Last week's Bloomberg Businessweek opens with a piece by Drake Bennett on how Americans perceive growing income inequalities. The answer, surprising to Businessweek, is that Americans "broadly" favor "the need for a more equal distribution of wealth," but that they consistently overestimate how equitable American society is -- and by rather striking numbers. "On average, those surveyed estimated that the wealthiest 20 percent of Americans own 59 percent of the nation's wealth; in reality the top quintile owns around 84%. The respondent further estimated that the poorest 20 percent own 3.7 percent, when in reality they own 0.1 percent." A survey of economists also found they got it wrong too, though by less, which establishes some realism to the cries for economic literacy as the solution for our woes.
"In part," concludes the magazine, "this work fits into a proud tradition of social science research demonstrating the basic ignorance of the average American." One might add that this fits into another tradition as well: the media eagerly publicizing social scientists pointing out the ignorance of Americans. Indeed, toward the end of the piece, the magazine quotes George Mason University professor Bryan Caplan on the paradoxical claim that it's good that Americans don't realize how unequal things are, because "they tend not to understand the ways that wealth inequality is good." Businessweek fails to tell us that Caplan is the author of the provocative "The Myth of the Rational Voter: Why Democracies Choose Bad Policies," which focuses on the economic illiteracy of the citizenry.
So what does all this really mean? Well, it's not terribly surprising. You can still be economically or financially expert and still be unable to judge the degree of inequality around you. It's not some symptom of creeping Yahoo-dom. It's a big country. Wealth is relative and more importantly often invisible. Wealth in Oklahoma or Iowa certainly differs from wealth in Westchester County or Palm Beach. Much of wealth is abstract: You can see the mansion or the shack, the Bentley or the Civic. But you can't see financial assets in a bank (and you can't see the debt either). The display of wealth may have more to do with social norms than real, tangible financial assets; conspicuous consumption waxes and wanes. Some of these issues arose recently in the tempest that ensued after University of Chicago law professor Todd Henderson complained about how hard it was to live on $250,000 a year. The difficulties of knowing exactly your relation with the Smith family next door, and with Smiths all across the country, grows even tougher when you try to compare different eras: this age of high inequality versus the so-called golden ages of the '50s and '60s.
This inherent difficulty of judging inequality speaks to the fallacies of economic doctrines like rational expectations: If you can't decide where you fit in a complex, shifting economy, how can you generate much more than rough-and-ready expectations about the future of anything, including what you'll need in retirement? There are several explanations flying around about American attitudes toward income inequality. There's the notion that Americans have traditionally been "bought off," both (in a crass way) by the promise of ample credit and consumer goods, which takes the sting from inequality, and (less crass, more patriotic) by the promise of freedom and opportunity. Americans, in this theory, have traditionally not chosen the path of class warfare or socialism (or communism) because at some level they believe they too can be rich (and if they're not, they can still buy that iPhone). Businessweek seems confused by the fact that Americans underestimate inequality but say they favor broad equality. That may stem from the fact that most people do not see any contradiction between equality and opportunity, which only co-exists happily in a high-growth economy.
This core belief appears to be more at home in the U.S. than, say, Europe. Historically, the U.S. had a large continent to fill, ample natural resources and the always-shimmering possibility of reinvention. Today, while physical frontiers are no longer quite as open as they were once, we have another frontier: affluence and its sibling, celebrity. Of course, you can have a highly affluent -- relatively affluent -- economy and still be highly unequal. (The markets also share some of the virtues of the frontier: You're on your own, it's risky, no one cares what you've been in the past, and potentially it's very profitable.) While the U.S. suffers from patches of terrible poverty, both in the cities and in the countryside, not to say historically high unemployment and a national real estate disaster, the presence of once-unheard-of credit (yes, even now) masks impoverishment. You can still buy stuff. Other policies reduce visible poverty as well. The homeless are kept off the streets. There are no wandering armies of train-hopping hobos, no veterans marching on Washington, no apple sellers or widespread famines or epidemics that are apparent for all to see. There is, albeit tattered and frayed, a safety net -- and Europe, of course, has a much more extensive welfare system. The visible scandal of inequality, which was apparent in the U.S. during the Great Depression, and in Europe after the war, barely exists, particularly if you choose not to look. (There are exceptions, mostly involving natural disasters: Katrina-devastated New Orleans, for instance, which revealed underlying poverty and despair. But think about Las Vegas, which was hammered by the housing downturn. Blocks of empty houses is a lot different than neighborhoods literally under water, then left to rot away.)
Again, this is not to say there's not poverty and a terrific squeeze on middle-class and lower-class incomes, which is destructive. It's just that affluence and credit disguise the pain -- and allow the extension of hope and the retention of something resembling your former lifestyle (foreclosure delays help too). Implicit in Businessweek's discussion of inequality is the notion that if people knew the full extent of the problem, they would seek policies to return to the more equal society they seem to want. That might be a stretch. The golden age of the '50s did arrive in part because of the class warfare of the '30s. But it was mostly driven by the pent-up demand and high growth of the postwar industrial economy, which no one planned; indeed, most economists anticipated a return to depression or recession when the GIs came home. The key to the '50s was growth, which then allowed other policies to shape a broad middle class. Our situation is very different. We've made any number of policy changes to fuel growth, from deregulation to bailouts. Policies to create greater equality tend to dampen growth, as Businessweek says. While Americans may have all kinds of confused ideas about income inequality, they do seem to know growth, or the lack of growth, when they see it.
Robert Teitelman is editor in chief of The Deal.
Like Napoleon who came before, these Billionaire Bullies must be knocked from their white chargers, wrestled to the ground, bound in chains, and shipped to a remote island where they can pose us no more harm. Until we rise up in our righteous indignation, the Middle Class will continue to be devoured by the Billionaire Bullies' Salivating Lust of RAVENOUS GREED. To save ourselves, our mission must be to turn our Billionaires into mere Millionaires.
1. I'd like to know more about what the survey respondents thought "a more equal distribution of wealth" would mean, and who they imagined would have more or less under this hypothetical distribution.
2. The problem with growth as a policy goal is that nobody really knows how to reliably achieve it. Equality, on the other hand, can be produced very straightforwardly through tax-and-transfer redistribution. If growth starts to seem more like a pipe dream, public opinion may begin to lean towards equality. Therefore, Republicans and other people who hate redistribution had better hope we get growth back very soon.
Money supply rules changed. True, the richest have the most. But the spread was smaller with money supply rules tight.
Money supply rules also changed in 1933, and people welcomed it and still celebrate the Pres who brought it about.
Inlfation acts differently as well, with FED printing money every other month without a money supply constraint.
Take Saudi for the last 30 years. Increase in population, but job growth far behind. This despite great wealth from oil.
In higher debt the top 4% care less, because the worker pays for it all
In higher growth the top 4% take it all. At 90% profit you do not redistribute wealth. Sweat and Genius should be worth 60% and not 10%.
Why have a progressive Tax only to about $150,000. Any read $1,000,000 should be taxed at the same. Why cap SSA at $90,000
Inherited Wealth does not pay income tax, only capital gains at 15-0%
60% of all after tax profit goes to Secondary Stock Trader (NYSE) for no contribution to the main street economy. A black hole of inequity
Why not tax appreciation.
Why should capital gains and dividends be tax at 15-05
Why should Execs be paid in stock for all of the above. Except they get AMT adjustment for their losses. While I loose all deduction, even the individual deduction?
That is significant and Higher Taxes even at $100,000
go to www.fairtax.org for a way forward and to address them.
Amazing how little Business or Economics is known or should I say in your light DISTORTED to perpetuate what you say
I disagree completely. Greater equality in income means more aggregate demand which drives economic growth.
So which is it, different time or historical trends?
Since we have never seen this exact convergence of Super Wealth at the top and utter poverty at the bottom masked with reasonably easy credit and shiny consumer goods, maybe some form of policies to create more equality are in order?
It looks like to me that you are cherry picking the lessons of the past you want to lean as gospel and discarding the ones you don't like.
I saw a great metaphor out here the other day, I apologize for not remembering who said it, but the idea is that our economy is like our own blood stream and money is the blood. When the money pools in once area instead of circulating it is bad for our economy just like it would for our body.
Plus, the market changes. As even this guy points out in post WWII between what was expected and what happened.
The data hold important lessons for economic growth and tax policy and take on added meaning when examined in light of tax return data back to 1950.
The story the numbers tell is one of a strengthening economic base with income growing fastest at the bottom until, in 1981, we made an abrupt change in tax and economic policy. Since then the base has fared poorly while huge economic gains piled up at the very top, along with lower tax burdens.
Only 150.9 million Americans reported any wage income in 2009. That put us below 2005, when 151.6 million Americans reported wages, and only slightly ahead of 2004, when 149.4 million Americans held at least one paying job.
For those who did find work in 2009, the average wage slipped to $39,269, down $243 or 0.6 percent, compared with the previous year in 2009 dollars.
The median wage declined by the same ratio, down $159 to $26,261, meaning half of all workers made $505 a week or less. The 2009 median wage was $37 less than in 2000.
To give this perspective, from 1992 to 2000 the number of people earning any wages grew by 21 million, but nine years later just 2.8 million more people had any work.
For another, the policies set in eighties helped to set growth of the nineties.
For another, the tech boom of late nineties spiked employment, much lik dot com crash hurt employment in 02.
There are many factors that just who was Pres.
I made no comment about who was President.
This is about facts, not opinions. It is also a long view, as opposed to a snapshot.
One can argue as to the correlation/causation, but not over the data.
The author suggests growth over redistribution at the end is more important, but an informed electorate would seek justice to rectify the class warfare the rich have waged and won.
Modern US could be called richest in history, maybe it is a correct argument.
The 95 percent given a payoll tax cut by Obama, same thing, just far smaller. so small most did not even notice.
Neither of which make it more regressive. High earners would get same treatment from bosses.
The 90% corporate profit is going to stock trader who invest for appreciation and not of that money returns to the main street economy except in capital gains at 15-0% Tax Rate. If is robbing aggregate demand causing the very economic problems we have
Henry Ford paid his workers enough so they could by FORDS. This fixed market monopolistic supply side economics is cutting off you nose to spite your FACE.
Then you look at the tax code. The lowest income tax rate is 15%, The same as stock traders, dividends. Why cap income tax rate at $150K and SSA at $90K. Why a free ride for millionaires
This is America, if you do not want a fair tax code go some where else.
www.fairtax.org