What’s an acceptable level of income inequality in America? Is the current situation far too unfair, as many who lean to the political left maintain? Would ending tax breaks for people earning more than $250,000 a year constitute “class warfare,” as many on the political right contend? Complex questions, to be sure. But some surprising insight into these issues comes from a remarkable recent study by Michael Norton of the Harvard Business School and Dan Ariely of Duke University. You might be surprised by the results, whatever your political persuasion or net worth.
Norton and Ariely were motivated by a simple but noble idea. As they explain:
Disagreements about the optimal level of wealth inequality underlie policy debates ranging from taxation to welfare. We attempt to insert the desires of ‘‘regular’’ Americans into these debates, by asking a nationally representative online panel to estimate the current distribution of wealth in the United States and to ‘‘build a better America’’ by constructing distributions with their ideal level of inequality.
In their survey of 5,500 Americans, Norton and Ariely started by asking respondents which of three templates of wealth equality they thought would be best: one representing perfect equality, where the bottom one-fifth of the population owns one-fifth of all wealth, as does the top fifth and every other fifth; one representing the current U.S. situation, where the top fifth controls 84% of all wealth, while the bottom fifth owns 0.1%; and one representing the distribution in Sweden, where the top fifth owns 36% and the bottom fifth controls 11%.
Note that the countries where the last two distributions currently exist — the U.S. and Sweden — were not revealed to the survey participants, which no doubt helps to explain why better than 90% of respondents preferred the wealth distribution in Sweden. Even more striking, this overwhelming preference for Sweden’s income distribution held among people who voted for George W. Bush in the 2004 election as well those who pulled the lever for John Kerry. And it varied only to a minuscule degree with the survey takers’ own incomes.
It’s also worth noting that the average American estimated that the top one-fifth of the U.S. controls about 59% of the country’s wealth—nearly a third less than the reality!
Regardless, Norton and Ariely also wanted to learn the kind of wealth distribution regular Americans would choose if they were creating an economy from scratch. Toward that end, they had respondents indicate what percentage of the country’s overall wealth should ideally belong to the richest one-fifth of the population, what should belong to the next-wealthiest fifth and so on. What they found was that U.S. respondents as a whole prefer a country with much less inequality than the one we now have. On average, respondents said that the top one-fifth of the wealth hierarchy should own 32% of the country’s wealth (vs. the 84% they now have and the 59% people think they have) and the bottom fifth should ideally own 11% (vs. the actual 0.1%).
It’s a fairly revealing set of results. Despite all the talk about a divided America and class warfare, there is a remarkable level of consensus about the ideal wealth distribution across the political spectrum and income levels. The preferred wealth distributions of Bush and Kerry voters were only trivially different—in the direction you would expect—as were the preferences of those making less than $50,000 and those making more than $100,000. For all the alleged discord in this country, there’s an amazing amount of real agreement on what “a better America” would look like.
To be sure, liberals and conservatives often have very different ideas about how that ideal distribution should be achieved. But much of the prattle about class warfare these days comes not from mainstream Americans, but rather from those folks who have the most to gain from pointing out differences even when they may not exist: politicians and the media who cover them.