02/11/2011 10:22 am ET | Updated May 25, 2011

America's Staggering Inequality and Our Strong Preference for a Swedish Alternative

Most Americans realize that the United States has become more unequal over the past three decades or so. But it's unlikely that most Americans have a full grasp of the sheer magnitude of the change in the distribution of wealth since the end of the 1970s, or its impact on the lives of ordinary Americans.

Many data point to what the political scientists Jacob Hacker and Paul Pierson, in their important new book, Winner Take-All Politics, call "trickle up" economics. For example, according to the Congressional Budget Office, via Lane Kenworthy, the lowest twenty percent of households in America saw their post-tax wages increase from $15,500 in 1979 to $17,500 in 2007 (in constant, inflation- adjusted dollars). The middle sixty percent saw their incomes increase from $44,000 to $57,000 during that period. And the top one percent saw their post-tax incomes explode from $350,000 to $1.3 million, a near quadrupling. The increases for the top one-tenth of one percent and top-hundredth of one percent were greater still.

Of course, many think inequality is irrelevant, as long as a rising tide lifts all boats. But while the wealthiest Americans live ever more opulent lifestyles, ordinary Americans, especially at the sixtieth percentile and below are running in place, if not falling further behind. For one thing, the typical household puts in longer work hours now than was true in 1979, placing added strains on many American families. Furthermore, in the past three years the general picture of distribution has likely worsened, with record levels of long-term unemployment as well as draconian cuts to basic services like health care and education at the state and local level, which have disproportionately affected people lower down the income ladder. So, the relatively weak gains for the majority of Americans in the past thirty years have been precarious, subject to a swift and un-nerving reversal of fortune, while those at the top continue to enjoy record incomes and wealth.

And the growing concentration of wealth at the top is arguably directly related to that growing precariousness for most of the rest of us. Had the pattern of wealth distribution that existed in the 1970s held steady over the subsequent decades, Hacker and Pierson estimate that the lowest sixty percent of households would have enjoyed incomes between $6,000 and $12,000 higher in 2006 than they actually were. That'd be a nice cushion to have in the face of an economic downturn.

Defenders of the status quo might argue that growing inequality and the conditions that support it are a product of the very policies that fueled robust growth, which benefits everyone. But in fact, growth in the past three decades has not been better than it was in the previous three decades, when income and wealth were much more evenly distributed in America. So, this profound new skew in wealth has meant, in effect, a significant transfer of wealth up the income ladder. As former Clinton Treasury secretary and Obama economic adviser Larry Summers -- no populist firebrand -- put it in 2007: "By definition what one group gains from changes in the distribution of income another group must lose...If middle income families had shared fully in the economy's income growth over the past generation their incomes would have risen twice as rapidly!"

So, is this what Americans want? Dan Ariely of Duke and Michael Norton of Harvard University recently reported the results of a fascinating survey they conducted of over five thousand randomly sampled Americans to explore Americans' preferences for an ideal distribution of wealth, and to see how accurately Americans assessed wealth concentration in the US.

Respondents were shown three unlabeled pie charts, each divided into fifths and each
representing a different distribution of wealth for some unnamed country (wealth was defined as income, property, stocks, bonds and other assets). One pie chart showed the top twenty percent owning thirty-six percent of the country's wealth and the bottom twenty percent owning eleven percent of the wealth -- a society with moderate inequality.

A second pie chart showed each of the five quintiles owning twenty percent of the wealth -- a society of perfect equality. A third pie chart showed a country in which the top fifth owned 84% of the wealth and where the lowest quintile owned one-tenth of one percent of the total wealth.

The results were striking. Ninety percent of Americans -- virtually regardless of gender, income level or partisan affiliation -- preferred either the first pie chart or the second pie chart; only ten percent of respondents preferred the third. The third pie chart, the one almost no one deemed preferable, represents the actual distribution of wealth in the United States. And that first pie chart was not a bunch of random numbers -- it's the distribution of wealth in Sweden. When given a direct choice between Sweden's distribution and the US's (both unlabeled), fully 92% preferred Sweden's to the United States.

Respondents were also asked to estimate the distribution of wealth in the United States. On average, they thought that the wealthiest fifth of Americans owned 59% of the wealth, indicating that although Americans are aware that inequality in the US is substantial, they profoundly underestimate its extent.

So, what explains this dramatic change in the structure of American wealth? It seems very unlikely that this is what Americans want (our willingness to tolerate it is a separate question).

Many economists have argued that changes in technology and globalization more broadly have provided increasing benefits to the highly educated. But Hacker and Pierson reject these explanations or deem them greatly overstated. Europe has experienced very similar technological and globalization-driven changes but has not remotely witnessed the degree of wealth concentration that America has, or the erosion of health and other services that are affecting a growing number of Americans.

Education and skills-based explanations also cannot tell us why the top one percent has pulled away from the (also highly educated) top ten percent, or the top one tenth of one percent from the top one percent, and so on.

Hacker and Pierson note that the causes are complex, but believe that a key explanation is
politics. Specifically, they contend, organized business interests and their ideological allies have waged an extraordinarily successful battle to enact policies -- including changes in tax rates and tax law enforcement, labor law, financial de-regulation and curtailing public assistance -- that benefit the wealthiest Americans. At the same time, those interests have succeeded in achieving what Hacker and Pierson call policy "drift" -- obstructing policy changes that would be necessary to attenuate the conditions fueling growing inequality. Successfully blocking minimum wage increases is one example.

The GOP's push in this direction since 1980 has been undeniable. But the Democratic Party has also played a significant, if more ambivalent, role in this process, particularly its growing cultivation of Wall Street donors, frequent advocacy for Wall Street's de-regulatory agenda and its equivocal policy response to the decline of organized labor.

Hacker and Pierson contend that winner-take-all-interests have successfully rigged our political institutions regardless of which party holds the reins of power, though they acknowledge that the health care reform act of 2010, assuming it achieves full implementation, could represent a meaningful move in the opposite direction. But the extent of wealth concentration in America over the past generation and the degree to which politics seem to play a crucial role in that process raise depressing doubts about the capacity of our presumably representative institutions to produce policy outcomes that benefit ordinary Americans or that reflect Americans' preferences for a minimally just distribution of wealth.

(A version of this article originally appeared in the Independent Weekly of North Carolina)