
Real v. Imagined wealth distribution in the US - boredguy8
http://www.slate.com/id/2268872/
======
mseebach
How is a study of how people _perceive_ wealth distribution anything but a
giant strawman? It's akin to showing non-programmers source code listings of
merge-sort, quick-sort and bubble-sort and ask them what they think would be
fastest, and then try to draw conclusions from the answer.

In the beginning of the 20th century, class warfare was apparently imminent,
but the difference between now and then isn't wealth distribution, it's wealth
- period. Being poor then meant worrying about whether or not you could
shelter and feed your family, today and tomorrow, not to mention over the
winter, and the way to do that was more often than not through long hours of
backbreaking work that might very well kill you. Being poor today means
worrying about an _entirely_ different, and much more comfortable, set of
issues.

And that's just being poor, not even thinking about life in the second and
third quintile.

The rich got extremely rich, while the poor got very rich. Life in general
became much cheaper, safer and more comfortable. I'm sure you could find
plenty of fifth-quintile people in 1915 who'd be happy to switch life with
first quintile people anno 2010.

And the short version: Marx was wrong about _a lot_ of stuff. Let's quit being
surprised when reality doesn't fit _Das Kapital_.

~~~
noonespecial
This is true as far as in the old days, the rich were able to live a
_different kind_ of life than the poor. One much more free of the fear of
imminent death.

Nowadays, mostly being rich means you get a bigger chair on the airplane, a
bunch of rooms in your house that you pay to heat but never go into, a car
that requires more fuel, and if you got your money faster than sense, the
idiotic practice of gold plating ordinary objects and gluing diamonds all over
them.

This can change if the lack of wealth once again has the potential to threaten
life. With the way we are cavalierly poking the health care beast, its not
that difficult to imagine. If parents are ever told in a way that makes it
clear to them that their sick children will be denied treatment that could
save their lives because of a lack of money (that a richer person would think
nothing of wasting on a weekend in Vegas), class warfare once again becomes a
possibility.

~~~
mseebach
Healthcare is an excellent example of how absolute leaps in wealth are much
more significant than relative ones. Access to good healthcare is pretty
binary, and doesn't put a very significant dent in inequality - but it lifts a
huge concern from those too poor to buy for themselves.

------
jacoblyles
Personally, I couldn't care less about how much the next guy makes. My father
grew up without air conditioning, any sort of decent medical or dental care,
no college education, and (often) poor nutrition. I may not have had cable TV
or name brand clothing, but I have had a much better life than my father did.
Hell, I have two degrees and work indoors. And lord knows if I have kids they
will have a much better life than I did.

Every now and then an article calls me a rube for not voting for the
redistributionists (who have so many other things so horribly wrong with
them). But I'm not buying it. I'm honestly not envious of how much the next
guy has and I'm very grateful for what I have.

It's not my relative level of wealth that concerns me, but the absolute level.

~~~
vannevar
'Wealth redistributionists' aren't motivated by envy, as you imply. Rather
they are motivated by the practical aspects of maintaining a healthy society.
It's in the best interest of all if wealth ends up in the hands of those best
able to employ it to everyone's benefit, ie the most productive members of
society. The prevailing assumption is that the unrestricted free market is the
best way to do this. It's now clear that this assumption is wrong, and that
wealth tends to attract wealth entirely apart from the economic fitness of the
person wielding it.

There is no such thing as an 'absolute' level of wealth, once basic survival
needs are met. Study after study shows that people's perspective on wealth is
entirely relative, which is why there were several recent articles here on HN
regarding rich people who don't feel rich.

What exactly is a healthy and efficient distribution of wealth is open to
debate, but a split where 1% of the population hold 35% of the wealth
certainly doesn't seem either healthy or efficient.

~~~
SHOwnsYou
There isn't anything inherently wrong with a wide rich-poor gap.

There is a floor for poverty but not for wealth. You can be really really
poor, but you'll never be poorer than having $x.xx of debt associated to your
name (I am just ballparking like $50,000, though I know this can fluctuate
some -- please no nit arguments about Bernie Madoff)

The rich have no ceiling to how much they can accumulate. In fact, they can
accumulate vast sums (maybe more than poorer people make in a lifetime) by
simply letting their money sit in a bank account.

1% holding 35% of the wealth doesn't mean anything beyond the most superficial
level. What is more important is if the remaining 65% of wealth is distributed
in such a manner that allows the other 99% to survive with some amount of
quality of life.

------
trunnell
It would better to present the data in this article alongside data about
upward mobility. For example:

 _Children from low-income families have only a 1 percent chance of reaching
the top 5 percent of the income distribution, versus children of the rich who
have about a 22 percent chance._

<http://www.americanprogress.org/issues/2006/04/b1579981.html>

~~~
hugh3
Low upward mobility shouldn't be considered a bad thing -- in fact, it's a
sign of a functioning meritocracy along with the fact that merit is at least
partially inheirited.

Rich people tend to be smart, smart people tend to have smart children, smart
children tend to grow up to be rich, and so rich people wind up having rich
children. Rich people would have rich children even in a society where all
children were taken away from their parents at birth and raised communally.

Add to this the fact that children also pick up financial literacy and values
(good or bad) from their parents, and there's your low upward mobility right
there. I doubt if the _other_ effects (i.e. rich children inheirit wealth and
can often get into better schools) are nearly as important as the genetics of
it.

~~~
nostrademons
I think you need to separate your factual statements from your value
judgments.

On a factual level, you're right (and don't deserve all those downvotes).
Every study I've seen suggests a strong correlation between genetics and
intelligence, between intelligence and income, and between income and wealth.
When you multiply them out, the correlation becomes somewhat less, but it
still seems like a fair statement to say that genetics is correlated with
wealth.

That doesn't imply that this correlation indicates a functioning meritocracy,
because to the extent that intelligence is genetic, intelligence is not
_merit_. Merit usually implies that something admirable that someone _chose_
to do, and if someone was born intelligent, how is that merit? It's like
making a value judgment on any other inborn trait - say, that blondes are
better than brunettes, or fair-skinned people are better than dark-skinned
ones.

The part of intelligence that people usually associate with "merit" is the
part that's _not_ inborn, the part that people have to work for. Intelligence
can lead to a functioning meritocracy _despite_ its genetic component, not
_because_ of it.

~~~
hugh3
Thanks for an intelligent response.

I think there are multiple definitions of "merit" at work here. The form of
merit which is chosen and admirable is not necessarily the same as the "merit"
in "meritocracy".

I agree that merely being born with an attribute is not really "merit", but on
the other hand I think a "meritocracy" is about rewarding ability, not
"merit", and perhaps needs a better name.

Wikipedia defines it as:

 _Meritocracy is a system of government or other organization wherein
appointments are made and responsibilities assigned to individuals based upon
demonstrated intelligence and ability (merit)._

which is different again to what I meant... the form of "meritocracy" I
mentioned would exist even in the absence of society. If the world consisted
of a bunch of individuals on isolated and identical islands who never
interacted then it would be a perfect "meritocracy" in the sense I meant it,
because each would acquire wealth and quality of life depending only upon his
own ability to hunt, gather, build shelter, et cetera.

------
_delirium
The lack of variation in the estimates among groups was the main surprise to
me. I would've expected people on the left to overestimate the concentration
of wealth, and those on the right to underestimate it, but it seems they both
significantly underestimate it.

~~~
boredguy8
One of the difficulties that I see comes in that it's hard to overestimate
such a huge skew. If we're guessing jellybeans, your guess of 100 is countered
by my guess of 900, in a jar of 500 beans. But with wealth distribution at the
85% mark, it's hard to 'overestimate' that number: it's unlikely anyone will
say the top 1% controls 99% of the wealth.

~~~
Perceval
Although he seems to be over-hyped (especially by himself), Nassim Taleb makes
a pertinent point about this problem in _The Black Swan_.

Certain things in like can accurately be described by a normal distribution
curve (the Gaussian or Bell Curve). What we see from the examples of crowd
sourcing is a real-life version of a central limit theorem: if you have enough
observations in a sample, the sample mean will approach the population mean,
if the distribution of the population is normal. Many natural phenomena are
normally distributed, making the bell curve a fantastically useful statistical
tool.

However, Taleb goes on to note that while the normal distribution is very good
with natural phenomena, it often does very poorly with social phenomena. Many
social phenomena are best approximated with power law distributions rather
than bell curve distributions. As such, attempting to model social phenomena
with a normal distribution will end up underestimating extreme occurrences or
fat tails. This is Taleb's critique of using standard inferential statistics,
based on the normal distribution, to examine social phenomena such as income
distributions or financial markets.

In the article, we see that the central limit theorem does not hold when the
distribution that is being modeled/approximated is too skewed. (One of the
statistical tests for normality measures skewness.) Things like income and
wealth distributions, as social phenomena, have been shown time and again to
follow a power law distribution rather than a normal distribution. Thus it
shouldn't be a surprise that averages estimates of the distribution fail to
capture the 'fat tail' of the top quintile.

~~~
eru
While I agree in spirit, I disagree with your implied definition of the
central limit theorem:

"If you have enough observations in a sample, the sample mean will approach
the population mean, if the distribution of the population is normal."

That's not even close to the central limit theorem.

------
kiba
Why is wealth equality a good thing?

I am a poor college student that got a scholarship that paid for most of my
college education. My family is too poor to pay for such an education. I got
no issue with incredibly rich people. What they're going to do? Buy that 100
inch TV?

~~~
maxawaytoolong
When wealth inequity is huge, it causes social instability and eventually,
revolution.

It's generally not poor people who revolt, it's the middle class. Especially
if there has been an event which created a newly disenfranchised middle class.
If the middle class is doing ok, there's little to worry about. If they feel
they are getting shafted... that's when potential trouble starts brewing.

Actual levels of wealth and disenfranchisement have little to do with social
stability as it relates to wealth. It's all relative perception.

~~~
yummyfajitas
Wealth inequality is not the only thing that can lead to social instability.
Angry mobs have formed and engaged in violence over many issues - interracial
sexual relationships in the US (historically) and conversion from Islam in
Afghanistan are two such examples.

If one advocates against wealth inequality on the grounds that angry mobs
might engage in violence if inequality were too large, shouldn't one also
advocate against X whenever there is a significant risk of violence by mobs?

If policy should cater to angry mobs threatening violence on issues of wealth
inequality, should policy cater to angry mobs on issues of racial hatred or
religious conflict as well?

~~~
jtbigwoo
I would argue that economic instability was a strong contributor to the racial
and religious violence you describe. It's easier to tune out intolerance when
you're secure in your station.

~~~
yummyfajitas
Southern white men were not secure in their station during the 50's and
earlier?

Regardless, you are ducking the meta question. Is "a mob might become violent
if we don't do X" a good argument for doing X? I.e., if angry racist mobs
start rioting over a black president, should we impeach Obama? Should we
engage in appeasement, paying each racist $500 to go home (perhaps levying a
tax on blacks to pay for it)? Similarly, should we ban criticism of
Christianity if Christians form lynch mobs of their own?

Which angry violent mobs should we surrender to?

------
ww520
That was a saying that the FDR welfare reform was for the rich rather for the
poor. The poor in 1910's had little social safety net and were susceptible to
violent uprising. The welfare reform pacified generations of poor and made
them docile these days.

That's why progressive taxation is a rational solution. The rich are benefited
from an stable environment that they can make their wealth. It's only sensible
that they pay to upkeep it. In war and violent uprising, wealth can disappear
overnight.

~~~
hugh3
_The rich are benefited from an stable environment that they can make their
wealth. It's only sensible that they pay to upkeep it._

I can see how that could justify taxation somewhere between "poll tax" and
"flat tax", but nothing more "progressive" than flat tax.

If I have a hundred thousand dollars, and I'm paying for the government to
protect my assets, maybe I should pay $N. If I have five hundred thousand
dollars, and I'm paying for the government to protect my assets, that's
logically worth 5 times $N.

The component of my taxes which go towards protecting my wealth can quite
sensibly scale linearly with my wealth, but not super-linearly.

~~~
borism
except costs of protecting more wealth grow exponentially, not linearly.

~~~
hugh3
How's that?

~~~
borism
because of larger number of counterparties whose contracts to enforce?

~~~
yummyfajitas
Why do you assume counterparties grow exponentially with wealth?

This would also only apply to that portion of the tax burden associated with
enforcing contracts (a very small fraction, basically just the police and
judicial system).

~~~
ww520
The police and judicial system don't exist in vacuum. And where does the power
of the judicial system and police come from in modern time? From the people.
And what is the cost for them to grant power to such a system? A functional
society that they feel supporting.

Our tax is not just funding for the judicial system so that the rich can get
their properties protected. Our tax is funding a functional society that's the
basis for all these.

------
danteembermage
One thing worth noting about lower income wealth levels are that most
households include expected social security benefits when making the wealth
vs. consumption decision.

A thought process might go something like this: "Should I buy the CD or pay my
daughters tuition? I expect Social Security to pay half of what it does now in
inflation adjusted terms by the time I retire, so I need X in real income to
maintain my lifestyle taking that into account. Running the numbers I can
afford to help her"

Since social security is relatively tiny for the wealthy and large for the
poor, it biases against wealth generation by the poor since they have better
things to spend it on. This is absolutely a crude estimate but retiring at 66
making 45k pays 1235 a month. Assuming a median age of death of 85, and a 4%
annual interest rate compounded monthly, that's 1235/0.003333-1235/0.003333
_(1/1.003333^(12_ 20))~= $200,000 at the time of retirement or roughly
$100,000 at middle age. If there are 150 million people in the workforce
that's $150 trillion in uncounted wealth. The total household wealth as
estimated now is $55 trillion. So by that metric 3/4 of the wealth of the US
is tied up in expected social security benefits. That seems really high to me,
obviously I've made some big assumptions about length of payments received,
median income, etc. but I think it'd be tough to justify excluding a stream of
payments that last until you die, even if we are expecting cuts to the program
in the near future.

Also, it looks as though the middle class and poor are actually wealthier than
is assumed by the survey respondents using this metric, the opposite
conclusion of the article.

~~~
danteembermage
After thinking about this, I realized I left out the liability that the 45
year old worker has in social security payments remaining, so the wealth
effect will be smaller than the above. Also for young workers (who are often
poor) the social security wealth effect may be negative since they pay over
many years and receive in the distant future, making the original articles
premise stronger.

------
gfunk911
One possibility is that while the rich now hold a larger percentage of income,
they hold a similar percentage of "income over subsistence level."

In real dollars, the subsistence level is much lower now than in 1919.
Assuming that subsistence in any era gives roughly the same utility, dollars
over subsistence can be a useful metric.

I quickly dashed out 2 distributions, for then and now. I just plugged in
numbers that looked sane and got the percentages to come out right. Then i
plugged in 2 subsistence levels, assuming that NOW is 50% of THEN, in real
dollars. The $ over subsistence % comes out roughly equal then and now.

[https://spreadsheets.google.com/ccc?key=0AsZT04jfENsidEpHLTM...](https://spreadsheets.google.com/ccc?key=0AsZT04jfENsidEpHLTM5QXNITnFyOTJIWFNTNGFzRWc&hl=en#gid=0)

------
mhd
I'd be interested in seeing the wealth distribution of the US without the
financial sector and compare _that_ to other nations…

~~~
akikuchi
That's a fine sounding sentence, but what do you actually mean by that? Do you
mean the wealth distribution when subtracting out the equity value of
financial businesses? Or ignoring the net worth of individuals who happen to
be currently employed in the financial sector? My first reaction is that your
comment is suspiciously vague, and might be confusing income with wealth.

~~~
mhd
Sorry, I was just spitballing. As the article was about both wealth and
income, I should've mentioned both. But especially with wealth, I don't know
how to remove the financial sector from the calculations, as just fromreading
this article, I don't know from what they derived their percentages (and even
then this is probably beyond my expertise, not being an economist). Net worth
of people in the financial sector is probably a good starting step.

Or more generally, a breakdown of the areas of work of the richest 1 percent
of several countries would definitely be interesting (again, both wealth and
income).

------
Alex63
This study (studies?) has been in the news a lot recently. It seems clear that
how you respond to it depends on what role you believe the state should play
in the redistribution of wealth. As a disclaimer, I'll say right now that I do
not believe the state should play any role in redistributing wealth.

My suspicion is that this study has been presented and promoted as
justification for increased taxation of the wealthy. Of course, increased
taxation of upper quintiles won't actually change the distribution of wealth
unless the government directly transfers the proceeds of increased taxation to
those in the lower quintiles. But that won't happen. Instead, the increased
taxes would be used to give those in the lower quintiles services that the
government has decided they need (or to further subsidize corn farming or
other friends of the party in power).

As a thought experiment, I wonder how many people would support a proposal to
take the aggregate payroll of their local NFL/NBA/MLB/NHL franchise, and
distribute it evenly among all of the players on the team roster. Not many, I
suspect.

------
rationalbeaver
I wonder how people would answer if the implications of the graphs were made
more clear to them.

An unequal distribution of wealth, at least in America today, implies that
great success is possible (in a system with less income mobility it might
imply something else, but that is not the case here). Given the right
combination of luck, brains, talent, hard work, or beauty, you too could
become fabulously wealthy. Your startup could be the next Google, or Facebook.
You could be the next Bill Gates. And if your plans for greatness don't pan
out, well, even the bottom quintile has it pretty good compared to most
places.

In the other graphs, the chance for relative comfort is increased (assuming a
certain base standard of living), but the chance for huge rewards for great
success is drastically reduced. In the Utopian version it is non-existent: No
matter how hard you work, you will get the same result.

Maybe I am still young and idealistic, but frankly I prefer the first graph.
I'll take freedom over security, and a chance for greatness over comfortable
mediocrity.

~~~
wazoox
Except the reality check : swedes do better by about every metric you want.

------
david_p
I believe that the distortion of perception in the actual distribution of
wealth can be caused by the fact that the people we talk about (on tv, on the
radio, on the internet, etc.) are often wealthy people (actors, singers,
politicians, entrepreneurs, etc.).

The media make people feel "close" to people who a incredibly more wealthy
than they are, making them feel poorer than they actually are.

~~~
lutorm
Except that goes in the wrong direction. People actually think they have
_more_ wealth, proportionally speaking, than they do have.

------
rick888
"The United States may possess a shrinking middle class, but the number of its
citizens who consider themselves middle class (because they can't face that
they're rich) may actually be growing. "

When you live in a place like Chicago, with a city sales tax alone of 11%,
$250,000/year (among other taxes) might not be considered wealthy. Wealth is
relative. A job in the midwest for $100,000/year will go much further than a
Job in the Bay area for the same.

Nearly half of all people in the US don't pay federal income tax:

[http://finance.yahoo.com/news/Nearly-half-of-US-
households-a...](http://finance.yahoo.com/news/Nearly-half-of-US-households-
apf-1105567323.html?x=0&.v=1)

Before we start taxing the rich even more than they are already paying, we
should figure out how to get tax revenue from the people that aren't paying.
This will never happen because the democrats don't want to lose votes (taxing
the rich always seems to be the only answer to getting more revenue).

Everyone should also get taxed the same percentage. This way, everyone knows
what it feels like.

------
grandalf
This is largely a numerical consequence of a far smaller effect:

Middle class: Average real wages do not change much aside from slow moving
meta-factors like industrialization, etc.

Lower Class: By definition has no wealth

Upper Class: By definition has invested/growing wealth. Wealth rarely grows at
> 3% per year in real terms.

Now run the simulation for a few dozen iterations and simply because of
returns on investments, the distribution gets more and more skewed.

This is actually the main principled argument for an inheritance tax (though
there are, I think, stronger arguments against it).

Fortunately for egalitarians the rich suffer from: trophy spouses, bad luck,
bad investments, and spoiled rich kids that throw it all away. Also the non-
rich often succeed in an investment, startup, etc.

The two groups intermarry often since things like beauty, intelligence and
luck are doled out by different (but analogous and equally un-egalitarian)
lotteries.

~~~
EdiX
> Also the non-rich often succeed in an investment, startup, etc.

For very small values of often...

------
hugh3
It's important to note that people who say they'd like to see a more equitable
distribution of wealth may not necessarily be saying they'd like to see more
redistribution of the wealth created by the top people, they may be saying
that they'd like to see the bottom people become more productive.

Suppose a freak disease killed off everybody with an IQ below 120. Obviously
society would take some time to adjust to the new reality, but once the
adjustment occurred, what do you suppose the weath distribution would look
like? Significantly more equitable, I assume.

We don't have a bad distribution of wealth, we have a bad distribution of
talent.

~~~
grandalf
Don't overlook the impact of personal preferences/choices in the mix.

Some very smart people do things like found startups or become teachers or lit
PhDs, marry a rich person, or decide to avoid the rat race.

~~~
hugh3
Of course. Broad, society-wide correlations don't say much about specific
cases.

You won't find many of these PhDs in the bottom 10%, though (except in cases
of mental illness). Smart people are smart enough to figure out how to avoid
desperate poverty, and some of them are also smart enough to figure out that
making $400K a year for Bain won't make them happy.

------
goalieca
I currently live in Vancouver, BC. We have one of the highest ratios of cost
of living to income. According to statistics canada, in 2008 the median total
income by family was $68,670. That year the average house price in greater
vancouver for a single detached unit was $921,000. I can tell you that things
have hardly changed at all. We currently have one of the highest cost of
living in the developed world.

edit: We have now crossed the $1 million mark:
<http://www.ctv.ca/CTVNews/Autos/20100406/vancouver_100406/>

~~~
kreek
You also have one of the biggest housing bubble in the world.

I grew up in Vancouver (now in CA), it is one of the most beautiful cities in
the world, but million dollar average home values are not sustainable when the
average income is $68k.

~~~
analyst74
You can to take into consideration of those who do not primarily live in
Vancouver but purchase property there, including but not limited to, Hong Kong
riches.

------
Symmetry
I wonder how close people's guesses as to wealth are to the actual
distribution of income in the US?

------
hugh3
While I've made a number of comments on this thread, I've realised that it
really isn't anything but politics of the sort that promotes flamewars, so I'm
flagging it.

------
ibejoeb
>They showed respondents three unlabeled pie charts...Norton and Ariely were
astonished that 47 percent of respondents...chose the pie chart depicting
Sweden.

Here we go again

