Wealth and inequality

[Gob]

Interesting piece from the BBC website.

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

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

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

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

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

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

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

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

It turns out people get it very wrong.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[rubato]

John Rawls is a good starting point to think about what we mean by 'fairness' in the most general way.

yrs,
rubato

[Gob]

Wealth and inequality

[dales]

One of the mitt's poll workers on break?

[dgs49]

What a load of absolute rubbish.

A "just" society is one in which one succeeds or fails on his (or her) own merits. Period. Justice is, by definition, outcome according to what is deserved.

There is no "appropriate" level of inequality. Any economists who, "...often argue about what is the right level of inequality to have in society," are the stupid and oblivious variety of economists.

Liberals apparently go through life with the totally disproven belief that if one person has "a lot" then, of necessity, that was the result of his having taken "unjust" advantage of others. Or more recently, "...you didn't build that!" In addition, they hold the naive and disproven belief that the total wealth in society is fixed, so that if one person has a lot, it is economically necessary that others have little. Maybe they learn these fallacies from the economists who are arguing about income inequality; I frankly don't know where it comes from.

The sad fact of life is this: Some people produce nothing and are compensated accordingly.

On the other hand, it is possible for one person (or one business entity) to create value and riches that are almost incalculable, WITHOUT DOING ANYTHING WRONG OR UNJUST OR UNFAIR. One might point to the Apple corporation as one that has created value to the world that is almost incalculable, and for which people are WILLINGLY paying mountains of money every day - without coercion of any kind.

But to the Liberal, the mere existence of such people at the ends of the economic spectrum, and hugely successful corporations, is somehow "unjust."

While it is true that society might provide for those who produce nothing - even the ones who produce nothing out of laziness or even malice - providing for those who produce nothing is not "justice" but rather altruism. Justice would be leaving them to their own devices. Indeed, a "just" society would be one where some people are fabulously wealthy (through hard work, intelligent risktaking, and a bit of luck), while others are starving in the streets.

The expression, "Social justice," is yet another Liberal bit of double-speak, implying that "justice" requires that people at the top be plundered for the benefit of those at the bottom. It may be "social," but there is nothing "just" about confiscation of wealth from those who have earned it, to give it to those who have not.

The mere sound of it makes me want to puke.

[Scooter]

The fact remains, however, that grossly unequal distribution of wealth is bad even for the wealthy, because major and lasting economic contractions have always occurred when wealth inequality has been at its peak.

[Big RR]

It is also a fair question to ask who should get what portion of the wealth created--whether those who actually produce should get a bigger piece than those who merely are adminstrators, or whether the labor is undervalued vis a vis capital contribution. Perhaps in a fair system each party would get his/her equitable share based on the comparative value of what they provided, but I have failed to see such a system to ever exist.

[dgs49]

I agree with you, scooter. It is better for everyone if the wealth is spread around, and that a minimum standard of living for even the totally nonproductive is desirable.

But that's not "justice."

[dales]

Middle class 'lost decade' -- fewer, poorer, gloomier seen in studyA Pew Research Center study released Wednesday surveys the American middle class, finding it gloomier, poorer and shrunken. Among the highlights of the reports findings are:


Fully 85 percent of Americans who describe themselves as middle class say it is more difficult now than it was a decade ago for middle-class people to maintain their standard of living.


In 2011, the middle-income tier included 51 percent of all adults, down from 61 percent in 1971.


In 2010, the upper economic tier took in 46 percent of the nation's household income, up from 29 percent in 1970. The middle tier took in 45 percent, down from 62 percent. The lower tier dropped to 9 percent from 10 percent.


About half, (49 percent) of adults surveyed describe themselves as middle class; 53 percent said the same in a similar survey in early 2008.


Thirty-two percent describe themselves as lower or lower-middle class, compared to 25 percent in 2008.


For the middle-income group, the "lost decade" of the 2000s has been even worse for wealth loss than for income loss. Their median incomes fell by 5 percent, but median wealth (assets minus debt) declined by 28 percent. It rose from $129,582 in 2001 to $152,950 by mid-decade, before falling to $93,150 in 2010.


The middle class blames its hard economic times on Congress more than any of the institutions or entities tested in this survey for in the past decade. Fully 62 percent say "a lot" of the blame lies with Congress, while 54 percent says the same about banks and financial institutions, 47 percent about large corporations, 44 percent about the Bush administration, 39 percent about foreign competition and 34 percent about the Obama administration. Just 8 percent blame the middle class itself.



Six-in-ten (60 percent) say their standard of living is better than that of their parents at the same age; just 13 percent say it is worse. Four years ago, 67 percent said they were doing better than their parents.


About one-in-four (23 percent) middle-class adults say they are very confident that they will have enough income and assets to last throughout their retirement years, while 43 percent are somewhat confident and 32 percent say they are not too or not at all confident.


As for the nation, about one-in-nine (11 percent) say they are very optimistic about the country's long-term economic future. Another 44 percent are somewhat optimistic and 41 percent are somewhat or very pessimistic.


Some 42 percent of middle-class adults say their household's financial situation is worse now than it was before the recession, while 32 percent say it is better and 23 percent volunteer that it is unchanged.


About half (52 percent) of adults who self-identify as middle class say they believe President Obama's policies in a second term would help the middle class, and 39 percent say they would not help.


Forty-two percent say that the election of Mitt Romney would help the middle class, and 40 percent say it would not help.


As is true of the population overall, more members of the middle class identify with or lean toward the Democratic Party (50 percent) than the Republican Party (39 percent), with 11 percent declining to identify with either.

Source: Pew Research Center's Social & Demographic Trends project report "The Lost Decade of the Middle Class." The full .report is online at http://pewsocialtrends.org&;lt;http://pewsocialtrends.org/&;gt;

[dgs49]

An interesting side discussion might be about what "middle class" means.

Not so long ago, "middle-class values" referred not to an economic stratum but to a philosophy of life. You were someone who took responsibility for your own situation, regardless of whether you were "lucky" or "unlucky" in your situation or circumstances. Poor people were proud to say that they held middle-class values, which meant that they were not looking to government for handouts.

[Gob]

Good point, care to open a thread on it?

[Econoline]

I agree with you, scooter. It is better for everyone if the wealth is spread around, and that a minimum standard of living for even the totally nonproductive is desirable.

But that's not "justice."

Fair enough; I can see how that wouldn't fit with your definition of the term "justice". So, if it's desirable and probably something we should work toward...what would you call it?