Distribution of Wealth: Reality vs. Ignorance

Americans of all persuasions, right and left, progressive and conservative, apparently actually want the same distribution of wealth.  We want to be like Sweden.  Yes, the “socialist” Sweden.  But, we don’t know that and we don’t agree on policies because we don’t accurately perceive what the current distribution of wealth.  A fascinating study by behavioral economist Ariely as reported at tax.com by David Cay Johnston:

…When it comes to wealth and taxes, the vast majority of Americans are modern Know-Nothings. The disconnect between belief and reality is being exploited by those who laugh all the way to the bank with their tax savings and the burdens they have subtly shifted off themselves and onto the rest of us.

The ideal wealth distribution chosen by the 5,522 people who took the online survey has the top fifth of Americans owning between 30 percent and 40 percent of the wealth.

That means Americans believe the ideal distribution of wealth is that of Sweden. Moreover, 90 percent of Republicans share that belief. (Actually, 90.2 percent, as the survey coauthor, Prof. Daniel Ariely of Duke University, noted when we met to discuss his work.)

The survey sample, with more than 10 times the 504 people often used in polls, is robust and credible. (For the report, see Doc 2010-216082010 TNT 196-69: Washington Roundup.)

The genius in the survey was to avoid questions using loaded terms like “estate tax” and “death tax.”

Instead those surveyed were shown pie charts and asked what they thought was the ideal distribution of wealth and what they estimated to be the wealth distribution in America. They were not told that one of the pie charts was Sweden’s actual wealth distribution, but people gravitated to it like moths to a flame.

What did those surveyed think was the actual distribution of wealth in America?

Figure 1

The actual United States wealth distribution plotted against the estimated and ideal distributions across all respondents. In the “Actual” line the bottom two quintiles are not visible because the lowest quintile owns 0.1 percent of all wealth and the second lowest quintile owns 0.2 percent.

: Norton and Ariely Survey.They estimated that the top fifth of Americans owns about 60 percent of the wealth.

The reality? Eighty-five percent.

So what about the bottom 120 million of us? Those surveyed said that ideally, the bottom 40 percent would own 20 to 25 percent of all wealth. When asked to estimate the share of wealth actually owned, the collective guesses were between 8 and 10 percent.

Reality: 0.3 percent.

BTW: Sweden isn’t really “socialist”.  It’s more of a social democracy.


2 thoughts on “Distribution of Wealth: Reality vs. Ignorance

  1. Pingback: Tweets that mention Distribution of Wealth: Reality vs. Ignorance « EconProph -- Topsy.com

  2. Thank you. Now, since you teach economics, you live under an illusion that Marshall once created…namely that subjective preferences (the Hicks-Samuelson term) relate to satisfactions or benefits. Treat them differently. Set up, for instance, a benefit constraint such as, say, calories per day with X and Y substitutes, e.g. X-axis (2500 calories) for a set amount of x; Y-axis (2500 calories) for a set amount of Y. Connect. It will be the case that, irrespective of the subjective preference function, only one point on the line will correspond to maximization of subjective preferences.

    To discuss, e-mail me.


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