Real v. Imagined wealth distribution in the US

http://www.slate.com/id/2268872/

by boredguy8 • 16 years ago

69 116 16 years ago

_delirium5• 16 years ago

The lack of variation in the estimates among groups was the main surprise to me. I would've expected people on the left to overestimate the concentration of wealth, and those on the right to underestimate it, but it seems they both significantly underestimate it.

boredguy8• 16 years ago

One of the difficulties that I see comes in that it's hard to overestimate such a huge skew. If we're guessing jellybeans, your guess of 100 is countered by my guess of 900, in a jar of 500 beans. But with wealth distribution at the 85% mark, it's hard to 'overestimate' that number: it's unlikely anyone will say the top 1% controls 99% of the wealth.

_delirium5• 16 years ago

Yeah, that seems likely. I wonder if some confusion with income distribution is also a factor. People might assume that income distribution and wealth distribution are similar, so might be influenced by figures that they've heard for income--- the top quintile earning 55% is almost correct for income.

Perceval3• 16 years ago

Although he seems to be over-hyped (especially by himself), Nassim Taleb makes a pertinent point about this problem in The Black Swan.

Certain things in like can accurately be described by a normal distribution curve (the Gaussian or Bell Curve). What we see from the examples of crowd sourcing is a real-life version of a central limit theorem: if you have enough observations in a sample, the sample mean will approach the population mean, if the distribution of the population is normal. Many natural phenomena are normally distributed, making the bell curve a fantastically useful statistical tool.

However, Taleb goes on to note that while the normal distribution is very good with natural phenomena, it often does very poorly with social phenomena. Many social phenomena are best approximated with power law distributions rather than bell curve distributions. As such, attempting to model social phenomena with a normal distribution will end up underestimating extreme occurrences or fat tails. This is Taleb's critique of using standard inferential statistics, based on the normal distribution, to examine social phenomena such as income distributions or financial markets.

In the article, we see that the central limit theorem does not hold when the distribution that is being modeled/approximated is too skewed. (One of the statistical tests for normality measures skewness.) Things like income and wealth distributions, as social phenomena, have been shown time and again to follow a power law distribution rather than a normal distribution. Thus it shouldn't be a surprise that averages estimates of the distribution fail to capture the 'fat tail' of the top quintile.

hugh314• 16 years ago

Underestimation of what a wealth distribution looks like is just a common flaw with human brains, the same way people are terrible at estimating volumes of containers.

The other effect which confuses things is that we're talking about the distribution of wealth, not income. Many people survive very comfortably with a near-zero or even negative net wealth... a new law-school graduate on a $140K salary probably has a negative net wealth thanks to student loans, but nobody would call him poor.

eru4• 16 years ago

> a new law-school graduate on a $140K salary probably has a negative net wealth

Depends on how you account for his future income.

goalieca• 16 years ago

I currently live in Vancouver, BC. We have one of the highest ratios of cost of living to income. According to statistics canada, in 2008 the median total income by family was $68,670. That year the average house price in greater vancouver for a single detached unit was $921,000. I can tell you that things have hardly changed at all. We currently have one of the highest cost of living in the developed world.

edit: We have now crossed the $1 million mark: http://www.ctv.ca/CTVNews/Autos/20100406/vancouver_100406/

kreek• 16 years ago

You also have one of the biggest housing bubble in the world.

I grew up in Vancouver (now in CA), it is one of the most beautiful cities in the world, but million dollar average home values are not sustainable when the average income is $68k.

analyst74• 16 years ago

You can to take into consideration of those who do not primarily live in Vancouver but purchase property there, including but not limited to, Hong Kong riches.

ww5207• 16 years ago

Could it be the bubble caused by the 2010 Winter Olympic? Now that it's over, things should simmer down.

hugh314• 16 years ago

Heh, no, the Olympics typically don't cause much of a bubble on their own. I present Sydney house prices from 1980-2008:

http://www.marshegroup.com.au/SiteMedia/w3svc627/Uploads/Ima...

Sydney, as you may recall, had the Summer Olympics (generally much bigger than the Winter ones) in 2000, and if anything that's just the start of another spurt of bubble.

Vancouver is bubbly for all sorts of reasons (and so is Sydney). Mostly I think it's the same bubble that hit the United States, but due to less crazy lending standards in Canada there hasn't been the sudden burst there.

kiba• 16 years ago

Why is wealth equality a good thing?

I am a poor college student that got a scholarship that paid for most of my college education. My family is too poor to pay for such an education. I got no issue with incredibly rich people. What they're going to do? Buy that 100 inch TV?

_delirium5• 16 years ago

The article's primarily about people being very wrong about the figures, though, not primarily about whether the figures themselves are good or bad. Someone with accurate information could still think that the current distribution of wealth is perfectly fine, but we should at least have the facts right!

mseebach5• 16 years ago

Well, it tries to hide that pretty good:

> Why aren't the bottom 99 percent marching in the streets?

> One possible answer is sheer ignorance.

And then goes on to demonstrate said ignorance.

maxawaytoolong3• 16 years ago

When wealth inequity is huge, it causes social instability and eventually, revolution.

It's generally not poor people who revolt, it's the middle class. Especially if there has been an event which created a newly disenfranchised middle class. If the middle class is doing ok, there's little to worry about. If they feel they are getting shafted... that's when potential trouble starts brewing.

Actual levels of wealth and disenfranchisement have little to do with social stability as it relates to wealth. It's all relative perception.

jacoblyles3• 16 years ago

Are you sure? What if the middle class is doing okay AND there is large wealth inequity?

The United States doesn't exactly resemble historically tumultuous places where there is widespread abject poverty and a few wealthy nobles.

I can't think of any society where most people had A/C, cable TV, two cars, and a college education that revolted because some people had a bigger house, a bigger TV, a more expensive set of cars, and a slightly better education.

Interestingly, to the extent that there is social unrest in the United States today, it is a revolt against the would-be equalizers and the centralization of power.

yummyfajitas3• 16 years ago

Wealth inequality is not the only thing that can lead to social instability. Angry mobs have formed and engaged in violence over many issues - interracial sexual relationships in the US (historically) and conversion from Islam in Afghanistan are two such examples.

If one advocates against wealth inequality on the grounds that angry mobs might engage in violence if inequality were too large, shouldn't one also advocate against X whenever there is a significant risk of violence by mobs?

If policy should cater to angry mobs threatening violence on issues of wealth inequality, should policy cater to angry mobs on issues of racial hatred or religious conflict as well?

byrneseyeview• 16 years ago

When wealth inequity is huge, it causes social instability and eventually, revolution.

Interesting. That sounds like it's a problem with poor people being angry and violent, not with income inequality per se.

It seems like spending money on the military and law enforcement would be a better investment than reducing income inequality under your scenario. And it makes sense, too--if people threaten violence, and you can afford to beat them, why pay tribute instead? It's not barbaric, but it does mean letting barbarians rule your society.

lutorm4• 16 years ago

People who are poor might think it more just that the extremely rich share some of that wealth so that everyone can have decent housing, food and school for their kids.

Even if you don't have an issue with rich people being rich, on a personal level, you may have an issue with the system allocating wealth in such an unequal matter.

eru4• 16 years ago

Valid question. And indeed, if wealth inequality did not have any consequences, we might not worry too much about it.

Unfortunately, in the real world it's correlated with a lot of unpleased effects. See the other replies to your comment or http://en.wikipedia.org/wiki/Economic_inequality#Effects_of_... for some details.

einarvollset3• 16 years ago

I don't mind either, as long as the wealthy 20% don't use their (obvious) political influence to further their own ends.

This can obviously happen without them being aware that they're doing that. A good example is the Chicago law prof who laments being too poor for the temporary Bush tax breaks to expire.

What he's not saying explicitly is; "I don't want to pay for healthcare for poor people". Probably as he's already got a pretty nice health plan already.

Now you can bet that a Law Professor has more clout than your average construction worker, so his ignorance at his own wealth is more damaging.

Vivtek3• 16 years ago

The wealthy 20% always use their influence to further their own ends. That's why income inequality is viewed as a problem in the first place. The percentage of wealthy philanthropists is never enough to make up for the lack of a prosperous middle class.

ubernostrum3• 16 years ago

Wealth inequality (at a big enough level) is the difference between a land of opportunity and a land where the rich get richer and everybody else gets stepped on.

mseebach5• 16 years ago

In theory, yes. In practice, no. It's easier to get rich in relative terms in a country with low inequality, but it's harder to get rich in absolute terms. Rich people in Scandinavia barely pass for upper middle class in the US.

Perceval3• 16 years ago

There seems to be a contradiction in your thinking. If 'opportunity' is seen as making something of yourself, being successful, getting richer, that seems to necessitate inequality of outcomes. If the range of socially acceptable outcomes are compressed be redistributive policy, doesn't it also follow that the opportunities open the individuals will be concomitantly restricted?

david_p• 16 years ago

I believe that the distortion of perception in the actual distribution of wealth can be caused by the fact that the people we talk about (on tv, on the radio, on the internet, etc.) are often wealthy people (actors, singers, politicians, entrepreneurs, etc.).

The media make people feel "close" to people who a incredibly more wealthy than they are, making them feel poorer than they actually are.

lutorm4• 16 years ago

Except that goes in the wrong direction. People actually think they have more wealth, proportionally speaking, than they do have.

mhd2• 16 years ago

I'd be interested in seeing the wealth distribution of the US without the financial sector and compare that to other nations…

akikuchi• 16 years ago

That's a fine sounding sentence, but what do you actually mean by that? Do you mean the wealth distribution when subtracting out the equity value of financial businesses? Or ignoring the net worth of individuals who happen to be currently employed in the financial sector? My first reaction is that your comment is suspiciously vague, and might be confusing income with wealth.

mhd2• 16 years ago

Sorry, I was just spitballing. As the article was about both wealth and income, I should've mentioned both. But especially with wealth, I don't know how to remove the financial sector from the calculations, as just fromreading this article, I don't know from what they derived their percentages (and even then this is probably beyond my expertise, not being an economist). Net worth of people in the financial sector is probably a good starting step.

Or more generally, a breakdown of the areas of work of the richest 1 percent of several countries would definitely be interesting (again, both wealth and income).

ibejoeb• 16 years ago

>They showed respondents three unlabeled pie charts...Norton and Ariely were astonished that 47 percent of respondents...chose the pie chart depicting Sweden.

Here we go again

trunnell• 16 years ago

It would better to present the data in this article alongside data about upward mobility. For example:

Children from low-income families have only a 1 percent chance of reaching the top 5 percent of the income distribution, versus children of the rich who have about a 22 percent chance.

http://www.americanprogress.org/issues/2006/04/b1579981.html

hugh314• 16 years ago

Low upward mobility shouldn't be considered a bad thing -- in fact, it's a sign of a functioning meritocracy along with the fact that merit is at least partially inheirited.

Add to this the fact that children also pick up financial literacy and values (good or bad) from their parents, and there's your low upward mobility right there. I doubt if the other effects (i.e. rich children inheirit wealth and can often get into better schools) are nearly as important as the genetics of it.

borism11• 16 years ago

Rich people tend to be smart, smart people tend to have smart children, smart children tend to grow up to be rich, and so rich people wind up having rich children. Rich people would have rich children even in a society where all children were taken away from their parents at birth and raised communally. Add to this the fact that children also pick up financial literacy and values (good or bad) from their parents, and there's your low upward mobility right there. I doubt if the other effects (i.e. rich children inheirit wealth and can often get into better schools) are nearly as important as the genetics of it.

this is so full of misconceptions that I won't even start.

Vivtek3• 16 years ago

Social Darwinism, alive and well in the 21st. Plus ca change.

nostrademons• 16 years ago

I think you need to separate your factual statements from your value judgments.

On a factual level, you're right (and don't deserve all those downvotes). Every study I've seen suggests a strong correlation between genetics and intelligence, between intelligence and income, and between income and wealth. When you multiply them out, the correlation becomes somewhat less, but it still seems like a fair statement to say that genetics is correlated with wealth.

That doesn't imply that this correlation indicates a functioning meritocracy, because to the extent that intelligence is genetic, intelligence is not merit. Merit usually implies that something admirable that someone chose to do, and if someone was born intelligent, how is that merit? It's like making a value judgment on any other inborn trait - say, that blondes are better than brunettes, or fair-skinned people are better than dark-skinned ones.

The part of intelligence that people usually associate with "merit" is the part that's not inborn, the part that people have to work for. Intelligence can lead to a functioning meritocracy despite its genetic component, not because of it.

hugh314• 16 years ago

It's important to note that people who say they'd like to see a more equitable distribution of wealth may not necessarily be saying they'd like to see more redistribution of the wealth created by the top people, they may be saying that they'd like to see the bottom people become more productive.

Suppose a freak disease killed off everybody with an IQ below 120. Obviously society would take some time to adjust to the new reality, but once the adjustment occurred, what do you suppose the weath distribution would look like? Significantly more equitable, I assume.

We don't have a bad distribution of wealth, we have a bad distribution of talent.

borism11• 16 years ago

is there any evidence that top 1% have higher IQ than bottom 99%?

hugh314• 16 years ago

Is there any lack of evidence that wealth is correlated with intelligence?

It seems as obvious as "height is correlated with gender" to me, but feel free to go read The Bell Curve or something.

grandalf2• 16 years ago

Don't overlook the impact of personal preferences/choices in the mix.

Some very smart people do things like found startups or become teachers or lit PhDs, marry a rich person, or decide to avoid the rat race.

hugh314• 16 years ago

Of course. Broad, society-wide correlations don't say much about specific cases.

You won't find many of these PhDs in the bottom 10%, though (except in cases of mental illness). Smart people are smart enough to figure out how to avoid desperate poverty, and some of them are also smart enough to figure out that making $400K a year for Bain won't make them happy.

mseebach5• 16 years ago

How is a study of how people perceive wealth distribution anything but a giant strawman? It's akin to showing non-programmers source code listings of merge-sort, quick-sort and bubble-sort and ask them what they think would be fastest, and then try to draw conclusions from the answer.

In the beginning of the 20th century, class warfare was apparently imminent, but the difference between now and then isn't wealth distribution, it's wealth - period. Being poor then meant worrying about whether or not you could shelter and feed your family, today and tomorrow, not to mention over the winter, and the way to do that was more often than not through long hours of backbreaking work that might very well kill you. Being poor today means worrying about an entirely different, and much more comfortable, set of issues.

And that's just being poor, not even thinking about life in the second and third quintile.

The rich got extremely rich, while the poor got very rich. Life in general became much cheaper, safer and more comfortable. I'm sure you could find plenty of fifth-quintile people in 1915 who'd be happy to switch life with first quintile people anno 2010.

And the short version: Marx was wrong about a lot of stuff. Let's quit being surprised when reality doesn't fit Das Kapital.

crux_• 16 years ago

I'll just link you to _delirium's response here: http://news.ycombinator.com/item?id=1736325

scott_s• 16 years ago

If we programmed computers by asking people to vote on how to implement an algorithm, then that would be a relevant study.

People vote and support policy based on how their perceptions. It's important to understand what those perceptions are.

borism11• 16 years ago

> I'm sure you could find plenty of fifth-quintile people in 1915 who'd be happy to switch life with first quintile people anno 2010.

first of all, THAT is a giant strawman.

and second, so that's your justification for less equality - "be glad you weren't born in 20s!"?

hnal9432• 16 years ago

No, the justification for "less equality" is that it is an optimal solution. Everyone is much better off than if everything was "equal." Equality is not an end in itself. If nuclear war were to break out, we would all be equal (and dead). That doesn't make it better than what we have now.

_delirium5• 16 years ago

> It's akin to showing non-programmers source code listings of merge-sort, quick-sort and bubble-sort and ask them what they think would be fastest, and then try to draw conclusions from the answer.

Isn't it more akin to showing programmers those source code listings, and then being appalled that so many got it wrong? We're talking about asking the relevant people who make decisions: programmers should know the facts about algorithms, or else it's likely they will make poor choices when writing software; and voters should know the facts about their society/economy/etc., or else it's likely they will make poor choices when voting.

noonespecial• 16 years ago

This is true as far as in the old days, the rich were able to live a different kind of life than the poor. One much more free of the fear of imminent death.

Nowadays, mostly being rich means you get a bigger chair on the airplane, a bunch of rooms in your house that you pay to heat but never go into, a car that requires more fuel, and if you got your money faster than sense, the idiotic practice of gold plating ordinary objects and gluing diamonds all over them.

This can change if the lack of wealth once again has the potential to threaten life. With the way we are cavalierly poking the health care beast, its not that difficult to imagine. If parents are ever told in a way that makes it clear to them that their sick children will be denied treatment that could save their lives because of a lack of money (that a richer person would think nothing of wasting on a weekend in Vegas), class warfare once again becomes a possibility.

mseebach5• 16 years ago

Healthcare is an excellent example of how absolute leaps in wealth are much more significant than relative ones. Access to good healthcare is pretty binary, and doesn't put a very significant dent in inequality - but it lifts a huge concern from those too poor to buy for themselves.

rickmb• 16 years ago

You've just excluded about 6 billion people from your definition of "poor".

Given the fact that the US needs a huge part of the resources of the rest of the world (labor, oil, etc.) in order to be "rich" by whatever definition, it's kind of cheating to exclude the rest of the world's population from your argument on the distribution of wealth.

Marx may have only been wrong about time and scale...

notahacker2• 16 years ago

It's plausible that a realisation that income inequality _within_ the US has less extreme consequences for people at the bottom end of the scale than income disparity between the US and the rest of the world explains why the US population appears to downplay the level of their own inequality.

There are legions of people working 80 hours a week to put a bowl of soup on their own table and televisions on the tables of the American poor.

mseebach5• 16 years ago

Nope, he's wrong about this too. On the scale of half a billion people lifted from absolute poverty by making the US "rich". Note, by the way, the rapidly increasing flow of western consumer goods into countries like China and India.

They didn't revolt when they were poor, why should they start now?

Also, I didn't exclude anyone - the article is very explicitly about wealth distribution in the US.

lutorm4• 16 years ago

Being poor today means worrying about an entirely different, and much more comfortable, set of issues.

I'm not sure you have a full appreciation of the extent of poverty in contemporary U.S... The official US Government definition of poverty is (according to Wikipedia):

The "absolute poverty line" is the threshold below which families or individuals are considered to be lacking the resources to meet the basic needs for healthy living; having insufficient income to provide the food, shelter and clothing needed to preserve health.

Wikipedia claims that in 2008, 40 million people (13%) met that definition.

ww5207• 16 years ago

That was a saying that the FDR welfare reform was for the rich rather for the poor. The poor in 1910's had little social safety net and were susceptible to violent uprising. The welfare reform pacified generations of poor and made them docile these days.

That's why progressive taxation is a rational solution. The rich are benefited from an stable environment that they can make their wealth. It's only sensible that they pay to upkeep it. In war and violent uprising, wealth can disappear overnight.

jacoblyles3• 16 years ago

There's something thuggish about saying "Give us your stuff or things will get ugly. Don't forget, we poor people are very impulsive".

ww5207• 16 years ago

What if "your stuff" are not yours to begin with? What if the stuff you "earn" relying on others to build a system to begin with? How much you are willing to pay to build such a system?

Wealth people built are done in the framework of a society. You can live in an island all by yourself and be your own government and print your own billion of money, and no one would care. When you derive your wealth from a society with people, other people would care about you paying your share since they build the system and you benefit from it.

hugh314• 16 years ago

The rich are benefited from an stable environment that they can make their wealth. It's only sensible that they pay to upkeep it.

I can see how that could justify taxation somewhere between "poll tax" and "flat tax", but nothing more "progressive" than flat tax.

If I have a hundred thousand dollars, and I'm paying for the government to protect my assets, maybe I should pay $N. If I have five hundred thousand dollars, and I'm paying for the government to protect my assets, that's logically worth 5 times $N.

The component of my taxes which go towards protecting my wealth can quite sensibly scale linearly with my wealth, but not super-linearly.

borism11• 16 years ago

except costs of protecting more wealth grow exponentially, not linearly.

ww5207• 16 years ago

Because your ability to make mega millions hings on the scalability of wealth making a stable society provides. It is not an individual's own ability to make huge amount of money. Without a law abiding and stable society, you won't make your millions.

If all the workers are uneducated and dumb, if all the contracts are out of the window, if all the banks collapse, if the money are worthless, if no court or police to protect your property, if no firefighter to rescue your burning home, how much millions you can make? How much are you willing to pay for those?

If taxes are considered as a cost of doing business in a functional society, it won't be contested so much.

notahacker2• 16 years ago

Why is the focus on cost, rather than benefit? To take an extreme example, if a country is overrun by a hostile power, the rich generally lose virtually all their wealth. Those on near-subsistence incomes may not notice the difference.

That's even without accounting for services such as protection of intellectual property that add far more to the incomes of wealthy beneficiaries than public education does to a lower income taxpayer.

If the government was a corporation it would be entirely logical for it to price discriminate by charging the super-rich elevated "enterprise" rates

hga4• 16 years ago

On the other hand, in pretty much every way, the poor suffer much more from an unstable society (with the only exception being an all out successful class war revolution that wipes out the rich class ... many of whom are going to be able to flee anyway).

ww5207• 16 years ago

True. But who have more to lose? The guy with nothing to start with or the guy with a billion dollar?

jacoblyles3• 16 years ago

Personally, I couldn't care less about how much the next guy makes. My father grew up without air conditioning, any sort of decent medical or dental care, no college education, and (often) poor nutrition. I may not have had cable TV or name brand clothing, but I have had a much better life than my father did. Hell, I have two degrees and work indoors. And lord knows if I have kids they will have a much better life than I did.

Every now and then an article calls me a rube for not voting for the redistributionists (who have so many other things so horribly wrong with them). But I'm not buying it. I'm honestly not envious of how much the next guy has and I'm very grateful for what I have.

It's not my relative level of wealth that concerns me, but the absolute level.

orangecat• 16 years ago

Well said. There are valid arguments in favor of reducing inequality, but too often they come across as thinly disguised envy.

vannevar• 16 years ago

'Wealth redistributionists' aren't motivated by envy, as you imply. Rather they are motivated by the practical aspects of maintaining a healthy society. It's in the best interest of all if wealth ends up in the hands of those best able to employ it to everyone's benefit, ie the most productive members of society. The prevailing assumption is that the unrestricted free market is the best way to do this. It's now clear that this assumption is wrong, and that wealth tends to attract wealth entirely apart from the economic fitness of the person wielding it.

There is no such thing as an 'absolute' level of wealth, once basic survival needs are met. Study after study shows that people's perspective on wealth is entirely relative, which is why there were several recent articles here on HN regarding rich people who don't feel rich.

What exactly is a healthy and efficient distribution of wealth is open to debate, but a split where 1% of the population hold 35% of the wealth certainly doesn't seem either healthy or efficient.

SHOwnsYou• 16 years ago

There isn't anything inherently wrong with a wide rich-poor gap.

There is a floor for poverty but not for wealth. You can be really really poor, but you'll never be poorer than having $x.xx of debt associated to your name (I am just ballparking like $50,000, though I know this can fluctuate some -- please no nit arguments about Bernie Madoff)

The rich have no ceiling to how much they can accumulate. In fact, they can accumulate vast sums (maybe more than poorer people make in a lifetime) by simply letting their money sit in a bank account.

1% holding 35% of the wealth doesn't mean anything beyond the most superficial level. What is more important is if the remaining 65% of wealth is distributed in such a manner that allows the other 99% to survive with some amount of quality of life.

danteembermage2• 16 years ago

One thing worth noting about lower income wealth levels are that most households include expected social security benefits when making the wealth vs. consumption decision.

A thought process might go something like this: "Should I buy the CD or pay my daughters tuition? I expect Social Security to pay half of what it does now in inflation adjusted terms by the time I retire, so I need X in real income to maintain my lifestyle taking that into account. Running the numbers I can afford to help her"

Since social security is relatively tiny for the wealthy and large for the poor, it biases against wealth generation by the poor since they have better things to spend it on. This is absolutely a crude estimate but retiring at 66 making 45k pays 1235 a month. Assuming a median age of death of 85, and a 4% annual interest rate compounded monthly, that's 1235/0.003333-1235/0.003333(1/1.003333^(1220))~= $200,000 at the time of retirement or roughly $100,000 at middle age. If there are 150 million people in the workforce that's $150 trillion in uncounted wealth. The total household wealth as estimated now is $55 trillion. So by that metric 3/4 of the wealth of the US is tied up in expected social security benefits. That seems really high to me, obviously I've made some big assumptions about length of payments received, median income, etc. but I think it'd be tough to justify excluding a stream of payments that last until you die, even if we are expecting cuts to the program in the near future.

Also, it looks as though the middle class and poor are actually wealthier than is assumed by the survey respondents using this metric, the opposite conclusion of the article.

danteembermage2• 16 years ago

After thinking about this, I realized I left out the liability that the 45 year old worker has in social security payments remaining, so the wealth effect will be smaller than the above. Also for young workers (who are often poor) the social security wealth effect may be negative since they pay over many years and receive in the distant future, making the original articles premise stronger.

Symmetry• 16 years ago

I wonder how close people's guesses as to wealth are to the actual distribution of income in the US?

grandalf2• 16 years ago

This is largely a numerical consequence of a far smaller effect:

Middle class: Average real wages do not change much aside from slow moving meta-factors like industrialization, etc.

Lower Class: By definition has no wealth

Upper Class: By definition has invested/growing wealth. Wealth rarely grows at > 3% per year in real terms.

Now run the simulation for a few dozen iterations and simply because of returns on investments, the distribution gets more and more skewed.

This is actually the main principled argument for an inheritance tax (though there are, I think, stronger arguments against it).

Fortunately for egalitarians the rich suffer from: trophy spouses, bad luck, bad investments, and spoiled rich kids that throw it all away. Also the non-rich often succeed in an investment, startup, etc.

The two groups intermarry often since things like beauty, intelligence and luck are doled out by different (but analogous and equally un-egalitarian) lotteries.

EdiX• 16 years ago

> Also the non-rich often succeed in an investment, startup, etc.

For very small values of often...

hugh314• 16 years ago

While I've made a number of comments on this thread, I've realised that it really isn't anything but politics of the sort that promotes flamewars, so I'm flagging it.

rationalbeaver• 16 years ago

I wonder how people would answer if the implications of the graphs were made more clear to them.

An unequal distribution of wealth, at least in America today, implies that great success is possible (in a system with less income mobility it might imply something else, but that is not the case here). Given the right combination of luck, brains, talent, hard work, or beauty, you too could become fabulously wealthy. Your startup could be the next Google, or Facebook. You could be the next Bill Gates. And if your plans for greatness don't pan out, well, even the bottom quintile has it pretty good compared to most places.

In the other graphs, the chance for relative comfort is increased (assuming a certain base standard of living), but the chance for huge rewards for great success is drastically reduced. In the Utopian version it is non-existent: No matter how hard you work, you will get the same result.

Maybe I am still young and idealistic, but frankly I prefer the first graph. I'll take freedom over security, and a chance for greatness over comfortable mediocrity.

wazoox• 16 years ago

Except the reality check : swedes do better by about every metric you want.

rick888• 16 years ago

"The United States may possess a shrinking middle class, but the number of its citizens who consider themselves middle class (because they can't face that they're rich) may actually be growing. "

When you live in a place like Chicago, with a city sales tax alone of 11%, $250,000/year (among other taxes) might not be considered wealthy. Wealth is relative. A job in the midwest for $100,000/year will go much further than a Job in the Bay area for the same.

Nearly half of all people in the US don't pay federal income tax:

http://finance.yahoo.com/news/Nearly-half-of-US-households-a...

Before we start taxing the rich even more than they are already paying, we should figure out how to get tax revenue from the people that aren't paying. This will never happen because the democrats don't want to lose votes (taxing the rich always seems to be the only answer to getting more revenue).

Everyone should also get taxed the same percentage. This way, everyone knows what it feels like.

gfunk911• 16 years ago

One possibility is that while the rich now hold a larger percentage of income, they hold a similar percentage of "income over subsistence level."

In real dollars, the subsistence level is much lower now than in 1919. Assuming that subsistence in any era gives roughly the same utility, dollars over subsistence can be a useful metric.

I quickly dashed out 2 distributions, for then and now. I just plugged in numbers that looked sane and got the percentages to come out right. Then i plugged in 2 subsistence levels, assuming that NOW is 50% of THEN, in real dollars. The $ over subsistence % comes out roughly equal then and now.

https://spreadsheets.google.com/ccc?key=0AsZT04jfENsidEpHLTM...

Alex63• 16 years ago

This study (studies?) has been in the news a lot recently. It seems clear that how you respond to it depends on what role you believe the state should play in the redistribution of wealth. As a disclaimer, I'll say right now that I do not believe the state should play any role in redistributing wealth.

My suspicion is that this study has been presented and promoted as justification for increased taxation of the wealthy. Of course, increased taxation of upper quintiles won't actually change the distribution of wealth unless the government directly transfers the proceeds of increased taxation to those in the lower quintiles. But that won't happen. Instead, the increased taxes would be used to give those in the lower quintiles services that the government has decided they need (or to further subsidize corn farming or other friends of the party in power).

As a thought experiment, I wonder how many people would support a proposal to take the aggregate payroll of their local NFL/NBA/MLB/NHL franchise, and distribute it evenly among all of the players on the team roster. Not many, I suspect.

Real v. Imagined wealth distribution in the US

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