Tuesday, September 28, 2010

Wealth is More Unequal Than People Think - But That is Not So Bad

Wealth is hugely unequally distributed. Most people think it is reasonable that the richest fraction hold a disproportionate share of the wealth. However, most people underestimate just how disproportionate that distribution really is.

The top fifth of households in the U.S. control ____% of all the wealth in the country.

What number did you think of immediately?

Most people think the number is about 60%

Most people think it should be about 30%

But the actual number is 85%.

I do not think an unequal distribution of wealth is itself a bad thing. Moreover, the richer the society, the more wealth there is for the top group to have. And this report by quintiles is a little misleading - it is the gigantic wealth holdings by the top tenth of one percent of households where the huge disparities lie.

The top 20% of households includes many upper-middle-class families who worked up to significant earnings, from which they save. The main reason that the middle class has so little wealth is that they save so little of what they earn. The poor will never have much wealth, even if they do earn enough to live. But we could have a much more equal distribution of wealth between the just-below-the-top and the middle.

The paper, "Building a Better America - One Wealth Quintile at a Time," by Michael Norton and Dan Ariely, is available here.

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