Americans Underestimate U.S. Wealth Inequality

The term wealth inequality refers to the unequal distribution of financial assets among a group of people. In the U.S., the top 20 percent of people have 85 percent of the wealth. Harvard professor Michael Norton, co-author of a forthcoming paper on misconceptions about wealth equality, talks to Steve Inskeep about what Americans think they know about wealth inequality.

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STEVE INSKEEP, host:

And while youre clicking there or doing whatever else youre doing this morning, give a listen to Michael Norton. He's an associate professor at Harvard Business School and he's been looking at the way that Americans perceive wealth in a forthcoming paper.

Professor MICHAEL NORTON (Harvard Business School): Wealth inequality is an interesting thing to ask about because it encompasses a lot of other issues. So for example, if we ask about income, people have a sense of how much income they make, and they have a sense of the minimum wage, and they can kind of think pretty clearly about, you know, income distributions and things like that.

Wealth is something that is much more complicated because it involves all kinds of calculations. So it involves your, the value of your mortgage. It involves the things you have in savings. It involves your debts. It involves your accumulated wealth over generations, and it turns out that wealth inequality is very static across generations. So this...

INSKEEP: Let's define that term that you give there, wealth inequality. You're basically talking about what slice of all the national wealth belongs to the richest one percent or the lowest 10 percent, that sort of thing.

Mr. NORTON: Exactly, and if you look at most statistics, the bottom 40 percent of people in the United States basically have zero wealth.

INSKEEP: They're not all unemployed but you're basically saying they either don't own a house or the house that they own is worth less than what they owe on it. If you looked at their net worth, it's nothing.

Mr. NORTON: That's exactly right. And many of them, of course, have negative net wealth. But the latest estimates for the top 20 percent of Americans is that they have something like 85 percent of the wealth in the United States.

INSKEEP: So you were beginning with those facts but then you went on to survey people because you were asking not what is your situation now but what kind of country do you want? And what did you find?

Mr. NORTON: The first thing we wanted to do was ask people do they know what the distribution of wealth is right now, and then as you just mentioned, we also wanted to ask people what sort of society would you like to live in if you got to choose from scratch. And what we find is really two things. One is that people really underestimate what the actual level of wealth inequality is in the United States right now. And then in addition to that, when we asked them how unequal would you like it to be, they want things to be even more equal than they think they are, which is really more equal than they actually are.

INSKEEP: What do people want? If people could just dictate the kind of country they had, what would it be?

Mr. NORTON: If you think again in percentage terms, so the top 20 percent, as I said, have 85 percent of the wealth, most Americans want them to have roughly 35 percent of the wealth. You're talking about 50 percent of all the wealth in the United States, which as you can imagine is a very, very large number. People would like that to be more evenly distributed across people with less income.

INSKEEP: That's a colossal change.

Mr. NORTON: That's exactly right, and I think one of the reasons that we see people having a disconnect between understanding how much wealth inequality there really is, is this very strong American belief in the ability to be socially mobile and to be mobile with your wealth. So people have very strong beliefs that across generations and even in their own life they can go from rags to riches.

And it's certainly possible. I mean one of the fantastic things about America is that that is in fact possible. But it's much, much rarer than people believe, and especially wealth transmission, so money that goes from generation to generation to generation is very flat. So it tends to perpetuate a great deal over time.

INSKEEP: Is there any country that looks like the more equal country than Americans told you they wanted?

Mr. NORTON: The closer countries to what our respondents wanted are countries that are amusingly dissimilar to us, such as countries like Sweden. But for example, even Sweden has a much more unequal distribution of wealth than our respondents told us they would like the United States to have. And I should say, the other thing that we found is not just that people think things should be fairer in some sense than they are, but that there's wide agreement about that. So if we look at very rich people and very poor people, or if we look at Republicans and Democrats, all of these groups think that wealth should be more equally distributed when we asked them these questions than it actually is.

INSKEEP: Well, Michael Norton, thanks very much.

Mr. NORTON: Thanks so much.

INSKEEP: He's an associate professor at Harvard Business School.

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