01 Jun 2011
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America the Unequal

Easy credit erodes opposition to wealth inequality

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In a recent nationwide survey, my colleague Dan Ariely and I found that Americans drastically underestimated the level of wealth inequality in the United States, currently at levels not seen since the 1920s — just before the Great Depression. While recent data indicate that the richest 20 percent of Americans own 84 percent of all wealth, people estimated that this group owned just 59 percent — believing that total wealth in this country is far more evenly divided among poorer Americans.

What’s more, when we asked them how they thought wealth should be distributed, they told us they wanted an even more equitable distribution, with the richest 20 percent owning just 32 percent of the wealth. That’s a more equitable distribution even than in countries that Americans typically consider as highly equitable, such as Sweden. This was true of Democrats and Republicans, rich and poor. All groups we surveyed approved of some inequality, but their ideal was far more equal than the current level.

Why then, given the consensus on this more equal America, are Americans not clamoring for wealth redistribution?

First, the expansion of consumer credit in the United States has allowed middle-class and poor Americans to live beyond their means, masking their lack of wealth by increasing their debt. We might think that people who have “zero net worth” have nothing. But in fact, having zero net worth increasingly means owning a lot (cars, televisions, even houses) — but also owing a lot. As a result, people with zero net worth, and even negative net worth, can still believe that they are living the American dream, doing “better” than their parents did while keeping up with the Joneses.

Second, poorer Americans’ belief in social mobility — despite strong evidence of its rarity — causes negative reactions to policies that would seem to benefit them, like raising taxes on those who earn and own a lot more. Why would the poor oppose taxes on the wealthy? Because many believe that they, or at least their children, will eventually be wealthy, voting for taxes on the rich may feel like voting for taxes on themselves. As a result, even the word “redistribution” has negative connotations.

Finally, many Americans believe that America should guarantee equal opportunity, not equal outcomes — meaning that they oppose any efforts to “level the playing field.” In fact, our respondents did not favor equal outcomes: The 32 percent of the wealth they wanted the richest 20 percent to own also signified that they wanted the poorest 20 percent to own just over 10 percent of the wealth. At the same time, it is hard to imagine how a country in which the top 20 percent of the population owns 84 percent of the wealth — and the bottom 40 percent virtually none — could guarantee equal opportunity for all its citizens.

My colleagues and I are now exploring whether educating Americans about the current level of inequality might increase their support for policies that reduce it. We are also assessing whether different forms of wealth redistribution — for example, raising the minimum wage, or longer-term interventions like reducing disparities in education — are less likely to evoke heated opposition and perhaps increase advocacy for greater wealth equality.

— HBS associate professor Michael I. Norton teaches in the Marketing Unit and is cowriting a book on money and happiness. This article first appeared as a New York Times blog post on March 22, 2011.

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