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One percent of the U.S. population owns approximately 40 percent of the nation's wealth. That's a distribution that most Americans don't know about, Dan Ariely of Duke University discovered in a recent study. Respondents of all demographic categories mistook Sweden's even wealth distribution for that of the United States. Host Noah Adams speaks with Ariely about his study.
(Soundbite of vintage filmstrip)
Unidentified Man: In order to have a proper appreciation of the American economic system, we must know how the national income is divided in America.
NOAH ADAMS, host:
What you're listening to now is an educational film reel from back in 1955, the waning days of McCarthyism, on wealth in America.
(Soundbite of vintage filmstrip)
Unidentified Man: Is the distribution widespread? Or is the wealth of America concentrated in the hands of a few, as the socialists and communists say?
ADAMS: Well, as you might imagine, the statistics offered here give a rosy view of the strength of the middle class and the relatively small percentage of wealth wielded by the super-rich.
(Soundbite of vintage filmstrip)
Unidentified Man: Mary, what can be learned from this graph?
"MARY": It seems that our national wealth is very widely distributed.
ADAMS: Well, not so fast, Mary. According to many estimates, just 1 percent of the U.S. population takes home almost a quarter of the nation's income, and 40 percent of its wealth.
And Dan Ariely is surprised that most people don't know that. Dan's a behavioral economist with Duke University. He recently authored a study with Harvard's Michael Norton about America's knowledge of its own wealth distribution and joins us now from his home in Durham, North Carolina.
Professor DAN ARIELY (Behavioral Economics, Duke University): My pleasure.
ADAMS: What were you going after with this study? What did you want to find out?
Prof. ARIELY: So the first question we're interested is what do people think is the wealth distribution in the U.S. And we basically asked them to say how much do you think of the wealth is owned by the top 20 percent, the next 20, the next 20. And what we found was that people dramatically underestimated how much wealth the wealthy have, but also dramatically overestimated how much money the poor have.
And the second question we're interested in was if you gave people the right to design the distribution of wealth in the U.S. how would it look like? You know, we often think about distribution of wealth in the question of efficiency, of the economy and what will motivate people. And we wanted to just ask if you just gave people the right to say, what would you think is a just society, how would people draw that distribution.
ADAMS: Now, you showed people three pie charts, I understand. And those charts showed the distribution of income in different countries. But you didn't give it away. You didn't tell them which countries they were looking at.
Prof. ARIELY: That's right. So - and we actually have a very equal distribution, which doesn't exist anywhere. We had the distribution of the U.S. and then we had a distribution that was based on Sweden, but we actually made it even more equal than Sweden itself. And we say, which of those would you like to live in?
ADAMS: Americans, you found, prefer Sweden, the way it looked in that pie chart.
Prof. ARIELY: Yes. So 92 percent of Americans prefer the distribution of the U.S. that is much more equal than what we have right now. But perhaps the most interesting and also most optimistic part of the study was that when we broke the sample by Republicans and Democrats, there were differences there, but they were actually quite small.
So, for example, if the average was 92 percent preferred the Swedish distribution; for Democrats, it was 93 percent; and for Republicans, it was 90 and a half percent. So there's a difference. But it seems to me that when we go kind of underline and we ask people about the true ideology, Americans are much more equal than we think and the differences between the different parties are smaller than we think.
ADAMS: Well, what about income levels of the people who were responding, looking at these pie charts, what would low-income people see and what would rich people see?
Prof. ARIELY: Similar to the Republicans and Democrats, there were differences. The wealthy basically wanted slightly more unequal distribution. The poor wanted slightly more equal distribution. But the fact is that the differences between them were, again, very, very small.
ADAMS: I've heard this speculated that if you're low income, you don't mind the wealthy people making a lot of money, having a big chunk of that pie because you're going to get there someday.
Prof. ARIELY: Yeah. So this is something that we're looking at right now, which is the question of what happens if people believe in social mobility, and we do find evidence for that. The truth is that the social mobility in the U.S. is not that high.
And so there's a question of what people believe is a social mobility and what the social mobility really is. And if people believe that social mobility is actually much higher than it really is, maybe this is what's allowing people to be much more tolerant to this income inequality without there actually being basis for it.
ADAMS: After you look at all this data, is there a mystery remaining in your mind, something you can't figure out about it?
Prof. ARIELY: Yeah. So the thing that puzzles me the most after all of this is the aversion that people have to the word taxes. So if you look at it, there are, basically, a few ways to change the distribution of inequality of wealth, taxes is one of them.
But the moment in the U.S. that you mention the word taxes, people have an incredibly aversive reaction. And that's something I'm kind of battling with, where this aversion to the word taxes comes from. I don't yet understand and I hope to understand better.
ADAMS: That's Dan Ariely, a behavioral economist with Duke University, author of the book "Predictably Irrational."
Thank you very much, sir.
Prof. ARIELY: My pleasure.
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Category: Personal Finance