Here is the whole chart

Rising Wealth Inequality: Should We Care?

Why do Americans seem unperturbed about the growing gap between the rich and the poor?

Living Beyond Your Means

March 21, 2011

Michael I. Norton is an associate professor at the Harvard Business School. He is currently co-writing a book on money and happiness.

In a recent survey of Americans, my colleague Dan Ariely and I found that Americans drastically underestimated the level of wealth inequality in the United States. While recent data indicates that the richest 20 percent of Americans own 84 percent of all wealth, people estimated that this group owned just 59 percent – believing that total wealth in this country is far more evenly divided among poorer Americans.

Easy consumer credit and a belief in social mobility have reduced the clamor for wealth redistribution.

What’s more, when we asked them how they thought wealth should be distributed, they told us they wanted an even more equitable distribution, with the richest 20 percent owning just 32 percent of the wealth. This was true of Democrats and Republicans, rich and poor – all groups we surveyed approved of some inequality, but their ideal was far more equal than the current level.

Why then, given the consensus on this more equal America, are Americans not clamoring for redistribution?

The actual United States wealth distribution plotted against the estimated and ideal distributions across all respondents. See more details.

First, the expansion of consumer credit in the United States has allowed middle class and poor Americans to live beyond their means, masking their lack of wealth by increasing their debt. We might think that people who have "zero net worth” have nothing. But in fact, having zero net worth increasingly means owning a lot (cars, televisions, even houses) – but also owing a lot. As a result people with zero net worth, and even negative net worth, can still feel that they are living the American dream, doing “better” than their parents did while keeping up with the Joneses.

Second, poorer Americans’ belief in social mobility – despite strong evidence of its rarity – causes negative reactions to policies that would seem to benefit them, like raising taxes on those who earn and own a lot more. Why would the poor oppose taxes on the wealthy? Because many believe that they, or at least their children, will eventually be wealthy, voting for taxes on the rich may feel like voting for taxes on themselves. As a result, even the word “redistribution” has negative connotations.

My colleagues and I are now exploring whether educating Americans about the current level of wealth inequality (by showing them charts and pictures) might increase their support for policies that reduce this inequality. In addition, we are assessing whether different forms of redistribution – for example, raising the minimum wage, or longer term interventions like reducing disparities in education – are less likely to evoke heated opposition, and perhaps increase advocacy for greater wealth equality.

Topics: Economy, income inequality