Wealth Inequality in Motion.
I recently came across this video that some talented person made of a study I conducted on wealth inequality a few years back with Mike Norton. It does a great job covering the main findings regarding the differences between what Americans think the distribution of wealth is (somewhat even), what they would prefer (more even than socialist Sweden), and how wealth is actually distributed (the bottom 40% of Americans possessing less than 0.3% of total wealth, the top 20% possessing 84%). The graphs, and a longer explanation, are also available here.
The only thing I wish he emphasized a little more is how similar the results were for Democrats and Republicans, which I found very hopeful. Even with all the ideological polarization in Washington, the moment we ask the question of ideal wealth distribution in a general and less self-interested way, we seem to be a country that cares a lot about each other.
The Honest Truth About Dishonesty: How We Lie to Everyone - Especially Ourselves
Professor Ariely, Would you be able to breakdown the perceptions of American income distribution based on the wealth of the responders as well? Do people who are in the top percentiles of wealth vary significantly from the those in the lower percentiles?
The other question I would want to answer is about people’s perception of socio-economic mobility vs. the actual frequency and degree to which people move up or down the ladder.
While I think this is an interesting presentation, I fault it on two main points. First is the conflation of income and wealth. They are two separate, although related, phenomena. As well,l there is no historic perspective. How does this relate to the concentration of wealth a decade, two decades, a century ago?
Given Americans ignorance in something as plainly obvious and relatively unchanging as geography, ignorance of something as subtle and hard to measure as distribution of wealth or income is completely unsurprising.
In a partial response to James’ query, there is substantial evidence that individuals move in and out of poverty while the probable perception is that people are doomed to poverty once they achieve this status. I would suggest it is much more likely to achieve wealth and lose it. The rule of thumb with family business owners is shirtsleeves-to-shirtsleeves in 3 generations: Generation 1 makes the wealth, Generation 2 enjoys it, and Generation 3 is back to where Generation 1 started.
Check the OECD website here: http://www.oecd.org/ for all the unbiased stats and graphs you can eat. This isn’t Mother Jones. The bottom line is that among developed countries, contrary to the standard mythology income inequality goes inversely to social mobility. And the US has one of the most unequal distributions of income and is near the bottom on social mobility.
William,
You make an interesting points, but I would somewhat re-write your generation 1, generation 2, generation 3 scenario. generation 1 made the wealth, generation 2 enjoyed the wealth, and generation 3 used up the wealth then realized that the business climate, economic climate and social climate will not let him/her repeat the process. The process was time sensitive but no one realized it until it was too late. Then the government (Democrats and Republicans alike) made sure the process could not be repeated, since they were busy draining the cash register through a serious of laws and payoffs to special interest groups, and to those who never were part of generation 1 (i.e. welfare/social program recipients/no income). Why someone (not you) would ask would they do that? because they realized (starting with JFK) the power in poverty and the usefulness of government dependence.
William, would you be kind enough to cite the sources regarding the evidence of social mobility. I’d like to review the studies.
Giood question, James. It asks the question of what perceptions in general prople in the 1 % have, of life in general.
William, your comments lead to asl for a chart to compare wealth wit happiness. What would that give, and how would that vary before and after seeing this chart
Dan, thanks for sharing the video. My first thought was … so what can we do about it? It turns out a lot of the data came from an article written in Mother Jones:
http://www.motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph
One interesting note. I started thinking that Congress might be a good place to start, but from the chart in the Mother Jones article, it appears that Congress is severely tied to the interests of the top 1%.
It certainly looks like the odds are stacked against ‘the little people’. Still, America is one of the places with the most opportunity, so … is there a way to fix this? Is it a problem we can even fix?
Oh how we love economics. Solution, I really liked your comments and question especially. Congress appears to be tied to the 1% according to Mother Jones. Yet it is the 1% congress attacks using citizens behaviors for writing the tax code. Meaning congress is really severely tied to the bottom 50% . They basically pay nothing in taxes yet use 95% of Government services. The 1% may get capital gains tax breaks but the rest of us get Earned Icome Tax credit, propert tax credits, and hundreds of others we can use to reduce our tax burden to get a reund from the feds. Since we like to use groups and ethnic backrounds to segregate economics, which “group” do you think is larger in America? The “1%” or the “99%” ? Now if you were a politician which “group” would you like to help more ? Who is going to help you get elected as a politician ? Someone who is a CEO running a fortune 500 global company, or a “group” on welfare depending on government check on the 1st and 15th of every month? Which group do you want to brainwash using class warfare? I don’t care what mother jones graph says, common damn sense shows the human element graph and power hungary politicians manipulating the poor while taxing American jobs out of America, creating more “groups” needing welfare or unemplyment or social security or disability . It’s time we come out of our trance America. Look around, your neighbors are home too during the day.
Hi Dan, Thanks for sharing the history behind this. I saw it a couple of days ago and thought it was really compelling until I saw the sources cited at the end, and right or wrong, when I saw Mother Jones I immediately questions whether this was presented in an unbiased way (until that point, I was hoping yes, per reasons you state). So your comment rings true to me about presentation. Second, I was wondering if there are correlations to other periods in our economic history when disruption of distribution channels and work forces caused similar disparities, only to be equalized by time and other events. The Industrial Revolution period seems plausible to me. A small group of industrial titans got very wealthy while the rest of the work force struggled to shift from agrarian/handmade one-of-a-kind marketplace to the mass-produced industrial model that completely changed the landscape of our country and world. Since we are living in the Technology Revolution right now, with many jobs becoming obsolete overnight and the work force having difficulty reinventing quickly enough to catch up…and yes, a small number are becoming fabulously wealthy. Is this theory plausible?
Reblogged this on In the Life of a Fickle Intern and commented:
Kind of crazy. Thanks for sharing.
As I read the academic paper, survey respondents were asked to suppose they would be randomly assigned to a wealth quintile in an imaginary country. The respondent was NOT asked which would be a better society. If the respondent simply considers that there are diminishing returns (satisfaction) to increased wealth levels, then the way to maximize your expected satisfaction is to pick the least unequal distribution. Or did I miss something?
The respondent does not have to accept the idea that satisfaction is maximized the way you suggest. The respondent can make assumptions about the extent to which inequality might make the overall wealth of the society larger. It would be better to be in the bottom quintile of a very wealthy society than the top quintile of an impoverished one. In choosing an assignment, the respondent is choosing a random assignment to a society whose total wealth is not randomly determined.
There are a few glaring errors in the video. I’ll comment on one of them:
Towards the end it asks if CEO’s work 380x times harder than their average employee. Does the video creator really think that pay should be based on how “hard” someone works? That is certainly the layman’s intuition but what is the economically literate answer? How would you determine how “hard” something is in order to determine the pay it “deserves?” Different things are hard in varying amounts to different people. Who would determine this? Basing pay on how “hard” a job is would be disastrous as it would be pretty divorced from supply and demand which even liberal economists know is necessary for rational allocation of resources.
It was very apparent that the video creator has no education in economics.
I agree that working hard isn’t what’s relevant. What matters is the bang for the buck. So compare the 380x gap between CEOs and average workers in the US with the 12x gap in Germany and the 11x gap in Japan. Are American firms 32 times more innovative and productive than those in Germany, and 35 times more than those in Japan? Are Americans 32 to 35 times better off than Germans and Japanese?
Where there are markets, there is always the possibility of market failure.
H.E. – I’m not an economist nor highly educated in the nuances; however, you nailed it and managed to illustrate my thoughts exactly. What makes US CEO’s worthy of such outlandish salaries? Frankly, I don’t care that there’s a minute portion of uber rich Americans holding the most money – what I care about is exactly what you stated – innovation and productivity. Sure, a CEO making $10 MM annually may keep raising the company value YOY, but that doesn’t mean they’re killin’ it either. Also, if there was less disparity between CEO’s and the average worker, wouldn’t the perceived distribution and the reality begin to edge towards the ideal as a natural course?
@H.E. Baber: Are Germans and Japanese 32 to 35 times more innovative, productive and better off than Americans? That would support your implied argument that smaller gaps between CEOs and average workers improves performance and society in general.
The larger issue for me isn’t really how much CEOs are paid… but if the CEOs aren’t delivering solid ROI on their comp, then it’s a failure of leadership and accountability on the board. Let’s start looking there.
@Kevbot, I didn’t claim–even implicitly–that smaller gaps would improve performance. I suggested that the size of the pay gap between CEOs and average workers didn’t improve performance and so wasn’t warranted. We’re paying for this inequality–not just we Americans in general, but we stockholders.
What would the entire data set look like if we just took out the 400 or so individuals who skew the results so thoroughly at the top? Meaning, if we simply looked at everyone else, with this same video, would it provide a more unifying message (rather than dividing one)?
Well, that question sounds a lot like the person who said, “if you exclude Three Mile Island and Chernobyl, nuclear power has an excellent safety record.” What is your justification for taking those 400 out of the data?
mbelvadi2 asked for my justification on removing the extreme top 400, or so, people at the very top, then redoing the entire video. My thought is that the graph would look far more (although not really close) to peoples expectations if we removed those incredibly rich (likely mostly billionaire, or close).
It is also unlike that the majority of that top group are CEOs of anything. Many may have been at one point, but very few current CEOs are billionaires.
Lastly, I think it is a mistake to try and clump CEOs and the elite-super-mega-rich into the same category, or even part of the same issue. Yes, CEOs make a ton. But, they are not the top of the top that creates the disparity shown on those charts.
A separate discussion about CEO pay and its incredible growth (and the true cause of that growth) is needed.
http://www.compensationcafe.com/2013/03/is-disclosure-good-or-bad-for-executive-compensation.html
http://blogs.payscale.com/compensation/2013/02/the-seven-deadly-sins-of-executive-compensation.html
It was a representative sample. Why on Earth do you not want a representative sample?
This is great! How can I post this on FaceBook for friends to see? And on Pinterest? Thanks, Sonya
The results of the study are interesting. I am skeptical you would get similar results of a desire of a more equal distribution of wealth if you were to “personalize” the line of questioning rather than ask people about their preferences based on groups of people or the population as a whole. It’s too easy for respondents to be ideological. I think it’s contradictory of studies that show people would prefer a) to receive $500,000 and everybody else gets $100,000 rather than b) everybody receiving $1,000,000.
So what’s the solution? More media demonization of the wealthiest individuals? More taxes on the rich? More government spending on the poor? Not making this statement as a liberal or conservative. Just would love to hear smart people talk about how to solve this.
My two cents: there is an easy answer. National Service Corps. Pass a law mandating that every US citizen spend 2 years in a service corps that serves various functions community functions, infrastructure building, civic learning, etc. Put every citizen, rich or poor, together working toward a common goal, and wealth inequality will solve itself rapidly.
So many added social and economic benefits, I would need 1,000 words to give a primer.
>>My two cents: there is an easy answer. National Service Corps. Pass a law mandating that every US citizen spend 2 years in a service corps that serves various functions community functions..<<
I see this as a liberal-socialist, even communist agenda. Put all people in a concentration camps for 2 years, and forget about liberties and freedoms we have in this country.
In my opinion, the question about what kind of wealth distribution is better, have a problem of social desirability, specialy for Republicans. Maybe thats explain why they results are so similars.
I think the ideological polarization is greatly exaggerated. There is the proverbial dime’s worth of difference between the 2 parties. The great divide has been and continues to be wealth.
The American wealth distribution is not perfect, but it is the best we’ve got so far. You might not realize if you force to cut the wealth of top 5%, the bottom 40% will suffer. European socialism = stagnation, and the other socialist systems in the world are simply utopias.
We do not need to do anything to change this system, no matter how jealous of the wealth of the top 20%. It is working just fine.
Just fine is not american. The top 5% understand that.
Why limit ourselves to redistributing wealth for more equitable distribution? Instead let’s redistribute opportunities in order to spread wealth creation. Allow athletes to play professionally for only one year. Allow musicians to record and sell only one album. Only one movie per actor, director or producer. Only one book per author. Enforce one year CEO, investment banker, politician term limits. Give entrepreneurs one shot. Doctors might need to be allowed to practice medicine for up to five years to help pay off that student debt. It might sound extreme but this approach would provide so many opportunities to the millions of hopeful artists and professionals that are being held back today. And think of how much more productive, efficient, innovative and caring organizations, companies, industries and society in general would become!
allow doctors and teachers to only practice their profession for one year as well. so what if everyone is an amateur at everything at least we all get to start a new career every 12 months. we’ll never get bored. that would be prosperous. specialization is the most efficient way to ensure the best people are working in the environments where they can contribute all of their experience and knowledge. If athletes and teachers made the same amount of money you might see test scores go up instead of the US dominating in the olympics every year. if you want to fix education give our nations brightest some insentive to educate.
Reblogged this on AaronInvestigates and commented:
I am no socialist, but this goes back to the idea of taxing wealth, not income. The video is well worth a look.
I re-blogged this, and want to preface my remarks by clearly stating that I: am no socialist, but the somewhat knee jerk reactions by some against any solutions regarding how to best address the problem of inequitable wealth distribution are, in my view, a bit disheartening.
There comes a time when wealth simply generates more wealth and has nothing to do with those who have it working harder, smarter, or even working at all.
I agree. Although you have classified yourself as a conservative I feel as though you haven’t allowed that to relieve you of your responsibility to this country to think rationally and compassionately about these issues. Not to say being conservative means your not compassionate. It’s to say that some people, both liberal and conservative sacrifice their beliefs to conform to the ideal agenda of their side. I can understand the benefits of raising an army of somewhat like minded people. It ensures popularity and popularity wins elections. winning an election seldom solves any problems. I am glad you understand this and continue to think for yourself. Thank you.
And thank you,
Let’s just say I believe in equal opportunity as well as passing on what you have to the next generation. It’s a fine line to draw, but when the possession of great wealth becomes the sole determining factor in who gets a say we have gone too far.
To non-amercians there is no real difference between Democrats and Republicans. We thankful he didn’t waste time trying to prove it.
There seems to be a disconcerting unquestioned equivocation here that what most people think is a “fair”/”ideal” society is what would make a “fair”/”ideal” society.
We know from similar surveys on crime and punishment, that most peoples views on crime are wildly unrealistic (i.e. most people think crime is worse than ever, or at least worse than their parents generation even though its much better), and their ideas on what would improve the situation are similarly ungrounded in reality (i.e. most people say longer/harsher prison terms, bringing in capital punishment as a deterrent etc).
In reality most evidence shows that more humane, less draconian approach towards crime and punishment leads to lower recidivism rates, costs less overall and leads to a better society for all.
However our instincts tell us to be cruel and stern to try and reduce crime even though its the opposite of what works.
There are countless examples where what is intuitively the right answer turns out to be entirely wrong (see: war on drugs).
The obvious corollary here is those nations through history that have sought to make radical redistributions in wealth have
No, this isn’t to say that any attempt to redistribute wealth will end up in a disastrous soviet-style state.
It’s to say that our unexamined intuition about things often leads us a stray, and without substantial evidential backing, we should not make what most people feel is an “ideal” distribution of wealth any kind of goal.
Surely Mr Ariely, your own work on things like the Ultimatum game shows that what people feel is “fair”, and what is actually good for them are often polar opposites.
The problem isn’t tax policy (although that can be a short term ‘fix’), the problem is the middle class in America has been gutted, mostly because unions have been eviscerated by various policies over the past 10 years. That’s your middle class. Who benefits? Big business of course. Factory and Land Owners.
PS. Your theories on ‘crime’ are fascinating: in modern European countries and places like Japan/Korea, crime rates are very low, in part because they’ve eradicated the ‘desperate’ society that stems from poverty. In places where the income gap is much larger, and no strong middle class is established, the crime rates are higher. Makes perfect sense. We spend all this time talking about ‘incentivizing people to work’, and here we are, incentivizing crime by putting people together who have such an incredible disparity in income.
If strong unions kept the middle class healthy, surely Portugal, Greece and Spain would be doing well for themselves. Or at least not having some of the worst unemployment/economic problems in Europe.
Countries in europe with the more liberal labour laws (liberal as in classically liberal), such as Switzerland, Denmark, UK have much better by comparison, in spite of having much weaker unions and labor laws.
Of course correlation does not equal causation, and while there are countries with strong labor laws that have done badly like Portugal and Greece, there are nations with equally strong labor laws like Norway and Germany that have done well for themselves (at least as well as any western economy is doing these days).
All this is to say that the economic health of a nation is cleary a more complicated affair than whether it has unions or not. Economic cause and effect cannot be sourced to a single factor when there are thousands of government policies and regulations that have an effect on a nations economy.
The idea that strong unions are what protect peoples standards of living is a satisfyingly straightforward narrative, much like the straightforward narrative about the solution to crime being harsher punishments, but in reality its a much more complex system where its much harder to unpick cause and effect.
Standards of living come from more than state mandates, otherwise nowhere would there be a standard of living higher than what was legally mandated. Unions cannot simply command higher standards of living without a cost to anyone. The cost is usually to non-unionized labor, business (in the form of higher wage costs), and consumers (in the form of higher product cost).
I am from L.A. I remember my Dad taking me to restaurants like that. There was a name for them. I’m 59 years old now. I’d play the 45 RPM music on a mini juke box, chomp on a burger and fries, and a soda or malt. It had to be a burger and fries. We were not very healthy back then. Perhaps I will die having swallowed a horse of course.
In America unions are for Blue Collar workers to bring their salaries in line with White Collar workers. Blue Collar workers are laborers where White Collar workers are not and in general well educated. Blue Collar worker don’t mix well with White Collar workers.
I’ve had more problems with Blue Collar workers after being downsized. A bus driver had a bigger house than I did. My whole being intimidates them. I was a corporate exec computer programmer who had to travel across the U.S. That really changed me. Most people do not leave home.
Not enough people really know what the Economic implications of GINI Coefficients are. Recently the Chinese government bragged that their GINI was about the same as America’s. The locals balked. And the government has been known to spew BS. But when you look at these numbers… what do you think is more likely: the Chinese are rapidly developing into a modern economy, or the US is rapidly becoming a developing nation.
Don’t get me wrong: I’m well aware that the US’s GDP/capita and Education rates are way way too high for it to be considered a developing country. But just because Bill Gates is eating at the same restaurant as you, or spending a night at the same hotel as you, doesn’t necessarily make you better off. You can’t considered yourself a developed country with such a whacked out GINI coefficient. That’s why I suspect China is plodding along (with their own ridiculously out of proportion wealth curve) and the US is steadily getting more disproportionate. It’s inevitable that their lines will intersect.
And yes, this has a lot to do with deregulation of markets. And yes, China’s own wealth curve will ‘level off’ after the real estate bubble pops.
Reblogged this on INCISITY and commented:
Beautiful, disturbing wonderfully executed. Edward Tufte would be intimidated.
We need less government. I work in Massachusetts where the average white collar State worker takes home over six figures on average. Their pension, medical and early retirement packages allow for double and triple dipping. What is bankrupting America has nothing to do with the private sector and more to do with the public sector taking more that their share of goods and services. Providing very little to the economic health of the nation. America is too conflated with police agencies and law enforcement, government redundancy and an overlap in services. There are way too many lawyers and prisons. They have turned the legal system into a money making propisition, having less to do with law enforcement and more to do with the business of the Court System.
What I would really want to know now is what the members of the U.S. Senate think and what does the top 1% think.
Who says Sweden is socialist? Sharing the wealth by tax system does not mean socialism. Perhaps look to recent history of Soviet Union, DDR or China would give an idea what socialist mean, what is the evil nature of it and what were / are principles of it. Just compare those countries to Sweden, Finland, Denmark or other high tax-rate countries and you may get something to think. It’s not question of what you pay, it’s question of what you get with it.
In american culture some may find the word tax to carry certain connotations. As demonstrated by recent political endeavors there is a clear line in the sand. Let’s assume taxing is not an option because the issue has been a stalemate for decades if not longer. rather than change taxes why not change wages? they are the root of the problem and there in lies the solution. Raise wages on the bottom( i.e. minimum wage, which our government dictates) and we will see a healthy distribution of wealth. We can’t steal from those who have earned their wealth. That’s deemed un-american. We can however revise rules to allow for equality. Equality is what this nation is built on.
I may have mixed words wealth and welfare, neither of them connected really to socialism. I understand that tax may carry connotation to S-word but that is mostly unjustified – the tax-rate in former Soviet Union and other similar dictatorships has been low. It is one way to see that taking tax from those who have earned it is stealing but what happens if you ask the next question: do their children earn what they will inherit? I am not saying that they should not inherit but this is just luck by birth, not hard-work-american dream. The problem is that polarizing the society with high and low income extremes wastes human resources: the intelligence does not depend on the wealth of your parents but in the polarized system wealth of one’s parents determine strongly the education one can achieve. If taxes (considering taxes are collected) are used wisely (not to say this happens), wealth can be turned to welfare with relatively low personal sacrifices. Perhaps it would be good idea to compare where are happiest people in the world and see also the tax rates there (http://www.huffingtonpost.com/2012/04/06/world-happiness-report-2012_n_1408787.html). When you are dead, you do not need pockets.
Prof Ariely, do you know if this video is really depicting wealth, or whether it depicts annual income? I suspect the latter.
Also, it mentions a decrease in the last 30 years for some lower quintiles, is that a decrease of percentage or absolute income? Both should be looked at and the absolute income should factor non-wage benefits which workers typically receive.
Finally, as society scales there are some opportunities to do massive good providing goods and services. Does Apple no deserve what its customers decide to pay it, and does Steve Jobs not deserve what the owners of Apple decide to pay him in return?
It seems to me that how wealth is acquired matters and there is a distinction between commerce and cronysim. How much of the change in distribution is to due the increase in federal spending and regulation? Bankers in particular come to mind for their privileged status derived from government decree and the government-organized cartel around the central bank.
I suspect that political efforts to affect the distribution of income will have the opposite of the desired effect as the well-connected benefit disproportionately from political power.
Regarding what people want for the country, I am sympathetic but also skeptical because people are known to have many uneducated biases: anti-foreign bias, make-work bias, pessimism bias and anti-market bias as Bryan Caplan identifies, and I’m sure Prof Ariely can name a few more. If we trusted such instincts, we’d ban foreign trade, discard machinery, and have central planning. Only problem is we’d all be terribly poor as a result.
Btw, I enjoyed this debate on this topic (is there too much inequality in America?): http://www.youtube.com/watch?v=p047te7AWzY
In an unrelated note, you may find this article about the Conscience Fund interesting: http://www.futilitycloset.com/2013/02/16/the-conscience-fund/
The video is based on a lie, namely that CEOs earn 380 times the average worker’s pay. It is more like 7X. The US BLS says the average CEO earns about $360,000 per year. The phony statements in the video are based only on Fortune 500 CEOs, a small proportion of the total.
imagine your pay was cut over 85% now tell me its fair to make 1/7 of what someone else makes and that its even possible for two human beings in a country that claim all are created equal to have such polarized salaries. don’t tax the rich. just allow the poor to have a decent wage and the market will dictate what happens to the wealth of our nations richest.
Wealth inequality per se is not a bad thing. Assuming that the wealthy came by their wealth honestly, that everyone enjoys equal protection under the law, and that there is an adequate safety net for those who are poor through no fault of their own, wealth inequality is not a problem at all, and it’s really nobody’s business how much money anyone else has. In the United States we have inequality because we have freedom, and the only way to achieve equality of outcome is by taking away individual freedom — as is well illustrated by many of the comments above that recommend just that. People need to understand that you can have freedom, or you can have equality, but you can’t have both. You need to decide which is more important to you, and which you are willing to sacrifice for the sake of the other.
I agree. Nobody needs to steal from the rich to give to the needy. we have the power to give to needy just by letting the free market dictate where money will go. simply triple or quadruple the minimum wage. this may seem radical but imagine someone who makes 8 dollars an hour suddenly making 24 an hour. thats a decent wage. and people who make 20 an hour also get a four dollar raise. now the owner of the company has to pay a lot more in payroll but if he needs those people to run his business then it is something that is imperative. and when minimum wage is up more people will buy more things which will lead to more business for the owner. of course a lot of people will be making minimum wage but the scale will not be so polarized. It is mathematically proven this will level the wealth distribution but still leave hope that if you do well enough you can make a little more than most people even though we may not have any billionaires. thats free market wealth distribution equality. those who can’t afford to pay those on whom they depend will not afford to do business. no more human labor exploitation and no more unfair taxing. why make billionaires pay for welfare they don’t use when they can pay for employees they do use.
“simply triple or quadruple the minimum wage”
Oftentimes, supporters of the minimum wage shy away from such dramatic raises. Finally an open and honest statement.
But making such a proposal takes away the cover (harm caused by raises in minimum wage is small), because there is absolutely no doubt that a 30$ minimum wage will simply cause highly visible unemployment. The fallacy and absurdity of the minimum wage is inescapable at such levels.
The most hit populations will be low-productivity workers (who do not warrant such a wage). In practice, this means the young and minorities. They will simply not be hired, which hardly leaves them better off.
Countries with higher minimum wage already display such persistent unemployment on such people, if you do not believe econ 101 theory.
I am amazed how you suggest “free-market distribution” and “quadruple the minimum wage” in the same stroke. Those two concepts are antithetic. The free-market is the system of private property and voluntary exchange, but the minimum wage is the use of coercion to limit voluntary exchange.
How do you define “honestly?” It was legal for the investment industry to set up investments (hedgefunds, real estate package deals) which benefited the top 5% and duped everyone else during the housing debacle. Is it honest that only 5-10% of the population really understands how to truly gain and keep wealth? There is a balance between living with freedoms and certain (democratic and fair) rules & regulations to keep those freedoms. Would you play basketball or soccer if the referee was consulting with a couple of his home-team players to redefine the rules however they’d like before each game? And not let anyone else know what the exact new rules are? Is this really freedom or cheating from a position of power?
I favor a level playing field, so obviously I oppose crony capitalism. Government is far too big and far too powerful, which is why it is in a position to dole out favorable treatment to its special friends (also known as campaign donors). In a free and fair society, where there is truly equal protection under the law, there will always be large differences in income and wealth. Human beings vary greatly in their talents, abilities, ambitions, desires, energy levels, capacity for hard work, where they fall on the frugality/profligacy scale, and a thousand other variables. Income inequality is not a bad thing. What is bad is government interference that renders the playing field less level, and the curtailing of individual freedoms in a misguided effort to ensure equality of outcome.
PLEASE! Freedom vs. equality is not the way to look at it. The freedom that matters is feasibility–having options.
Money gives us options. The issue isn’t equality but bargaining chips: having the chips to buy those options and that’s something that most of us don’t have. Freedom is having options and, de facto, that’s something that most of us, particular those of us who are women, don’t have.
Personally I’ve never had the slightest interest in getting to the top of the corporate ladder. I just want to avoid having to do clerical work, service work or teaching because I can’t stand that kind of work; I want to have a crack at jobs where I don’t have to dress up, where I don’t have to do people contact or caring. I’m happy to exert physical energy–I want that kind of job. I don’t mind physical exertion–and I can do it. But women de facto can’t get those jobs.
It’s women’s work that constrains, that undermines freedom. You’re a supermarket checker, confined to a 2 X 2 space. You’re a data-entry operator, stuck behind a terminal, keying in data all day with only a few minutes of down time allowed morning an evening. This is what work is for most of us, and for virtually all women: pure hell on earth, without any freedom.
The issue isn’t equality, but seeing to it that no one is trapped in this kind of hell work.
Not sure if it’s been discussed already but any thoughts about income mobility? http://www.youtube.com/watch?feature=player_embedded&v=44LHBViTZI0
Hopefully, Prof. Ariely will talk about the difference in wealth and income. And, there has been some good research on income mobility recently. Be sure anyone who claims there is positive income mobility these days cites their sources. The only people with a good chance of doing better than their parents, in terms of income, are those in the 80th -98th percentile. There are the random celebrities and sports’ stars, but they are truly exceptions. About 1/3 of the top quintile end up losing ground financially. There are fewer and fewer people who have wealth and high incomes. Looking at the recent statistics, almost everyone has declined in their share of wealth & income except the top 10%.
Sometimes these conversations start out so well. smh
Why in a country that has plenty should anyone be living in inhuman conditions. I realize there are many different reasons some are “on the bottom”, illness (mental and physical), capacity, intelligence, bad past choices, laziness, bad luck, lack of opportunity, lack of will, etc. but why shouldn’t everyone have at least what they need to live? Why would you feel cheated because someone else isn’t working to get their basic necessities, even though you have a much better one through your work? Everyone should have a clean, safe place to live, enough healthy food/clean water and good healthcare whether they deserve it or not. Then those who can or want to can go up from there. One thing this graph shows it that there is enough to provide this for every single person in the US. The people at the top have an amount of money that they couldn’t spend in 100 life times (as long as they refrain from buying politicians or a small country.) You can call it “socialism” (which it isn’t really) or you can argue about how to do it, but it is wrong for some to die while others have more than they could possibly use. It just pisses us off when others get things for free and we work for what we have (even though we wouldn’t trade with them.) Is it ok for a man to keep 5 folded blankets on his couch while the man in the bed next to him freezes to death without one? Maybe he will need them when his is stolen or gets a hole. What if he has 10,000 extra blankets folded up on the couch? 100,000? What if he has more than he could use if he changed his blanket every night? Why would he let his neighbor freeze? That is where we are in the US.
Thank you for interesting insight into worlds, real, imagined and wished for. We need another party, where all is invited and all get a fair piece of the cake. And it should not be a Tea Party!
Another interesting read is http://www.newstatesman.com/politics/2013/03/youll-never-live-common-people
Thanks for the link. I like his opening statement: “I was homeless from 3 January 2009 to 27 April 2010, and I can tell you – poverty is another country. You have either lived there or you have not.” More people need to understand and reading this might help a few. This man writes from England, I believe, and explains why working is not always all it’s cracked up to be. Lucky him that at least he did have his job.
Dear Dan,
I am wondering if you have investigated why this difference between what people say they want and reality exists (and remains). What I mean by that is the following. Is it possible that people like the theoretical idea of a more equal society, yet don’t realize what it would concretely mean for their lives on a day-to-day basis?
For example, does someone who is wealthier than he think would be ideal, also agree with ideas such as paying more taxes, or giving up some of his wealth (have a cheaper car, or a smaller home)?
This in turn bring the questions to know whether people can determine correctly where they stand in the “wealth ladder”? and if some people think they are “too” rich?
What do you think of these questions?
The original survey actually confirms just how ignorant most Americans are about basic economic math and how much they confuse wealth and income. As a thought experiment, consider Equalden2, where every citizen starts earning $100k annually at age 21 when they graduate. All of them save exactly $10K per year for retirement in a fund that has annual returns of 5%, leaving each of them with a bit over $1.5 million when they retire, which they spend at the rate of $115k per year until they die at age 85 (hey-it’s really equal here!)
In Equalden2, the richest 20% of the population have 43% of the wealth, while the poorest 20% have 2% of the wealth-a significantly more skewed distribution than Americans say they want, despite the fact that everyone in Equalden2 lives exactly the same lifestyle.
Introduce a little income disparity: half the population makes $50k and spends it all (counting on a Government pension) while the other half makes $100k and saves $20k annually, and the wealth distribution skews even more.
Wealth is and should always be much more unevenly distributed than income in any private economy.
Why is it that all the wannabees want to have some of the more successful people’s money but none of them mention working harder to get it, like the successful people have done? About the only thought that seems to gleam in their reptilian cortex is, “Gimme to me, for me, now.”
Reblogged this on goodgovernanceandsuccessfulliving and commented:
I am positive that this post will benefit many in outside Us
This is really a great article. Looking forward to hearing you continue. Thank you.
I will always trust the free markets over the social engineers, pointy headed academics or the politicians. Hugo Chavez would make this argument, and then oppress his opposition and leave his family $2 billion. This also misses the very real point that are “poor” are still better off than 95% of the rest of the world with cable tv, a/c, many government programs, etc.
I assume you are talking about the poor in the US? I am poor, and I don’t have A/C, cable or etc. (whatever the hell that is), I am able to get food stamps so yeah, I am better off than many people in other parts of the world. And I am lucky that I have family that have helped me out many, many times. Rush lies.
So wealth is unequal.
So what?
Hard work is unequal. Those who refuse to do it want to be rewarded as if they deserved it. And they don’t.
So you really believe that people who are rich work really hard and everyone who is poor is lazy and doesn’t work hard? I see men and women who work hard 12-hour days, 6 days a week here and they barely feed their families. I also know some people who have more than they could possibly use in a lifetime who have done nothing but be born to a rich couple. (I don’t know them personally, but a good example is Kim Kardasian, or Paris Hilton.) Not saying no rich person works hard, and not saying all poor people do, just saying engage your brain before you write.
There’s a difference between working hard and just resentfully going through the drudgery 12 hours a day. As for inherited wealth, their parents worked hard and left it to them. Nobody else has a right to it.
Finally, Communism doesn’t work, Karen. Even the poor get poorer.
So first you claim all poor people refuse to work hard and now you claim they “just resentfully going through the drudgery” and that all rich people or their parents work hard. Obviously, Capitalism doesn’t work perfectly either if you have to make up falsehoods to make your point.
Read this. Is is not all resentment, nor drudgery http://www.compensationcafe.com/2013/03/a-lack-of-company-enthusiasm-doesnt-mean-a-lack-of-job-passion.html
Good article. If her employer was union-free, she’d get a raise and a promotion. If unionized, she’d get fired for being a rate buster.
What’s the point about all this “inequality” stuff? That those who don’t have as much have the right to take it from those who have it?
That makes one either a Communist or a burglar.
I am a compensation consultant. I can guarantee that all of the “factual” black-and white statements made about poor people, rich people, unions, capital markets and union-free work places etc. are a bunch of hooey. Yes, I said it! HOOEY!
If the world was clear cut as most of the people arguing in this discussion seem to wish it was, then Dr. Ariely would have no reason to have become an expert in his field.
The causes and effects are complex. The problems are complex. The solutions are complex. People are complex.
But, there are problems and issue that need to be addressed. Simply arguing for an all or nothing approach is essentially arguing for no solution at all.
Exactly, and thank you for the article. I appreciate you reiterating the point I tried to make above, which is that poor people are poor for many reasons and rich are rich for many reasons. We live in a country (US) that has plenty to support everyone at a “liveable” level, while still providing the rich with more than they could reasonably use in 10 lifetimes. One can call it Socialism/Communism or compassionate Capitalism, I don’t care, I just think it is immoral that some have so much and some do without a home.
Karen, I’m still trying to figure out how to work and post here.
What I think is immoral is for people like you to tell people like me how much we’re “allowed” to have, assuming we got it legally.
About 75% of the “poor” are due to their own life choices. Get married when you’re 18, have a kid out of wedlock, drop out of school, don’t get a job and, guess what, you’re likely to be poor. It’s not my fault and don’t tell me how much of my stuff I’m allowed to keep.
Cicero, I am happy for you, but I think you are a selfish, self-centered, immoral boob if you have more than you could possibly use and don’t want to help others. I am glad you have lived a perfect life, made perfect choices, never divorced, never had a mental illness, never had a catastrophic illness, never been “downsized” and haven’t had anything bad ever happen to you. I wouldn’t wish anyone “bad luck” but even if only 25% are poor through accidents or illness or inablility that is no excuse to be greedy and selfish.
Karen, actually, I have had some of those disappointments. What matters is what you do about them. And as far as helping people, I have likely helped more than you have.
Notice the difference in emphasis. You say I have more than YOU THINK I could ever possibly use. You never consider what I THINK I could possibly use. In so doing, you presume to dictate what I want out of life, and consign me to permanent state-dictated mediocrity. So much for the “Gimme, to me, for me, now” generation.
Your posts recall the young professor at my Alma Mater who got promoted to department Chair, bypassing a lot of senior people. His friends were incredulous, and asked how he could have earned such an honor. His reply was, “Stop by my office at 10:00PM this Friday night and I’ll show you.”
Reblogged this on A Word to Remember and commented:
If this happens in the US, I wonder what would be the dream, think, and actual feature of Indonesian wealth Inequality..
Reblogged this on Findmeinfloridaagain and commented:
Please watch this
What percentage of this country’s wealth is generated by those 5 groups? No one ever seems to want to talk about that.
Magnificent beat ! I wish to apprentice whilst you amend your website, how can i subscribe for a
blog site? The account helped me a acceptable deal. I
had been tiny bit acquainted of this your broadcast offered shiny transparent concept
I am intrigued along with interested in what you really are talking about here.
Well I’m adding this RSS to my email and could look out for a lot more of your respective fascinating content. Make sure you update this again soon..