Saturday, August 4, 2012

Economic inequality: Ideal vs. Actual

Duke University professor Dan Ariely reports in “Americans Want to Live in a Much More Equal Country (They Just Don’t Realize It)” that a wide discrepancy exists between Americans perceptions of wealth distribution, their ideal preferences for wealth distribution, and the actual distribution of wealth (Atlantic, August 2, 2012).

The chart below summarizes his findings. The actual distribution of wealth shown is from economic research (Wolff, E. N. (2010). "Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze--an Update to 2007." Levy Economics Institute of Bard College). The estimated actual and ideal preferences are from a random survey of 5,522 Americans conducted using widely accepted research techniques. Respondents replied without knowing to which quintile they belonged. Quintiles divide the population into five groups with an equal number of people in each group.

The two poorest quintiles have so little wealth that the chart makes guessing their wealth difficult. The actual wealth of the poorest quintile is 0.1% of total U.S. wealth; the actual wealth of the second poorest quintile is 0.2% of total U.S. wealth. The other bars permit reasonable visual interpretation.

Notably, the preferred ideal distribution of wealth for the bottom four quintiles exceeds the estimated wealth of each quintile and dwarfs the actual wealth of each quintile. Only for the wealthiest quintile is this reversed: actual wealth (84% of total U.S. wealth) dwarfs both estimated and ideal wealth. Importantly, the differences between Democratic and Republican respondents with respect to the ideal wealth distribution were less than 4% for any quintile. Similarly, there were no significant differences among respondents based on age, gender, or income.

Clearly, Americans do not live in a society with the economic equality they would prefer and, equally clearly, Americans do not realize how skewed the distribution of wealth actually is. This study suggests to me that the U.S. sits on the precipice of an economic and social divide that if not soon bridged will permanently divide the nation into a society of haves and have-nots.

What to do about the problem is unclear. Here are some of Ariely’s reflections on the discrepancies his study revealed:

As for what this means about changing the level of inequality, which from our study seems almost unanimously objectionable, there are essentially two paths: education and taxation. Improving education works in a sense to change the input into the economy--better-educated workers are more resourceful and employable, and can move up the economic ladder. Changing taxation deals with the output--those who prosper pay more into the system than those without the same benefits. Our study doesn't tell us anything about which of these two approaches to reducing inequality would be preferable, but in practical terms, bridging the huge gap between what we currently have and what we want to have would require a mixture of both.

The upcoming election seems unlikely to provide additional clarity, much less substantial progress, on the inequality of wealth distribution. Americans seem to want less government interference in their lives, desire fewer government transfers of wealth, are probably willing to raise taxes on the very wealthy, but have not found broadly successful programs or policies to fix a broken education system. Yet even where polls show that agreement exists among voters, U.S. legislative bodies, especially the national Congress, have proven unable to make real progress.

The study underscores for me the importance of people of faith engaging the political process. I’m convinced that Jesus would not fully identify with either the Republican or Democratic parties. Elements of the typical Republican agenda (e.g., personal responsibility and small government that allows maximum personal freedom) and the typical Democratic agenda (e.g., concern for the most vulnerable and healthcare for all) resonate with me as agendas consistent with Jesus’ message. Conversely, elements of both parties’ agendas and their preoccupation with fundraising, special interests, and single-issue politics at the cost of the general welfare strike me as objectionable to Jesus. Especially in states in which to vote in a primary one must belong to a party, I think that Jesus would affiliate with a party to give himself another opportunity to vote. But I think that issues and not party, love for all of his neighbors and not self-interest, would motivate and shape his political engagement. Perhaps we would do well to do likewise.

No comments: