Americans Are Horribly Misinformed About Who Has Money

http://www.good.is/post/americans-are-horribly-misinformed-about-who-has-money/

by Hoff • 16 years ago

221 192 16 years ago

byoung2• 16 years ago

What’s interesting here is the extent to which the public vastly overestimates the prosperity of lower-income Americans.

I bet this is due in large part to the availability of credit over the last few decades. Credit has allowed lower-income people to "play the part" of the wealthy, giving rise to the distortion. In particular, interest-only, 0% down mortgages, low or no-interest credit cards, and car leases let someone making $50,000 a year drive a Mercedes, live in a million-dollar house, and buy fancy toys like flat-screen TVs and Jet Skis. I think the vast majority of the public would base their perception of wealth on material possessions such as cars, houses, and boats rather than the amount of money in savings or investments. This could explain the discrepancy.

smhinsey• 16 years ago

Over the last 30 odd years, "wealthy" has gradually morphed from "compound interest" to "credit approved."

ctdonath• 16 years ago

Most lower-income americans make more than the world median income. Our "poverty line" is 20x the income line for half the planet.

Of late in Atlanta, one news story about someone unable to pay to heat more than one room had a dramatic photo of her showing her heating bill in her living room - with a 55" HDTV and Xbox360 in the same room.

Problem with that chart is scale: while 20% may have most of the money, the poorest still have enough to live in world-relative luxury.

steveklabnik• 16 years ago

But someone with $10k here and someone with the equivalent of $10k in Africa have vastly different buying power.

michaelchisari2• 16 years ago

someone unable to pay to heat more than one room had a dramatic photo of her showing her heating bill in her living room - with a 55" HDTV and Xbox360 in the same room.

There's a difference between the ability to purchase one-off consumer goods and the kind of situation this person is in. Consider that those consumer goods may have been purchased before an economically catastrophic event such as an illness or a layoff, or they may have been a gift from someone who is willing to purchase consumer items, but not willing to provide the household stability that they require.

Also consider that, second-hand, these items are not particularly expensive, and even if they were sold, they may only provide a heating bill for a month or two. Especially in places like Atlanta, which are particularly badly insulated, and ill-equipped for severe cold.

So what we have is a situation of economic precarity, an instability in which the existence of consumer good purchases does little to remedy a unstable situation.

I have a lot of gadgets and toys, but the overall value of them depreciates daily, and if I lost my employment or well-being tomorrow, they would do little to stabilize my financial situation, even if I fully liquidated all of them at a good market rate.

jonhendry8• 16 years ago

"Of late in Atlanta, one news story about someone unable to pay to heat more than one room "

Meaning she probably was using an inefficient electric heater, in a poorly-insulated home in a normally-warm region, in an unseasonably cold period. I could see that raising the electric bill significantly. I once went away for Thanksgiving weekend and accidentally left my refrigerator or freezer door open a crack. That month's electricity usage was several times higher than any other month since I've lived there.

Was the HDTV a projection set? Those are cheap, especially second-hand. Might only be a 720p. EBay has larger TVs listed for $200. Hell, nobody wants those fuzzy room-hogging monsters anymore. Could have been a freebie from a better-off friend or neighbor who upgraded to a flat panel.

XBox 360s aren't particularly new, rare, or precious, so might have been acquired used, possibly as a trade. And might have been bought by a child, or received as a gift. Maybe her kid bought it then went into the military and left it behind.

gnaritas• 16 years ago

> Most lower-income americans make more than the world median income.

A meaningless stat; cost of living here is far more than the world median as well.

ShabbyDoo2• 16 years ago

I agree. How many people in the bottom wealth quintile earn $200K+/year? Probably not a great portion, but definitely not zero. When Americans think about "wealth" inequality, do they consider the distribution of asset levels, or the distribution of income and the implied potential to accumulate wealth at various levels?

Perhaps the ever "improving" social safety net reduces the risks associated with having no wealth (savings)? Another commenter noted the woman who, with her 55" TV in the background, complained that she could not afford to pay to heat her home. I'm sure there's some governmental program (or some government-mandated assistance from the utility companies) waiting to help her out.

waqf2• 16 years ago

The question they asked is difficult to interpret, i.e. hard to translate between specific answers "I think the top quintile possesses N% of wealth" and an intuitive understanding of how skewed (or not) a distribution we're talking about.

I have a strong quantitative background, and I have to do some calculations to interpret these numbers. And these guys are interviewing average Americans and inviting them to pull numbers out of their ass. Cognitive biases are going to skew these numbers horribly: people will sooner say 80% because it "sounds" like a much more "reasonable" answer than 99.8%, even if a little math would show that it wasn't.

For example, I'd like to see the study done again with people asked the mathematically almost-equivalent question: what do you think is the average wealth of the top (resp. second, etc.) quintile. (Almost-equivalent, because you have to tell the respondents the total amount of U.S. wealth for them to be able to convert one answer to the other.) Without that control I think the results are worthless.

jfager3• 16 years ago

Cognitive biases are going to skew these numbers horribly

I guess I thought the point of the article was to demonstrate exactly this skew.

Where does a person's emotional reaction to tax cuts or welfare come from? If people casually think that poor people aren't as poor as they really are and that wealthy people aren't as wealthy as they really are, they're going to act accordingly when it comes up in their daily life. How they actually think when forced to confront real numbers seems less relevant in that case - how many people actually sit down and do the math before deciding who to vote for?

waqf2• 16 years ago

You missed my point, or at least part of my point. The point is that the numbers people write down in this survey will not accurately represent their own impression of how poor poor people are.

tibbon2• 16 years ago

However, I think that anyone who understands general statistics and numbers as they apply to social groups would guess at this trend almost immediately as things like this almost always fit a Lorenz/Gini curve, although I guess the harshness of the reality of it really is shown here.

I remember when studying some social network stuff the other year I found that pretty much everything in every social network I looked at followed this type of trend regardless of what the 'wealth' was (twitter followers, youtube subscribers, flickr views, etc)

rapind2• 16 years ago

The reality looks a lot like the 80/20 principle doesn't it?

moultano• 16 years ago

You're entirely right. I dont think anyone but a demographer has an intuition for stats like this. I'd bet that a ton of people answered 20% across the board.

martythemaniak• 16 years ago

Facts play a depressingly small part in politics and (perhaps even more depressingly so), studies/surveys and casual observations show that pointing out various facts to people does not actually change their opinions. Try talking about income inequality to a Tea Partier and you'll get the same reaction that an evangelical christian has to evolution. Moreover, this is certainly not an American phenomenon - I see it US politics, Canadian politics, and if I paid enough attention, I'd show up in European and other politics as well.

jacoblyles6• 16 years ago

Tea Party supporter here - and I am quite aware of the facts regarding income distribution in this country. Are you saying that people can't disagree on the proper level of income redistribution for a society if they are all aware of the current distribution of income? That's a mighty strange assertion.

jlangenauer• 16 years ago

Downvoted by accident (damned iPhone), but I think this is a reasonable question.

pg• 16 years ago

I wouldn't be surprised if most respondents are answering as if the question were about income rather than wealth.

arvinjoar• 16 years ago

Exactly, and I can't see why the charts shouldn't look like this. Saving money is a luxury, it's a good thing to do if you can afford it and if you're saving your money for something worthwhile. What's important is that people are living the lives they want to be living, and I'm sure that's possible without lots of savings (although wealth could probably help).

Most people like to spend money now instead of later though, and the charts reflect that. It's as simple as time preference.

kiba• 16 years ago

All things being equal, human beings prefer an object now instead of an object in the future.

Benjo3• 16 years ago

The problem is the distorting effect that wealth has on equal representation in a democracy.

jellicle• 16 years ago

You're absolutely right, the reason why people earning $10K/year aren't millionaires is because they just aren't saving properly.

{shakes head sadly}

billybob2• 16 years ago

Saving money is not a luxury. It's completely irrational not to save unless you are truly destitute.

Put it this way: you have a car. Sooner or later it will break. Are you preparing for that? Are you setting aside money to repair and replace it - money that earns you interest while it builds up? Or are you borrowing money and spending all your money on payments, risking that you won't be able to pay rent if your transmission breaks?

OK, if you make minimum wage, this is hard to get out of. But it's possible. Can you live with your mom? Can you drive a worse car? If you can get that thing paid off and get ahead of the debt, get some savings going, you'll be on a moving sidewalk to better finances, less stress and unhappiness, etc. If you're spending everything on a payment, you're on a treadmill pushing you toward bankruptcy.

Yes, it's hard to make do with a small income. But saving is something that really, almost anybody can and should do. Liking to spend money NOW should not overrule our desire not to be thrown out in the cold next month, or our desire to sleep peacefully. There must be a balance, and all but the most destitute can do this. By which I mean "half a cup of rice a day."

patio11• 16 years ago

I also wouldn't be, but IIRC it doesn't materially change the picture. (No citation handy at the moment.)

Benjo3• 16 years ago

http://en.wikipedia.org/wiki/Income_distribution

Wealth inequality is much more pronounced than income inequality, especially in the bottom quintiles.

xenophanes• 16 years ago

I think it matters because accumulation of capital is important. You can have people with lots of capital but more moderate income because they don't work anymore, and that's good (b/c it creates jobs and increases the productivity of labor for their employees who use their capital).

redwood5• 16 years ago

The other thing is that the bottom folks aren't as "needy" as folks were in, say, the great depression. - I.e. "no one starves in america" and most people know this: so while the distribution in wealth is extreme, the distribution in QUALITY OF LIFE is less extreme. - This biases people's view and makes them feel that generally, for most americans, things are okay.

This is all true of course: except that the worry about an ultra-wealthy minority is not that their quality of life is too high compared to your's (it's not) but rather that their POWER is too extreme, since money is power and speech, and that since power corrupts, they MIGHT ultimately work to reduce further the strength of the lower classes to the point that poverty really does become extreme. - Since as Marx shows this is not really in the interest of the upper classes (that is: tyranny and extreme poverty are precisely what leads to a violent reaction by the down-trodden) it may be that, through the miracle of technology's abundance, we will continue on a track where we all have a high quality of life, but only a smaller and smaller pool of people "own" the production engines.

How a world where a few own all the profits, but the masses have what they need to survive looks, we will soon see: but it certainly feels very Brave New World and is, perhaps, inevitable.

jacoblyles6• 16 years ago

The fears of a plutocracy are overblown. You write that "money is power and speech". But people like Meg Whitman and Mitt Romney have tried to buy elections with their personal fortunes and it didn't work (and self-funded candidates do worse, on average, than other candidates).

Political inertia, the passions of the mob, and the maladaptive incentives facing legislators and bureaucrats are much more potent forces shaping our society than concentrated wealth.

javert4• 16 years ago

it may be that, through the miracle of technology's abundance, we will continue on a track where we all have a high quality of life, but only a smaller and smaller pool of people "own" the production engines.

I think the first part of what you said is right: we will continue on a track where we all have a high quality of life, absent a paradigm shift in which the economy crashes like in Weimar Germany.

The second part of what you said -- about ownership of the "engines of production" -- is straight out of Marxism, which is, by the way, broken. More and more we live in an information economy; it's not about what you own, but what you know and what you can make.

That minor nit aside--who cares who owns what, as long as it isn't stolen from others and as long as quality of life continues to rise for everybody who puts in their share of effort?

What I mean to say is that the most important thing is that the system be fair, and let's be honest, fair does not mean an "equal distribution of wealth."

In fact, it seems pretty clear (especially when "nobody's starving") that what is fair is letting people earn based on their productive capability and effort, whether they're Steve Jobs, an average software developer, or someone with only a high school diploma.

jshen8• 16 years ago

"the distribution in QUALITY OF LIFE is less extreme"

You're kidding right? Ever have someone in your family get an unexpected major medical problem while their young and either have no insurance or have the insurance refuse to cover care? That is a quality of life killer!

Or the simple fact that wages for the average person are stagnant or slightly down in the past few decades while healthcare costs are rising as well as the cost of an education. People are realizing that their children are likely to be worse off than they were and that is a quality of life killer!

Have you had a house foreclosed on? Again, quality of life killer!

I can go on, but you get the idea. What exactly do you mean by "quality of life"?

mindcrime• 16 years ago

Since as Marx shows this is not really in the interest of the upper classes (that is: tyranny and extreme poverty are precisely what leads to a violent reaction by the down-trodden) it may be that

It's not just about violent reactions; simply because extreme poverty does not benefit the very rich in economic terms... in fact, it harms them. And some (maybe a few, maybe most, who knows?) of the very rich understand this; look at what Larry Page and Sergey Brin did in establishing Google's charitable foundation. They understood that - in the end - their ability to grow their business requires a population of healthy, productive, engaged people to do Google searches.

If anything, technology seems to be making it easier and easier for people with less capital to produce things. In "our world" (that is, computers, software, web-based consumer sites, etc.) it's already possible to build a software startup with a negligible amount of money. Open Source Software and cheap hosting from Linode, Slicehost, etc. have made this stuff way accessible.

And even in the world of physical goods, every time we turn around we're hearing more about cheap 3d printers that make it possible to spit out real world physical items without a big, expensive factory.

Print-on-demand books make it possible to become an author / publisher for almost no cost. And the "print on demand" concept has been applied to other areas... have artistic talent? You can quickly be in the business of selling your art via the Internet, as clothes, prints, etc.

Now granted, doing something like making jet engines or automobiles still takes a lot of up-front capital, but still... I think the trend is towards more and more forms of production becoming more and more accessible to everyone.

guelo• 16 years ago

No one is starving in America? It's people with your callous ignorance that are allowing things to get so awful, I take it you have no idea what is going with the food pantries in your city.

zamfi• 16 years ago

I wondered about this too. Just for fun, I plotted the household income distribution on the same chart: http://dl.dropbox.com/u/667/income-distribution.jpg

Income distribution looks quite different from wealth distribution, and is more equal than the estimates in the original article.

[ Household income data from here: http://www.econlib.org/library/Enc/DistributionofIncome.html]

anthonyb2• 16 years ago

What does it look like once you subtract cost of living expenses though, or even just minimum wage? That'd give you an idea of the discretionary spending of each quintile; more informative than just a raw value. I suspect that discretionary spending would follow much the same pattern as wealth.

colanderman• 16 years ago

Agreed. I would think that most of those same people have no wealth; only income.

jonhendry8• 16 years ago

Probably negative wealth, actually.

tajddin• 16 years ago

What you're arguing is the semantics of a very personal word that means different things to very different people. To the poor, wealth == money; to the rich, wealth == all of the other things that one can think about when you don't have to worry about a roof over your head.

Don't take this as an attack -- just as a my personal opinion.

nostromo• 16 years ago

The paper says that they addressed that:

"We ensured that all respondents had the same working definition of wealth by requiring them to read the following before beginning the survey: “Wealth, also known as net worth, is defined as the total value of everything someone owns minus any debt that he or she owes. A person's net worth includes his or her bank account savings plus the value of other things such as property, stocks, bonds, art, collections, etc., minus the value of things like loans and mortgages."

cperciva• 16 years ago

Requiring people to read the definition doesn't guarantee that they will understand it.

Confusion4• 16 years ago

I don't expect the same graphs for income to be qualitatively different. The point that people vastly overestimate the prosperity of the lower income classes remains standing.

SandB0x• 16 years ago

Here's the original paper (featuring Comic Sans):

http://www.people.hbs.edu/mnorton/norton%20ariely%20in%20pre...

Note that the survey was carried out five years ago, before the financial crisis.

jasonkester2• 16 years ago

I'd like to see that graph broken down between people who think that wealth is a zero sum thing that can be represented as a pie (as shown) vs those who know it isn't.

That is, people who think that if I have a dollar, then they can't also have that same dollar at the same time.

woid• 16 years ago

Exactly! The pie is growing. Compare your wealth to your parents not your neighbors.

michaelchisari2• 16 years ago

A deli manager at a grocery store in the Chicago area in 1985 made $35k - $40k a year. Adjusted for inflation, that was the equivalent of around $72k - $81k a year. With full benefits.

It's been clearly determined that wages have not kept up with inflation, so I would say that comparing one generation's wealth with their parents is not something that will yield hopeful results.

timr• 16 years ago

"I'd like to see that graph broken down between people who think that wealth is a zero sum thing that can be represented as a pie (as shown) vs those who know it isn't."

Given that the "ideal" distributions are more or less the same across all other demographic slices, I doubt it would be substantially different. Which is good, because that argument doesn't stand up to even casual scrutiny.

The macroeconomic pie grows so slowly that it's not particularly meaningful to individuals on scales of less than a lifetime. When you actually look at the numbers [1], it's clear that rich people are getting richer at a much higher rate than poorer people are getting richer. Moreover, the average real household net worth has dropped substantially over the last decade, while the net worth of the richest has grown. No matter how you look at them, the numbers just don't support the "pie growth" hypothesis on anything other than an extremely long time scale.

[1] https://secure.wikimedia.org/wikipedia/en/wiki/Wealth_in_the...

Khroma• 16 years ago

I remember this from Hackers and Painters.

Money is a zero-sum game, wealth is not. So yes, I can't have the same dollar that you have.

jasonkester2• 16 years ago

I get a dollar, put it in the bank, which lends it to your company, which pays it to you.

It's sitting there on both your and my bank statement. We both have it at the same time.

chrischen• 16 years ago

So given companies competing in a certain market for market share, does it become harder as more entrants come into play?

If one has a monopoly, can others do just as well without detriment to the monopolist?

iwwr2• 16 years ago

Technology allows people to be much more productive than the mean and the weight of most productivity is naturally skewed toward a small minority.

This is not an injustice. A top programmer will be many times more productive than an average programmer and large codebases tend to include code from top programmers preferentially. Not only that, the value generated by top programmers (or project leader) is vastly more than that of an average programmer. This is why Google is paying their top people (technical, administrative) millions of dollars.

Compare that to a stone age hunter, who may have been 2-3 times more effective than an average hunter. A strong or a fast man is never much stronger or faster than an average man.

jacoblyles6• 16 years ago

>"This is not an injustice"

Others think differential returns to people of differential abilities is an injustice (or at least, the existence of differential ability in the first place). The fact that you don't just means your not a leftist. It's an a priori assumption either way.

jonhendry8• 16 years ago

"This is not an injustice."

Paris Hilton. Among other examples. Yes, there are people who get large paydays because they are strikingly effective at what they do. Then there are the people who get large paydays for no particular reason. Or because of their parentage.

Before celebrating the übermensch, please try checking back in with reality.

natrius6• 16 years ago

Sorry, Paris Hilton being rich is not an injustice. She's rich because people (particularly her parents) wanted to give her money. Trying to prevent that sounds like an injustice to me.

krschultz5• 16 years ago

A good stone age hunter may have been able to survive in situations that a bad stone age hunter couldn't have.

Frankly that's worth a whole lot more than being able to program better and I hope he got paid accordingly.

ryanwaggoner4• 16 years ago

Poor Americans are simply much, much, much needier than people realize.

You're not needier just because your neighbors are richer than you thought they were.

gort• 16 years ago

I think the idea is that your neighbours are poorer than you thought they were.

ryanwaggoner4• 16 years ago

They may have less net worth, but that doesn't mean they have income to the point that we could consider them "poor". I would really like to know what the median income is within each quintile of wealth distribution.

clarkm• 16 years ago

Poorer relative to the other neighbors, not poorer in absolute terms.

iwwr2• 16 years ago

Exactly, a fancy house and an expensive SUV may mean they're deeper down in debt.

Confusion4• 16 years ago

On the other hands, they are needier, because you just realized they are much less wealthy than you previously thought. So much less wealthy that you cannot conceive of living on that amount of wealth. If they are at the 20th percentile, they earn 5 times less than you at the 80th percentile[1].

[1] http://en.wikipedia.org/wiki/Household_income_in_the_United_...

ryanwaggoner4• 16 years ago

Ah, but this isn't about income, it's about wealth. The two are very different; there are plenty of people in the bottom quintile of wealth earning six figure salaries.

nhangen• 16 years ago

I think the headline is misleading, if not a flat out lie. Americans know who has money...almost everyone else. The average American is living paycheck to paycheck, or worse...they know that their friends are living in the same situation. We know that people like Bill Gates, Warren Buffet, and future Mark Zuckerbergs hold billions.

I don't really know anyone that is confused or surprised when they hear that this is how the country's wealth is distributed.

wladimir• 16 years ago

Indeed. The USA has a huge divide between poor and rich for a developed country. Their poor can hardly come by, their healthcare system is a mess, and even basic infrastructure is underdeveloped in a lot of areas.

And the funny thing is, even though many people agree with that, everyone is coming up with excuses. No one is addressing the problem on how to narrow the poor-rich divide instead of further widen it in any meaningful way. They all are caught up in discussions about details such as 'should we increase tax this year' which will probably have zero influence in the big picture.

But the most disgusting thing to me is that they are still trying to push their system of corporate plutocracy on the rest of the world, as if it is the best thing since sliced bread.

smarterchild• 16 years ago

Another way of looking at it: The data is completely overwhelmed by the super wealthy.

This is the very tail end of Fortune's richest people list.

http://www.forbes.com/lists/2010/10/billionaires-2010_The-Wo...

Any one of those people is worth 1 billion dollars, along with all the Gates's and Buffett's of the world. If I were pretty well off and worth, say, $1,000,000, it would take a thousand of me to equal one of him. And if I were a student with just a thousand dollars, it would take one million of me to get to one of him.

Based on that, the top quintile is not rich because of doctors, executives, basketball players or lawyers - it's billionaire company founders, investors, and the like. To test that hypothesis, I tried to find results marked by percentile, instead of quintile:

http://www.lcurve.org/WealthDistribution-1998.htm

The top 0.5% have 25.6% of the wealth and the next 0.5% have 8.4%.

---

(Side note, if you're thinking about income taxes: I'll bet there are more than a few people up at the top who get paid a dollar a year in salary.)

pedanticfreak• 16 years ago

I'm not sure Americans are misinformed, per se, but instead I'd sooner say human beings exhibit an equality bias. For example, if you gave a person a choice of two mutual funds, a low risk and a high risk, most people would put 50% in one and 50% in the other regardless of the actual distribution of risk over the two funds.

So if you gave the average person 5 groups of people and told them to ideally distribute the wealth between them, they would probably exhibit this same equality bias on average.

As for the estimated case, I'm sure you'd get similarly wrong responses asking the average person basic questions about U.S. history. Or algebra, chemistry, or pretty much any other academic subject.

EDIT: Dan Ariely and others frequently cite this kind of bias in the books and talks I've seen. I wonder what Dan would have to say about that considering he collaborated on this paper.

cletus3• 16 years ago

I find posts like this one depressing. They're cynical and shortsighted.

The premise of such posts is that if people were aware of who was getting a tax cut they would be against it. Put another way: the premise is that everyone is purely motivated by self-interest.

There are two immediate problems with this line of thinking.

The first is tha it ignores how aspirational people are.i remember a survey from the 2000 election when Gore made the mistake of demonizing the top 1% repeatedly. The survey show something like 19% of people thought the were the top 1% and another 20% thought they would be someday.

The second problem is the whole "money for rich people = bad" argument. Some may ascribe to Reagenesque trickle down economics. Others may see that overtaxing the rich is ultimately shortsighted. Yet others may not get hung upon percentages and look at the absolute tax burden (iirc the top 1% pay ~40% of the tax burden).

Personally I just object to the tone of the rhetoric where politicians talk about "affording" or "paying for" a tax cut like they're giving away money. The reality is just that they're taking less money. Bit of a difference.

All of this is just "policy theatre" however. What the US (and most of the West for that matter) is facing a far bigger problem that the current systemis unsustainable and no politician wants to be at the helm when the music stop (to mix metaphors) with declining birth rates and increasing life expectancy.

jonhendry8• 16 years ago

" The reality is just that they're taking less money. Bit of a difference."

Can you afford to take a year off from work? It's just taking less money. The fact is that tax cuts aren't free. If they aren't matched by spending cuts, you're just deferring the tax increase until later and incurring deficits in the meantime.

So you have to decide what you're going to cut. Which means weighing, say, decent healthcare for veterans, versus the benefit of the tax cut to people who are probably quite well-off already.

The Republicans in the Bush years were not willing to do that. So they cut taxes. And raised spending. And we could afford neither.

cletus3• 16 years ago

Nice try but no sale. This is the problem: talking about this issue will get you labeled as being anti-<insert emotive issue here> (health care for veterans in your case).

The budget is blowing out for three reasons: Social Security, health care and the military. Of the three only the last is largely discretionary (being the ongoing cost for campaigns in Iraq and Afghanistan).

When FDR introduced Social Security there was something like 50 working people for every retired person and the average life expectancy was probably only 60 or so. It's a straight money goes in money goes out system with no saving or planning for future spending. Everyone knows this is unsustainable. It's merely a question of when something will change and what. The smart money is on raising the retirement age.

Health care costs are spiraling. This is a much more complicated and multi-faceted problem. Personally I think part of the problem is the blank chewue mentality we have to health care. Basically it doesn't matter how much it costs to research and develop pharmaceuticals and medicine, we expect to be provided it. So companies largely ignore the costs.

It's a bit like saying to a subcontractor: you can choose to spend as much as you like and I'll pay you a 20% margin on top of that. What is the motivation of that subcontractor and the inevitable outcome?

Also I think you need to look at the structure of the health care system. I suspect the US has the most expensive health care in the developed world. I think systemic inefficiencies and overprotective IP laws play a bigpart in this.

MichaelSalib• 16 years ago

Indeed, your comment reminds me of that radical leftist Milton Friedman who once wrote "Remember, to spend is to tax." What a pity that so many have forgotten Friedman's words.

pyre2• 16 years ago

  > with declining birth rates and increasing life expectancy.

Unless you're talking about Japan, I'm going to ask that you provide hard numbers before throwing statements like this out.

th• 16 years ago

Comparison of historical age distributions in the U.S. suggest this problem. http://www.wolframalpha.com/input/?i=u.s.+age+distribution+i... http://www.wolframalpha.com/input/?i=u.s.+age+distribution+i...

This problem is much worse in China.

ramanujan• 16 years ago

The other critical point is that "the rich" are not passive targets but highly mobile. Swing at them too hard and too repeatedly and they will just leave. If your life is on your laptop this really isn't that hard.

Unless they then make it hard. After all, the state paid for your (compulsory) education, so to some you owe them all future success. And so you can't leave to escape a regime which is broke and desperate.

The end game of this process is East Germany or North Korea, where the state taxes 100% and literally shoots you if you try to leave. In the US, of course, we don't shoot you if you emigrate...but in 2008 the US did, for the first time, implement a massive ~50% exit tax for those over 200k in net worth who renounce citizenship. It was remarked upon as a radical shift, as a desirable/wealthy place makes it hard to immigrate while an undesirable/destitute country usually makes it hard to emigrate. A harbinger of things to come?

rapind2• 16 years ago

Depends on how rich you mean. Why would the very rich leave a plutocracy many of them have worked very hard to create? The US is a pretty sweet place to live if you have a lot of money. You not only get to live in luxury, you also have a disproportionate affect on public policies that allow you to grow your wealth.

Maybe the 2th would be happy to leave though.

jshen8• 16 years ago

I'm really uncomfortable with the implicit metaphor that this is a fight between the rich and the non-rich. I don't think that is an accurate representation of the situation. Also, many of the rich would not be rich if they were born in some other country. To a large degree they are the product of the opportunities of the environment they are in. That environment requires investment and good management.

Our current situation has people like Warren Buffet paying a far lower percentage of their income in taxes than you and I, yet the rich use government services to a far greater extent than the rest of us. The US military isn't protecting oil fields I own in nigeria because I don't own any oil fields. The fire dept. isn't protecting the factories I own throughout the US because I don't own any.

I think it only makes sense that those who benefit the most from our government, and who can afford it, invest in it accordingly. For starters they shouldn't have a significantly lower percentage of income taxed than the rest of us.

dkarl3• 16 years ago

Are you suggesting that if you removed the grossly incorrect image of reality someone has and replaced it with a radically different one, that they would have the same opinions about closely related policy questions? I'm skeptical. People try to keep their view of reality in line with their political beliefs. How do you think Americans end up believing such wacky things?

The survey show something like 19% of people thought the were the top 1% and another 20% thought they would be someday.

If you're claiming that perpetuating this delusion would cancel out the effects of undermining the other delusion, you might be right. On the other hand, maybe curing this delusion too would compound the effect of curing the other delusion. Or hey, they might even be related.

Personally, I think it's great when politicians use language that reminds people that it's our own government and our budget. Can I as a taxpayer, or we as taxpayers collectively, afford to move money from the "public expenditure" bucket to the "private expenditure" bucket? It's a reasonable question. What bothers me is politicians who suggest that spending cuts will just magically materialize and save the day if we don't pay enough taxes. Sorry, no, that doesn't just magically happen.

The alternative to reminding Americans of their responsibilities is to alienate them from the government, i.e., stop them from thinking like citizens of a democracy. Let them think the government can go completely to hell, ruin its credit and go bust, and the people will bear no responsibility. Let them think that government spending doesn't reflect the will of the people, so the people have no responsibility to pay for it. Or let them think that maybe government spending does reflect the will of the people, but that because they personally disagree with part of the spending, they aren't responsible for paying for the whole thing.

The truth is that it's in our interest to keep the government financially healthy and creditworthy. It makes a big difference to us whether the government pays its bills over the long term. It's also true that in a democracy we're responsible for the well-being of a government that doesn't follow our individual whims. When we ponder how to pay for government spending, we can't just think about how to pay for the spending we approve of. We're responsible for the whole thing, conservative or liberal, big spender or "fiscal conservative," whether we like it or not. I can't refuse to pay for the Iraq War just because I opposed it. Yet that's what pundits constantly implicitly ask us to do. They target conservatives especially: we should not pay enough taxes to support entitlements because entitlements are bad policy. Such-and-such is unsustainable; therefore, don't worry about paying for it.

Unfortunately, cutting taxes doesn't cause spending cuts. In a cash economy it might work, but in age of credit, when credit is necessary to get any business done, "starve the beast" is the practical equivalent of, "I'm going to eat so much that I'll be forced to exercise!" The one thing is only connected to the other by discipline (keeping revenue and spending in line) or catastrophe (failing to maintain our creditworthiness.) Pretending they're perforce connected under normal conditions, and hence the country should only collect enough revenue to pay for the spending we personally support, is a free pass to self-indulgence, because nobody in the country supports the entire budget. Since everybody opposes a significant chunk of federal spending, we would all agree on funding just a fraction of it. Then we could all blame the shortfall on the people who supported whatever fraction of spending we opposed. It would be -- no, it is -- a perfect scenario: nobody thinks the shortfall is our fault, even though we all support it!

That's absurd, of course. We're all responsible for the whole budget, even if we personally didn't support every piece of it. I'm responsible for finding some way of paying for the Iraq War. Conservatives are responsible for finding some way to pay for welfare benefits. It's our government; we're responsible. If we don't want to pay for something, we have to persuade our fellow citizens to oppose the spending, and if that isn't enough, we may need to reform our political processes. What we can't do, in an age when credit is a necessity for getting anything done, is agree as a nation not to pay for spending that we as a nation agree to indulge in. That's why it makes sense to ask if we can afford a tax cut.

encoderer• 16 years ago

dKarl Marx? Kidding :) I upvoted you. The "Marx" comment was inspired by the fact that every time a reasonable liberal with a nuanced view has a turn on the public soapbox, he's instantly demonized as the most ultra-far-left-nutjob.

pelle5• 16 years ago

The whole problem with these scaremongering articles about equality and the lack of it is that it doesn't matter. They promote this because it fits in to their zero sum world view. A world where it is always someone-elses fault and where we as community must do something or we are selfish. This world view thats based on Dickensian stories of children living on the streets with coal dust on their cheeks. It just isn't true.

I find it particularly disturbing that these thoughts even find an outlet on HN which is the antithesis of the zero sum world. You, yes you coder, entrepreneur are part of building wealth out of nothing. How can you possibly think that by doing so you are stealing food out of the mouthes of poor children in the inner city. You are helping them in the long run by growing the economy.

To a poor person objectively speaking it doesn't matter on anything but an envy level if someone else is rich. What matters is their own life. And this is what Gini coefficients and graphs like this one doesn't show. Yes it's interesting that people have different views of this, but it is not important.

Imagine we can put a number on quality of life. If the poor person starts out at say 1 and is at 10 after 10 years (as has happened in many developing countries). Does it matter that the rich person also is 10 times better off or even 100 times better off? I don't think so. That poor person now is healthier, has better opportunities etc than before.

The children of this poor person will likely have a much better life while inequality might not have budged much in his country.

See Hans Rosling who illustrates this very well:

http://www.ted.com/talks/hans_rosling_reveals_new_insights_o...

America is a very unequal country that is true. Just not unequal in opportunities. The richest people in the US (the ones with 80% of the wealth) have probably in most cases earned it.

Many of them have come from other parts of the world and created lots of jobs both here and abroad. Due to the fact that there are so many opportunities wealth distribution of course is skewed towards the rich.

Another fact that simple populist statistics don't show is that many of the poor are new immigrants arriving here because of those same opportunities. Their kids will be considerably well off.

Just by virtue of the HN community being who we are, we should keep doing our bit to increase the overall wealth of our world and countries, even if we may end up with more than our "fair" share.

netcan• 16 years ago

I don't see why you think the premise is that people are purely motivated by self interest. The premise and conclusion is spelled out quite plainly.

Matt Yglesias is claiming that Americans underestimate the wealth of the poor and overestimate the wealth of the poor. He concludes means they underestimate the needs of the poor.

I think you are making the assumption that what is being promoted is anti-wealthy as opposed to pro-poor. I think it's probably safe to assume the authors consider themselves in the latter.

Confusion4• 16 years ago

  The premise of such posts is that if people were aware of
  who was getting a tax cut they would be against it.

That is not a premise, but a corollary from the conclusion. The conclusion is that people wish for a distribution of wealth that is vastly different from the actual wealth distribution. The corollary is that they would not support measures that retain the status quo or skew the distribution further from their expressed optimum.

  Put another way: the premise is that everyone is purely
  motivated by self-interest.

How on earth is that 'putting the same thing in another way'? The richest quintile thinks the poorest quintile should be more wealthy. If they took that conclusion from these statistics to their logical consequence, they would immediately donate the relevant portion of their wealth and allow it to be redistributed. If anything, the numbers suggest rational people would act in an altruistic way to change things towards their expressed optimal wealth distribution.

brown9-2• 16 years ago

Some may ascribe to Reagenesque trickle down economics.

And the problem with this counterargument is that trickle-down does not work.

Ryan-R• 16 years ago

2th, 'nuf said. But, in all seriousness, mistakes like that make these articles lose all credibility. (notice ant the top of the graphic, "-Top 20% -2th 20%...")

joshes• 16 years ago

No matter the intent or implications of the post or the poll, the fact remains that 20% of the people control 85% of the wealth. This seems horribly lopsided to me.

Plutocracy seems to be an apt description.

TGJ• 16 years ago

How is it lopsided? If you look at 10 of your friends, is everyone one of them extremely well off? Is everyone of them extremely talented? There is no getting around the fact that there are gifted people and not so gifted people. To say that it is lopsided would almost imply that everyone deserves equal shares.

20% seems about right. 20% of the people are entrepreneurs and are smart, gifted, talented people that employ the rest of the country to achieve their dreams.

vacri3• 16 years ago

Ah, the good ol' "if you're poor it must be your fault" reasoning, wearing yet another dress today.

bluedanieru• 16 years ago

We really only needed the first half of this title.

MikeCapone• 16 years ago

I'd like to see the same graph for productivity/wealth creation...

lotusleaf19872• 16 years ago

Some of these comments are so bizarrely disconnected from reality trying to talk about how money isn't zero sum, but seriously when the top 20% of the population has 85% wealth there is something fundamentally and critically wrong.

mbesto• 16 years ago

And so what do you define as being "right"?

(playing Devil's Advocate here btw)

lotusleaf19872• 16 years ago

It just strikes me that our system of monetary reward/punishment is fundamentally out of balance when the top 20% have 85% of the wealth/resources and the bottom 80% are left to fight over 15%. That is a banana republic. This is why revolutions occur.

WalterBright• 16 years ago

The article confuses wealth with income. You can have a very high income, live high on the hog, and have zero wealth. Likewise, you can have a lot of wealth and zero income.

code_duck• 16 years ago

Another way that Americans are quite misinformed about who has money is that the media portrays Hollywood stars as the most wealthy people in the world. A relatively minor point, but it does serve to cover up the people who truly have a lot more wealth and power than someone who makes a 'mere' $25m per movie.

canterburry• 16 years ago

I can't help but to always sense and underlying message of "are the rich too rich?" whenever a story like this gets published.

Rather than just looking at the raw numbers (which these articles always love to do), I think the more relevant questions is, do or don't the "rich" deserve their wealth? If they deserve 85% of all wealth due to their involved in the economy, job creation etc...well, then they should have it.

I think few here in the HN community would argue against some entrepreneurial fellow HNer making a buzzillion dollars off of some cool and desirable product/service which instantaneously puts then into the 1st 20th percentile of the graph. Why? Because this person created enough value to earn that money....and maybe those other Americans in that top percentile did too.

Americans Are Horribly Misinformed About Who Has Money

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