How Americans view wealth and inequality

Americans do not understand how wealth is distributed in their society

There have been lots of questions and discussions recently about inequality and economists often argue about what is the right level of inequality to have in society.

But Mike Norton, professor at Harvard Business School, and I decided to take a different path and we decided to ask people what inequality they would want.

Now, there are lots of ways to ask this question and we used the philosopher John Rawls.

Rawls said that "a just society is a society that if you knew everything about it, you'd be willing to enter it in a random place". And it's really a beautiful definition.

He called it a veil of ignorance, because if you're very wealthy, you might want the wealthy people to have lots of money and the poor to have very little; and if you are very poor, you might want the poor to have more money and the wealthy to have less.

But in Rawls' definition, you don't know where you'll end up, you have to consider all the different options and therefore you have to think about what is good for society as a whole.

Incomprehension

So, we took the American society and we asked people to imagine it divided into five buckets, the wealthiest 20%, the next 20%, the next, the next and the poorest 20%.

First of all, we asked people: how much wealth do you think is concentrated in each of those buckets?

It turns out people get it very wrong.

The reality is that the bottom two buckets together, the bottom 40% of Americans, own 0.3% of the wealth; 0.3%, almost nothing, whereas the top 20% own about 84% of the wealth.

And people don't understand it. They don't understand how much wealth the top have and in particular, they don't understand how little the bottom has.

But then we described to people Rawls' definition, the veil of ignorance, and the idea they could end up anywhere. And we said: What society would you like to create? How much wealth? How would you like to distribute the wealth?

And it turns out people created a society that is much more equal than any society on Earth. It was much more equal than Sweden.

Blind tasting

In fact, when we did this experiment another way and we showed people two distributions of wealth, one based on the wealth distribution in the US and the other based on the wealth distribution that is more equal than Sweden, 92% of Americans picked the improved Swedish distribution.

So this suggests to me that when people take a step away from their own position and their own current state, and when people look at society in general terms, in abstract terms, Americans want a much more equal society.

How would you judge a wine if you didn't know where it came from or how much it cost?

There is one more interesting thing to this: 93% of Democrats picked the improved Swedish model, compared with 90.5% of Republicans. Different, but not very different.

And all this makes me wonder, how can it be that in our studies people seem to want such equal society but when you look at the political ideology, people don't seem to want that?

And I think it is a little bit like blind tasting of wine.

When you taste wine and you know the label and you know the price, you are going to be influenced by that. And when you are tasting wine in a blind way, now you don't have anything to base it on and you have to really use your senses.

I think the same thing happens with thoughts about just societies. When we are in the regular world, we are using our current position, our ideology and the labels that politicians give us, and they obscure reality and obscure what we really want.

But Rawls' definition really lets us strip all this away, lets us focus on what is really important and how people actually want something very different from what we have.

The question, of course, is how do we get people to think about this to a higher degree and how do we get them to act on that for a better future?

Dan Ariely is the James B Duke professor of psychology and behavioural economics at Duke University in North Carolina.

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