The gap between the richest and poorest Americans is at historic highs, with estimates suggesting that the top 1% of Americans hold nearly 50% of the wealth, topping even the distance before the Great Depression in the 1920s.
Whether this spread is politically acceptable lies behind many debates, particularly when it comes to estate taxes. Dan Ariely, a behavioral finance expert at Duke University and Michael Norton at Harvard Business School asked the question: Do Americans know what the gap is and is it what they want?
A survey from the psychology journal Perspectives of Psychological Science concluded that Americans desire a more equal distribution of wealth, and dramatically underestimate the current gap. Perhaps surprisingly, this was true for Americans at all wealth levels and among those who voted for George Bush over John Kerry.
The authors surveyed a pool designed to match the politics and wealth of the nation: 5,522 American adults with a median income of $45,000 in December, 2005, close to the national median of $48,000 in the 2006 Census. The respondents’ pattern in the 2004 election (50.6% Bush, 46.0% Kerry) was also close to the actual outcome (50.8% Bush, 48.3% Kerry).
Before beginning the survey, all respondents read the following definition: ‘‘Wealth, also known as net worth, is defined as the total value of everything someone owns minus any debt that he or she owes. A person’s net worth includes his or her bank account savings plus the value of other things such as property, stocks, bonds, art, collections, etc., minus the value of things like loans and mortgages.”
In the survey, respondents viewed three unlabeled pie charts, one showing a perfectly equal distribution of wealth, another reflecting the status quo nationally, and a third that fell in-between, based on Sweden. When asked which nation they would choose to live in, assuming that they would be randomly assigned their place, 92% preferred the pie chart based on Sweden, including 90.6% of men, 90.2% of Bush voters and 89% of those with income of more than $100,000.
Slightly more Americans preferred the Swedish model than a perfectly even distribution.
In two other tasks, respondents were asked to create a pie chart reflecting the United States and another pie chart on how the United States should look. The group believed that the top 20% held about 59% of the wealth—underestimating the actual figure of 84%. In their ideal distribution, they assigned 32% to the top 20%. Men, Bush voters and those with incomes of more than $100,000 all created an ideal pie chart that was more equal than their estimate of the American status quo, which was also much more equal than a true chart.
“Americans’ consensus about the ideal distribution of wealth within the United States appears to dwarf their disagreements across gender, political orientation, and income… A large nationally representative sample of Americans seems to prefer to live in a country more like Sweden than like the United States,” the authors write.
Why then is there so much disagreement over taxes and other issues related to wealth equality?
Ariely and Norton suggest that people may have “overly optimistic beliefs about opportunities for social mobility in the United States,” related to their ignorance about the actual wealth distribution. They also suggest that disagreements about the causes of inequality seem to drown out the consensus that the inequality is undesirable.