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Sunday, October 03, 2010

"Wealth and an American Paradox"

Why are Americans mostly opposed to redistribution?:

Wealth and an American paradox, by Claude Fischer, Berkeley Blog: The liberal blogosphere is currently atwitter over a new study produced by Michael Norton and Dan Ariely (pdf) showing how much Americans underestimate economic inequality in America. 

A 2005 on-line survey asked thousands of respondents to estimate what proportion of all the total wealth in the country was owned by the richest one-fifth of Americans, the next richest one-fifth and so on. On average, the respondents guessed that the richest one-fifth owned about three-fifths of the nation’s wealth; in reality the richest one-fifth own over four-fifths of it. The survey also asked respondents for their ideal distribution; on average, they preferred a society in which the richest one-fifth owned about one-third of the national wealth. (Although dramatic, these findings are not surprising. ... Americans generally cannot provide accurate statistical descriptions of America. ...)

According to the new study, then, Americans not only think that wealth is much more equally distributed than it really is, they want an America that is much more equal than they imagine it is today. And yet, Americans are notably opposed to the government doing anything to move the distribution of wealth in that direction. Why the contradiction?

America the Unequal

The United States has the greatest inequality of income and wealth among affluent western nations. And that inequality has been increasing pretty steadily since about 1970 — more so than in other western nations – with a slowdown in the late 1990s and a few short-term fluctuations in wealth inequality due to swings in the stock market. This is pretty much understood by serious scholars (with a few outlying voices in dissent). It looks like Americans have been sensing rising inequality, too. ...

Hands Off

And yet, Americans, studies have shown, are more opposed to having the government do anything about this inequality than are citizens of other western nations. (And, of course, the United States in fact does less than other western nations to address inequality.) ... Surveys asking whether the government should do something major (on the order of what European nations do) show continuing opposition from many, if not most, Americans. ...


So, it appears that Americans have noticed growing inequality, but they haven’t really changed their general opposition to the government doing anything dramatically different about it (beyond perhaps financing “shovel-ready” projects). Why?

One implication of the Norton-Ariely paper cited above is that, were most Americans to appreciate how unequal their society is and how much greater that inequality is than their ideal, their political views would shift.

Perhaps, but perhaps not. The other evidence suggests that increasingly many Americans have been aware of growing inequality, but that has not changed their resistance to explicit economic “leveling.” ...

Versions of this paradox have perplexed social scientists for decades. (See also this earlier post.) Here are a handful of plausible explanations forwarded by scholars:

  • “Anti-statism.” Americans have been historically suspicious of and hostile to government (although they have accepted many pragmatic programs, like Medicare). Therefore, they may wish that inequality was much less than it is, but they will not empower the government to do something serious about it.
  • Opportunity, not outcome. Survey data show that many Americans generally do support government actions that widen opportunities for economic advancement, especially through education. Most Americans may believe, then, that in a society of equal opportunity, unequal outcomes can be reduced or at least tolerated. (Unfortunately, the belief that the U.S. is particularly open to upward mobility is empirically incorrect.)
  • Race trumps: In the U.S., issues of economic inequality have been tangled up with issues of race, because blacks have disproportionately been poor and the likeliest recipients of government assistance. Research suggests that this prospect leads whites to resist government action, even action that might benefit themselves.
  • Ideology of self-reliance: Americans have been historically committed to emphasizing individual independence and self-reliance; increased government action threatens to create dreaded “dependency.” In practice, Americans have comprised that ideology when conditions demanded – in the Great Depression, for example; or in accepting disaster relief. But these values make for deep resistance to any major new initiatives.
  • Constricted horizons: Some have argued that political discussions here are so narrowly bounded that Americans may see and resent great inequality but cannot really imagine that things could be (and are elsewhere) different. When, for example, the free-enterprise Obama health plan is seen by so many as an extreme, socialistic program, when our tax rates on the wealthy are described as confiscatory, or when Sweden is depicted as some sort of totalitarian state, it would seem that Americans are operating with blinders on.

The latest Norton-Ariely paper provides a vivid picture of just how unaware Americans are of how unequally distributed wealth has become in the United States. It still leaves us with the puzzle of why most Americans, even when they are aware of that imbalance, oppose major efforts to rebalance it.

The best I can do is related to the "race trumps" explanation, but it's more about the individual and everyone else than race. That is, I think people do feel they get a raw deal, that they are not paid according to what they contribute to society due to one thing or another working against them ("the system" generally). They feel they deserve more. That would be fair. So they would and do favor policies that clearly correct the inequities that they feel.

However, when the typical household does the calculation for most policies that are proposed, or that have been implemented in the past, they conclude, rightly or wrongly, that on net it won't end up favoring them. They will, yet again, be asked to pay the bills and then end up with even less to show for it. When the middle class hears redistribution they don't think it will be from the wealthy to them, or from the wealthy to the poor, but rather from them to the poor. These programs never end up working in their favor, and they don't think it's fair that their hard-earned money, money that is needed to make it to the end of the month, ought to be given to people who don't share their commitment to hard work (I want to be clear that I am speculating about what others think, not giving my own view). Things like the bailout of the financial crisis tell them that the wealthy and powerful always find ways to come out on top -- when the applecart is upset they end up with more apples than everyone else -- and attempts to make them pay more inevitably end up, one way or another, as a new burden on the middle class. They are told that the taxes for these programs will only fall on the wealthy -- who don't always deserve what they have -- but when it's time to actually pay for the programs, somehow the taxes for the middle class always seem to go up. They always end up paying the largest part of the bill. So why even try if, in the end, it will only make the middle class worse off? Why give their hard earned money to people who are less-deserving, people who don't even try and instead simply live off "the system."

And that is the misperception that I think is a big part of this, that the poor deserve their fate because of the choices that they have made. The system didn't oppress them or hold them back, it wasn't where they grew up, it wasn't the schools they went to, etc., etc. It was their own choices and lack of ability and hey, while life isn't easy for those of us in the middle class, we get up every day and go to work and do what needs to be done. Why should our hard earned money go to help those who are unwilling to do these things? I think it's this misperception, that the poor are poor largely due to their own poor choices, and that it's unfair to take from the hard-working middle class to give them help, that creates resistance to redistribution.

I think the whole debate over "what is rich" reflects this -- it says don't take my money, I'm a hard-working stiff just trying to have enough to pay the bills at the end of the month just like the rest of you, if anything I deserve more -- so keep your hands out of my pockets.

    Posted by on Sunday, October 3, 2010 at 11:34 AM in Economics, Income Distribution | Permalink  Comments (67)


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