of one of those pies, and the leader says, “Okay, here’s how we’ll do it. Half for me and half for you. That’s fair, right?”
Well, I find this way of thinking about wealth very confusing. One of my first thoughts, as a relatively young person, was that wealth is negative for many, many people under the age of 40 because of college and professional school. If you buy a house you have the mortgage and the house, but if you go to med school you have loans but nothing tangible on the asset sie. So I don’t want wealth parity, I want wealth to increase over my lifetime. The way the questions are worded, one is tempted to assume lifetime-wealth or retirement-age-wealth or something. But even there – suppose I rent a nice house for my entire life and put my kids through private school and keep an emergency fund and insurance – meaning, what if I spend my income because there’s widespread financial stability? That sounds like a good thing to me. The things I care about are: opportunity for growth, stability, comparable wealth to peers, lots of creative, intelligent, ways to spend my time. I care about parks and museums and culture, which aren’t in the wealth equation because they’re not monetized.
Parks and museums and culture aren’t monetized? One pays more to live close to a park — one pays it to the former owner, one pays it to the mortgage lender for 30 years. One pays it to one’s landlord in the form of a higher rent on an apartment which would cost far less were it not near parks, museums, culture and all the other things which make urban living special, which, in your words provide “opportunity for growth,… lots of creative, intelligent ways to spend my time.”
Wasn’t it David Ricardo who said that “landlords grow rich in their sleep, without economizing …”
Where I’m headed with all this is that we have a machine which funnels wealth into the pockets of those who own our best land, and our natural resources. And then we wonder why the rest of us are scrambling for so much of our lives.
We could reform this system very simply and justly by following the suggestions associated with Henry George. I commend his ideas to your attention; there are plenty of websites where you can learn about his thought, including lvtfan.typepad.com, wealthandwant.com, cooperativeindividualism.org, henrygeorge.org, henrygeorgeschool.org, hgchicago.org, masongaffney.org — to name just a few.
We can grow the pie, and we can set things up so that the pie is shared more justly among us, rewarding labor and not rewarding speculation in necessary natural and community resources.
With all respect to LTV, I don’t think I agree with Mr. George. This is actually slightly related to the California initiative I’m voting on this weekend that says EVERYBODY in CA who drives a car needs to pay $18/yr to fund the State parks.
I’m kind of OK with that, but it seems unfair to people who don’t frequent the parks, doesn’t it? Why not just jack up the price and charge the people coming into the parks? I mean, I recently paid, what, $125 to park and get a family of 3 into frickin’ Legoland? And that was only because the family behind us gave us a coupon that saved us like $75? I mean, come on.
OK, having said all that, I’ll probably vote Yes on the $18 thingy because I think State parks are important, and we tithe 10% of our income anyway, so that’s a small drop in the bucket, but I still don’t think it’s a good *law* – I’d much prefer a rule that said something like $18 on new vehicles and cars valued over $10,000. (If your car is worth $600 and your DMV is $38, then $18 is really unreasonable. – Despite my current well-to-do-ness, that’s partly because I just finished driving a 19-yr-old Honda Accord until it dropped dead, at basically no annual cost whatsoever.)
LVT – I think you’re reading something deeper into my comment than exists. A society where 90% of the population works at subsistence farming from age 5 to death would look very equitable in terms of wealth distribution because nobody has any. Whether or not parks are monetized within society, they don’t show up on the wealth distribution system in the given equation.
RG, much depends on who owns the land on which they farm. If they must pay rent to a landlord, he is likely to be rich from what he collects from them.
If instead the land rent goes to the community, and is used to fund basic services — clean water, perhaps, or other kinds of infrastructure — all will be better off. Presumably with subsistence farming they are not paying income taxes.
See the interesting commentary on this at the blog Backreaction on wealth.
Blog name is just “Backreaction” & have included my own in name link.
Is this truly wealth and not income?
What is the income distribution?
Are children etc. excluded?
In fact, I think the bottom quintile should show a very substantial negative amount of wealth unless debts are excluded. These charts need quite a bit of explanation, I think.
i concur with jg. can you explain how the charts are made and where the data come from (on real wealth distribution, the rest obviously comes from your study)
I would love to know how people would respond to the follow-up question, “What would you be willing to do to make your preferred wealth distribution a reality? Would you be willing to give up some of your wealth?” My guess is that people would underestimate their “rank” in terms of wealth (that is, they would assume they are not as close to the top as they really are). I also suspect that even though people want in theory for there to be a more equal distribution of wealth, they are probably not willing to give anything up personally to see that happen.
As long as we’re employed, we happily give up 10% of take-home. We call it tithing.
Isn’t a tithe suppose to be 10% of gross, not take-home(net)?
That’s one point of view – I was telling you what we actually try to do. It’s much harder to give away 10% of the money you don’t have, and the bulk of the difference between gross and net is just tithing in a different form of wealth redistribution.
Re American inequality
My hypothesis (as I am from New Zealand) is that America is following similar policies to that in NZ – a major difference though is that while NZ discriminates on the grounds of social status at birth (see UK social class discrimination) the US discriminates re socio-economic status (wealth) but the latter has its origins not in the Corporations but rather the bureaucracy. NZ, the US and many other States are ‘going nowhere’ – ‘freedom and democracy’ is now going in reverse as more countries are becoming authoritarian. Who is going to take risks when countries are going nowhere and in fact there seems to be increasing internal conflict. There are a number in the establishment who know what the problem is but are too afraid to ‘speak out’ about it. While I can only be specific re NZ I think many States have a similar problem. Essentially, NZ’s problem is that there are many human rights omissions in our human rights law (the source is the global elites at the UN who design these instruments) – so it is not just our fault – but it highly favors the countries ‘sacred cows’ and for obvious reasons people do not want to discuss it. Much can be found in my book, ‘Freedom from our social prisons: the rise of economic, social and cultural rights’, Lexington Books, which is on the UN portal website despite my harsh criticism of the UN. I think the US should look at what is happening to small/med business (see the American Small Business League website and how federal contracts are been diverted to big business on a massive scale). In NZ I am promoting a radical, ideas-driven bottom-up development (an entrepreneurial/ethical human rights culture) which is part of the ethical approach I take to human rights, development and globalization but because it really shakes the status quo and people will only face the truth as a last possible resort they simply do not want to know – its far too unsafe. But this is very short, sighted better to go through the suffering of facing the truth and making changes than having it forced on us very likely after enormous people damage. I am Anthony Ravlich, Chairperson of the Human Rights Council Inc (New Zealand) ph: (0064) (09) 940 9658. And remember, the truth will set you free as long as you are not too afraid to be free and so too afraid of the truth.
Further to my contribution above re US inequality. In an article, I am writing about what happened to New Zealand over the past 20 years – it was based, in my view, on a simple idea that ‘the collective is everything and the individual nothing’. Human rights omissions, see different forms of discrimination above, reduced the individual to nothing – the major objective being to crush individual potential (including the inner being) that is how the collective becomes everything. Have a look at the videos on the internet – Collectivism: sons of darkness and sons of light – which will show those with little human rights knowledge that individuals are not mere products of their environment but much much more – in fact if they were ‘nothing’ there will be no radically new ideas only ideas which prop up the status quo would be permitted. New Zealand fell into this trap of mediocrity – only the truth about the human rights omissions coming out and a freak major earthquake in Christchurch (no one killed) which together with massive rebuilding re ‘leaky homes’ (not surprisingly due to lowering standards of individual excellence) has saved it for the time being i.e. individualism and a expanded ‘bottom-up’ private sector is again wanted. But part of the problem was originally, in my view, also individualism itself. This was seen by Franklin Roosevelt, a great American President in my book. He faced up to the truth of social class and recognized if everyone was going to get a ‘fair go’ (those on the bottom would have paltry opportunities and access to liberal rights – there had to be limits to unequal rights) that a wider ‘duty to the community’ was necessary i.e. his second bill of rights for America (containing economic, social and cultural rights). The latter was necessary to ensure that the policies he implemented – which lifted the lid suppressing creativity allowing America to flourish – would always protect those at the bottom – not just help them but allow them also to help themselves (their right to development – to follow their dreams and use the talents). We are all at different stages of development in life sometimes we need help but usually, if not seriously damaged, prefer the dignity of helping ourselves. What is not needed is discrimination which crushes us into a prolonged dependency. (While a bit outside of my field, I suspect it is this discriminatory collectivism which is also hated by religious terrorists concerned about the inner being and hence their jihad or holy war. Although, in my experience, the truth will set us free but human rights are at least listened to covertly in our very fearful societies). I have had a look and it does not surprise me to find that US federal, state, employment law and human rights acts have omitted non-discrimination on the grounds of social origin which in America’s case would permit discrimination on the grounds of socio-economic status (or according to socio-economic classes which are not officially recognized as existing). And the latter, I strongly suspect in the US as in NZ, it is a bureaucratically driven and supported by government i.e. in my view, the status seekers rather the wealth seekers hold sway . The extreme focus on money suggests to me you may be taking human rights for granted – am I right? By failing to face the truth the discriminatory collectivism slowly takes over the country almost invisibly. In my view, the Christchurch earthquake was one of life’s miracles – better being on the right track than a track which leads to a nation in darkness – even if it does cost a lot of money, needlessly of course because all the rights should had been included in the first place. I recently thought of one of William Shakespeare’s quotes – ‘There are more things in heaven and earth, Horatio, Than are dreamt of in your philosophy’. I hope you have a miracle.
Hi Peter,Thanks for the rvieew! Sounds as if I should give it a read (when I’m through with the ten books I’m currently reading that is). I’ve tried the Cosmic Landscape, but lost interest halfways and didn’t like the writing style either, so never finished it (though I probably read the epilogue if there was one). Since you mention the urinal in Pupin, I’ve always wondered what a women in science misses just by using a different restroom (Otoh, I worked at an institute where the Prof used to distribute duties while the men’s restroom, as a result several of the guys started using the women’s restroom, no kidding.) Best,B. PS: Do we know it’s really Susskind’s blog (or attempt thereof)? I mean, everybody could download a photo and sign with whatever.
I found a great article on the debate over maintaining the Tax Cuts for the Top 2% of wage-earners that seems germane to the wealth thread:
http://www.taxpolicycenter.org/uploadedpdf/1001438-tax-cuts-debate.pdf
Just want to comment on what a great reply thread this has been. Really informative and CIVIL. It’s great reading different points of view without them devolving into personal attacks.
As I read the article, I don’t see that the respondents were presented with the Rawls thought experiment, which might indeed skew their opinions — contra some of the comments above.
(Obviously, in the abstract, if we were put in the position described in the thought experiment, we would all prefer a relatively even distribution of wealth here in the US. And if the thought experiment might place the subject individual in any country of the world, imagine the implications — we would suddenly want to have more-equal income in India, too.)
But, I don’t believe that was what was presented to respondents. They were simply asked to guess how wealth is distributed in the US. They grossly underestimated the level of inequality. Thus the obvious conclusion is that Americans tolerate current inequality because they are ignorant of its true dimensions. A pretty straightforward conclusion.
Also quite interesting, when they were asked to pick an “ideal” level of inequality they did not choose “none” — the “What if we gave everyone $150,000 exactly, you damned Marxist” straw man, above. They saw the need or desirability (or at least inevitability) of some inequality.
True, a quick look at the data suggests respondents were advocating far lower disparities than we’ve had in our lifetimes — so, the realists will scoff at the naivete and impracticality of the suggested distribution.
Conversely, respondents also agreed — broadly, and across political party — that there should be SOME inequality. Perhaps they recognize that inequality is necessary to provide incentive to do harder jobs, to work harder in one’s job, to innovate, to work smarter, and so on.
But, in the end, those survey respondents seem to be saying: NO country needs to be THIS unequal.
I agree. Perfect equality is not good. Perfect inequality is not either. Now that we’ve agreed on that, we’re just haggling about where to set the break points. My answer is: Not where they are now, that’s for damned sure.
To whom it may ceorncn,I realize that this is a bold question but I dare ask it anyway: do we have any objective evidence from astrophysical observations that Black Holes follow the principles of Quantum Mechanics? If not, what entitles both Hawking and Susskind to start from the fundamental assumption that the physics of Black Holes can be described in a quantum framework dominated by locality and unitarity?
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“Valentine Lindsay” appears to be a spammer. His comment adds absolutely nothing to the discussion.
Dan: Are you using WordPress.com for this? They have a very neat spam filter that’s quite effective. (Akismet).
Similarly, Americans typically over-estimate the percentage of foreign aid.
Yes, you’re right about foreign aid – here’s a page with a familiar looking graph from The Washington Post:
http://voices.washingtonpost.com/ezra-klein/2010/12/american_misperceptions_of_for.html
Of all the preposterous assumptions of humanity nothing exceeds the criticizems made of the habits of the poor by the well housed, well wormed, and well fed.