I’ve been meaning to get to this chart for some time, so I am glad Good reminded me to:

The actual United States wealth distribution plotted against the estimated and ideal distributions across all respondents.

The actual United States wealth distribution plotted against the estimated and ideal distributions of respondents of different income levels, political affiliations, and genders.

>

This raises two questions in my mind:

Why are wealth estimates so wildly wrong?

What does this mean over the long haul in terms of balanced budgets, social security, national health care, etc.

I don’t know what the answers are — but i suspect the discussion can be intriguing.

Have at it. . .

>

Source:
Americans Are Horribly Misinformed About Who Has Money
Andrew Price
Good, September 28, 2010
http://www.good.is/post/americans-are-horribly-misinformed-about-who-has-money/

Building a Better America – One Wealth Quintile at a Time
Michael I. Norton,Harvard Business School
Dan Ariely, Duke University
Forthcoming in Perspectives on Psychological Science
http://www.people.hbs.edu/mnorton/norton%20ariely%20in%20press.pdf

Category: Current Affairs, Mathematics, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

84 Responses to “Estimates of Wealth Distribution Are Widely Wrong”

  1. UPDATE 10:56 pm

    Attention partisan eeejits:

    “Distribution” is a mathematical term referring to how any set of elements or factors are spread out (“Distributed”) across a numerical set. In the present case, it is about how the ownership of property (wealth) is numerically distributed across the population.

    The phrase does not refer to the redistribution of monies thru taxes and spending. Remove your goggles, and understand this is about math and perception, not income inequality.

    You may now return to your lives of innumeracy and quiet desperation . . .

  2. chartist says:

    that’s all well and good but the wealth distribution we all want to see is the one showing the distribution of wealth by religion in the US….The wealth held by catholics vs Jews vs protestants and then compare those percentages to the percentages of each religion in the population……Afterall, I am curious what doing god’s work actually pays.

  3. bda_guy says:

    I personally suspect that this thinking is the reason why people are generally opposed to reversing the Bush tax cuts….people do not realize that the vast majority of the tax increase will be paid by the top 3% of all income earners. The majority of the benefit of the original tax cuts went to this top tier who will largely bear the burden upon their expiry.

  4. chartist says:

    The top 3% should pay all the tax….Going back to Reagan in 1985, the T ledger for the united states saw a huge jump on the debit side while the top 3% saw a huge gain on the credit side…..Now that has to be reversed.

  5. dimm says:

    Q1. Propaganda. Every legitimate opinion is intentionally discredited (see Greetings from Idiot America http://www.esquire.com/features/ESQ0207GREETINGS). The result is that some people consider Glen Beck more credible than Nobel laureates.
    Q2. It will only get worse from now on.

  6. basquebob says:

    It looks like our actual wealth distribution today looks just like that of feudal Europe in the middle ages.

  7. bizprof says:

    I suspect there’s a bit of innumeracy at work here. The underestimation may well be because people have a tough time understanding the difference between their $50,000 and someone else’s $1 billion. They know that makes others “that” much richer, but maybe they don’t get exactly how much richer or how that impacts the proportion of wealth held by a particular percentile group. Thus, they underestimate en masse…

  8. billdozer says:

    I would be interested to see the same charts regarding the tax burden. I’m sure the degree to which people underestimate the contribution of the top 20% would be even larger. I also think bizprof is exactly right; people simply can’t fathom how much the numbers at the top 0.1% skew the distribution.

  9. Investradamus says:

    Although the title accurately states “wealth” distribution, I think it should be noted, just for clarity, that the Duke survey was not talking about income distribution (as in annual income) but wealth distribution (as in total net worth). Maybe it’s just my skeptical nature, but I am hesitant to just accept the findings, for a couple of reasons. What is the definition of ideal? Why is that ideal? Should an internet survey be treated as an authoritative source for this definition, or what level is “ideal” for each quintile? I mean, 43% of the respondents thought 20% for all quintiles was ideal, meaning that they think everyone, no matter what they do, should have the same amount of wealth. Seriously? 43% think doctors and McDonald’s cashiers should have the same level of wealth??

    @ chartist – Are you actually suggesting that the federal income tax should only be levied on the top 3%?? That makes absolutely ZERO sense.

  10. louis says:

    I get 100% more than my cat.

  11. scottinnj says:

    I’m not that surprised people have underestimated just how wealthy the top few % of this country.

    I am surprised that – across all categories – people have vastly overstated how wealthy the bottom 2 quintiles are. That is people think the bottom 2 quartiles have around 10% of wealth when in fact it is closer to zero.

    I think the answer is that people have confused debt with wealth That is if I bought a ton of ‘stuff’ on borrowed money(home equity, credit card, whatever) I look ‘wealthy’. I don’t have the exact numbers off my head but mortgage equity withdrawals fueled a significant portion of spending until say 2007 or so. Buying a home theater system and BMW on borrowed money gives one only the pretense at wealth, not actual wealth.

  12. ACS says:

    It would be interesting to know how much of that wealth is inherited and how much is earned and of that how much is from honest efforts and how much is from government backed rent-seeking.

  13. r says:

    If you ever see a chart like the above with “Actual”, run far away.

    The only way to get the actual is to get accurate data from every person in the US within the same month. I know i did not provide this data, nor any of my neighbors.

    So replace “Actual” with “Another biased estimate” in the chart.

  14. obsvr-1 says:

    The 4th and bottom quintile can not be found on the actual, because those poor folks can be found under the poverty line.

    Break that top 20% down by 1% increments for the next WOW factor

    This is a graph of accumulated wealth, need to also show income to amplify the distribution disparity.

    With a tax system that allows wealth accumulation to go tax free (unrealized capital gains) and then pass to future generations (tax free) one can certainly see why the payroll and income taxes on earned income take a higher toll on the bottom 99% of the chart.

    We need to abolish the income tax code, reform the tax system to a consumption tax (e.g. fairtax.org) and incorporate what others on this blog have suggested; a reform of the payroll tax reduce to 3% employer, 3% employee no cap on income (perhaps with a modification to add 3% to capital gains to capture those folks using that loophole to evade – er – avoid taxation). Combine this with fiscal responsibility the constrain the spending side to take care of 1) a balanced budget and 2) Social Security.

    3) National Healthcare — looks like we are heading for a Gov’t based health care system for the bottom 99% — realistically we are already there, just hiding the fact with all the noise and clutter.

    This and other data illustrates a really ugly reality, the acceleration of wealth distribution to the top .1% it’s not long before the social fabric unravels and imagine the consequences.

  15. bergsten says:

    I don’t see what the problem is. Aren’t we a democracy? So why doesn’t the lower 60% vote away the wealth of the upper 40%?

  16. Pool Shark says:

    Here’s a third question to ponder:

    “Who gets to decide what the ‘ideal’ distribution is, and upon what political/social/religious idealogy is it based?”

  17. obsvr-1 says:

    October 6th, 2010 at 7:06 pm

    The 4th and bottom quintile can not be found on the actual, because those poor folks can be found under the poverty line.

    Break that top 20% down by 1% increments for the next WOW factor

    This is a graph of accumulated wealth, need to also show income to amplify the distribution disparity.

    With a tax system that allows wealth accumulation to go tax free (unrealized capital gains) and then pass to future generations (tax free) one can certainly see why the payroll and income taxes on earned income take a higher toll on the bottom 99% of the chart.

    We need to abolish the income tax code, reform the tax system to a consumption tax (e.g. fairtax.org) and incorporate what others on this blog have suggested; a reform of the payroll tax reduce to 3% employer, 3% employee no cap on income (perhaps with a modification to add 3% to capital gains to capture those folks using that loophole to evade – er – avoid taxation). Combine this with fiscal responsibility to constrain the spending side to take care of 1) a balanced budget and 2) Social Security.

    3) National Healthcare — looks like we are heading for a Gov’t based health care system for the bottom 99% — realistically we are already there, just hiding the fact with all the noise and clutter.

    This and other data illustrates a really ugly reality, the acceleration of wealth distribution to the top .1% it’s not long before the social fabric unravels or hard to imagine the consequences.

  18. gimlet says:

    If a magic wand was waived and the wealth distributed evenly by quintile, how long would it take for the distribution to become skewed again……

    Unless you also distribute brains, desire and persistence….. It’s only a matter of time…

  19. formerlawyer says:

    I believe I referred to a Slate series earlier. It was a multi-part article on why and how the the income inequality has grown over the past thirty years:

    http://www.slate.com/id/2266025/entry/2266026/

    Significantly:

    The top 1% of Americans (those who earn approx $368,000 or more) have 18% of the income and the top 0.1% (those who earn in excess of $1,000,000) have 8% of that income.

    The “peak” income equality was in 1973 when the uber-rich held 8% of the income.

    Very interesting to read.

  20. Bob A says:

    well to begin with.. most Americans are grossly misinformed/underformed about almost EVERYTHING…

  21. gman says:

    We live in an year where cap gains of any size and inheritance of any size are hardly taxes at all!…oh that is assuming the money is even on shore to be taxed at all!

    But then a poor working stiff like myself making “wages” and short term cap gains…is paying close to 50% being in the highest tax bracket for fed and state, ss. fica etc and being on shore!

  22. Thalamus says:

    I suppose where your soul ends up is most important and the colors on the rights side may have the advantage–so don’t feel too sorry for the poor (they’ll inherit the earth).

  23. gman says:

    Barry,
    I think the metric you chose “wealth” to be much more important and telling….than “income”…even some of the posters conflate the two.

    Who is better off Lebron James making 100mil/year w/o any real assets
    …or John Q. Oligarch w/40mil/yr in income of a 4% return on tbonds from his 2 billion dollar net worth(assume 1bill in bonds balance in homes, ranches, artwork, cars,planes, yachts, astroturfing political orgs…etc)

    I say tax the oligarch.

  24. Trevor says:

    Putting aside what the various groups believe about the distribution, I find it interesting (and a somewhat disturbing) that the actual numbers appear to approximate the 80/20 rule.

  25. xynz says:

    Barry, this poll is not an outlier. Misinformation is an integral part of the American political process.

    You can thank Roger Ailes for that. Back in 1968, he revolutionized US politics by resurrecting Tricky Dicky Nixon with “made for TV” misinformation campaigns. That process has evolved and metastasized until we have the contemporary system of corporate sponsored misinformation. You already have familiarity with some of the institutions of misinformati0n in financial news (eg CNBC).

    But the systemic dissemination of disinformation extends well beyond CNBC. Fox News is another great example of the systematic distribution of disinformation. The Right Wing has built a huge network of media empires and think tanks in order to promote disinformation. They don’t even have to get their main point across, as long as they are drowning out the facts with massive amounts of noise.

    Just about every major fiasco of the last few decades has been firmly rooted in disinformation:

    —————————-

    The “Selection” of George W Bush as pResident in 2000 and then his election in 2004

    —————————-
    The Iraq war. Through Judith Miller (who now works for Fox News), the New York Times played a huge role in the disinformation campaign leading to that disastrous invasion. But the biggest player in the disinformation campaign against the American people was the Pentagon itself:

    http://www.nytimes.com/2008/04/20/us/20generals.html?_r=3&hp&oref=slogin&oref=login

    ————————————————————————————
    The continuing roll back of the New Deal reforms:

    The banking “reform” of the 1980s, which led to the S & L crisis.

    The GBLA repeal Glass Steagall, which led to the current economic crisis

    The current assault on Social Security.

    ————————————————————————————

    Death panels.

    Birthers.

    Barak Obama is secretly a Muslim

    When the government budget is in surplus, give the money back as tax cuts

    When the government budget is in deficit, stimulate the economy with tax cuts.

    The CRA caused the Real Estate Meltdown.

    Republicans are better with regards to national security, the economy and budget deficits.

    The social democracies of Western Europe have unemployment rates that are much higher than the US.

    Austerity is the road to economic recovery.

    Health Insurance Reform is a government takeover of health care.

    Need I go on?

  26. willid3 says:

    R, I suspect they got the income data from the IRS. that wouldn’t be to hard as this is on a yearly basis

    and this reflects the problem we have with the middle class. or the lack of one

  27. Trevor says:

    Oops. Sorry, I misread the chart colourings. Not 80/20 (it’s been a long day).

  28. Robespierre says:

    I think some here are confusing wealth with income. I could be on the to %5 on wealth and yet pay no income tax. So if anyone wants a more progressive tax then a tax on wealth is needed. “death tax” is suppose to do some of that but the country just can’t wait for these fu%&&s to die it just takes too long ;)

  29. Petey Wheatstraw says:

    bizprof:

    To most folks, the difference between 1 million and 1 billion isn’t a factor of 1,000. To most folks, the difference is that one word starts with the letter ‘m’ and the other, the letter ‘b’. How much different can the quantities be with such a minor difference in spelling/pronunciation?

  30. CitizenWhy says:

    The wealthy right are no longer pretending. They believe that “property,” in the sense f large scale capital is and should be sovereign, not “The people.”

    Government “of the people, by the people, and for the people” has perished from the face of the earth. In places such as Scandinavia government is for the people but not of or by. The elite there are wise enough to govern for the people as well as for themselves.

    The Tea Party, created by corporate lobbyists and Fox News, suck some ordinary people into spouting propaganda that is meant to legitimatize the shrinking of the middle class and the triumph of the elite.

    Our Founding fathers feared the “mob,” as exemplified in the Tea Party and a new aristocracy, exemplified by your chart. Ironically, they are allies.

  31. MaxLdaMan says:

    Barry, the idea that the very wealthy should assist the needy is Godless Commiemism, not to mention Class Warfare. There’s a huge amount of money fueling the propaganda machinery, and huge number of people who’ve been trained to jerk their knees on command.

  32. Robespierre says:

    @MaxLdaMan Says:

    “Barry, the idea that the very wealthy should assist the needy is Godless Commiemism, not to mention Class Warfare.”

    You would be more believable if it weren’t because the very wealthy probably made and kept their fortunes by not so “hard working means”. For instance lets take a look at Paulson’s wealth:

    “When Hank Paulson agreed to become Treasury Secretary in May of 2006, he found himself in a bit of a pickle. You see, he owned about $500 million in Goldman Sachs stock, from his days as CEO of the firm.
    So to avoid any appearance of a conflict of interest, government rules forced Mr. Paulson to sell all that stock.
    Mr. Paulson’s conflict of interest also brought a very unique benefit: He didn’t have to pay any capital gains taxes on the sale of that stock — zero. The Economist estimated his tax savings to be $200m.”

    So as you can see on this example Mr. billionaire didn’t pay his fair share EVEN at current definition of fair share. So in my book at this time class warfare is %100 justifiable.

  33. Petey Wheatstraw says:

    gimlet Says:

    “Unless you also distribute brains, desire and persistence….. It’s only a matter of time…”
    _____________

    Yeah. Those things and crony capitalism/legislative capture/criminality without consequence.

  34. SecondLook says:

    Trevor et al

    The 80/20 was originally observed by Vilfredo Pareto, about a century ago. He was an Italian engineer turned economic sociologist. He noted that in Italy, 80% of the land was owned by 20% of the population. Curious, he studied wealth distribution in a number of European countries, and found, that the same distribution applied; regardless of political and economic considerations – for example: Great Britain, industrialized and democratic had the same wealth ratio as Czarist Russia, autocratic and largely agricultural.

    Over the decades, what is now called the Pareto Principle seems to have held up, with some mild variation of the distribution. In fact, it seems to be a global phenomenon. Here is the data (1989) for the world:

    Richest 20% 82.70%
    Second 20% 11.75%
    Third 20% 2.30%
    Fourth 20% 1.85%
    Poorest 20% 1.40%

    So, it seems that the U.S is just regressing to a historical pattern the holds true, irrespective of government and type of economy. While I’m leery about ascribing the same degree of certainty that say, Newton’s three laws of motion has, it does seem to have an elegance and robustness to it that is suggestive.

    If that is the normal condition, then perhaps the most important question is how do we, if we want to maintain a democratic society, restrict wealth from translating into power…

  35. gloppie says:

    Velocity tax everything all the time at a fixed ratio every time money moves no matter the reason. (including HFT, ooops that’s not a viable business model in a sudden…)
    Repeal >all< other taxes.
    Adjust the ratio to fund just enough to cover current level, then follow birth rate.
    Not class warfare, just equal contribution.

  36. call me ahab says:

    xynz says:

    “Need I go on?”

    please don’t- you’re putting me to sleep (but hey- it might interest Politico)

    I don’t see what the problem is. Aren’t we a democracy? So why doesn’t the lower 60% vote away the wealth of the upper 40%?

    indeed- bergsten- indeed

  37. obsvr-1 says:

    @SecondLook Says:

    If that is the normal condition, then perhaps the most important question is how do we, if we want to maintain a democratic society, restrict wealth from translating into power…

    Too Late — the question now is how to take it back.

  38. Robespierre says:

    @call me ahab Says:
    October 6th, 2010 at 9:10 pm

    “I don’t see what the problem is. Aren’t we a democracy? So why doesn’t the lower 60% vote away the wealth of the upper 40%?

    indeed- bergsten- indeed”

    Because in the US (the land of opportunity) the bottom %60 really believe that they too will become billionaires.

  39. obsvr-1 says:

    QOTD: “Capitalism without failure is like religion without sin—it just doesn’t work.” -Allan Meltzer

    with an important corollary: when fraud, malfeasance or unethical activity is perpetrated
    by the bad actors (sinners)

    —– Capitalism without punishment is like Christianity without HELL

  40. call me ahab says:

    Robespierre-

    I was being ironic (and so was bergsten I believe)

    if all the wealth is confiscated- then what?

    hold hands- blow some weed- sing kumbaya and live happily ever after?

    I hate hippies

  41. obsvr-1 says:

    @formerlawyer Says:

    I believe I referred to a Slate series earlier. It was a multi-part article on why and how the the income inequality has grown over the past thirty years:

    http://www.slate.com/id/2266025/entry/2266026/


    Thanks for the link — very interesting indeed

  42. Andy T says:

    @Second Look.

    Was just going to make a post on the 80/20 rule….

    Well played sir.

    Indeed, the 80/20 rule seems to present itself over and over again in many situations…

    Funny stuff.

    There’s also work out there that shows that the tax collection does not deviate much away from 20% of National Income no matter what the graduated/progressive tax rate is. (there is a “name” for this curve that eludes me right now).

  43. r says:

    “willid3 Says:
    October 6th, 2010 at 7:41 pm

    R, I suspect they got the income data from the IRS.”

    willid3: You fell into Barry’s trap. Wealth != Income. For the extreme cases, they aren’t related that much.

    There are many high income individuals who are negative wealth. And there are many low income individuals who are high wealth because they save and invest wisely.

    The IRS has no idea of anyone’s wealth.

    No one knows “Actual wealth”. To plot it on a graph is to try and make a political statement.

  44. Robespierre says:

    @call me ahab Says:

    I was being ironic (and so was bergsten I believe)
    > My bad

    if all the wealth is confiscated- then what?
    > Re-distribute and start again until it becomes just as skewed again (human nature entropy)

    hold hands- blow some weed- sing kumbaya and live happily ever after?
    > jejeje

    I hate hippies
    > Not me. Their lives their choice.

  45. Robespierre says:

    And on the mortgage/foreclosure mess the AG of Ohio is finding a way to re-distribute some wealth from banks to state coffers:
    From nakedcapitalism
    http://www.nakedcapitalism.com/2010/10/ohio-attorney-general-sues-gmac-over-improper-affidavits-maximum-damages-exceed-10-billion.html

    Ohio Attorney General Sues GMAC Over Improper Affidavits; Maximum Damages Exceed $10 Billion

    And this is beginning to look like the tobacco lawsuits of not long ago

  46. james hogan says:

    This is an extremely interesting thread. Comments by Billdozer, former lawyer, BobA, XYNZ, and CitizenWhy, and Second Look are appreciated.

    It seems to me that the economy works best whenever all the participants in it have the means to participate.

  47. wunsacon says:

    To folks who caution against starting a “class war”, there already is one.
    To folks who caution against starting a “trade war” (esp. with China), there already is one.
    Bottom line: China and the rich are peddling fear. And many of you are buying it.

    And on that one “fear” that comes up over and over again regarding taxing the rich: If we raise taxes, where are the billionaires going to go? Good luck living somewhere nearly as free as the US. And as soon as they pick up and relocate elsewhere, that other jurisdiction will realize “hey, here’s a source of revenue.”

    I’d especially like to send 50% of the FIRE sector packing. Sure, we’ll “miss” the “service” you’ve been providing. Uh huh.

  48. Petey Wheatstraw says:

    In a Republic, what ain’t owned by individuals is owned by the government/The People, and the individual may own only what is allowed by the government (think eminent domain). The government has not been of The People for quite a while. Most (and I must emphasize ‘most’ before someone pulls Bill Gates out of their ass) huge fortunes in this country were made and/or maintained by government policy (written or unwritten), not hard work, intelligence, or dedication (to anything other than profits, loopholes, and keeping it). Paulson’s windfall, described by Robespierre, above, serves as a good example. This kind of wealth is not the same as that earned by someone such as a famous musicians, authors, actors, writers, etc., (think M. Jackson or Willie Nelson and their tax troubles), as they are wealthy, but can’t hide behind the corporate shield.

    Oil Barons, arms dealers, banks, and large corporations are favored by the government due to legislative capture.

    If you think this isn’t so, ask yourself why and how Rupert Murdoch came to control broadcast licenses in every major market in the US. Ask yourself how insolvent banks paid their insiders bonuses after being bailed out. Ask yourself why there have been no actions taken by the government with all of the obvious corporate fraud and malfeasance we’re dealing with. Ask yourself why corporate big-wigs profit from oil leases, farm subsidies, offshoring of corporate HQs and/or accounts, or any of a host of other legal loopholes designed to create a class of favorites.

    Ask yourself why you don’t qualify for any of the big-ticket government hand-outs (keeping in mind that the folks that managed us into our current predicament were beneficiaries of government largess they certainly didn’t earn or deserve).

  49. call me ahab says:

    “Oil Barons, arms dealers, banks, and large corporations are favored by the government due to legislative capture.”

    undoubtedly

  50. gman says:

    Pete…amen!

  51. FSharp says:

    @bergsten “I don’t see what the problem is. Aren’t we a democracy? So why doesn’t the lower 60% vote away the wealth of the upper 40%?”

    You’re kidding right? What part of $1 = 1 vote don’t you get? The masses can’t vote themselves anything.. but the corporations can can vote themselves all kinds of laws and rules that benefit themselves, and take our tax dollars and redistribute them into their coffers.

    You want to bet that people become property again in the USA sometime real soon? I give it twenty years at the rate this supreme court is going.

    This is just reverting to the historical norm.. feudalism and serfdom.

  52. The reason I grabbed these charts was the perception factor. What made the subject interesting to me is not the politics, but the incorrect assessment of simple facts —

    Its yet another example of the public simply not understanding the basic numbers of something important, and getting the facts wrong.

    This rarely works out to their benefit.

  53. DL says:

    I have found that, in these discussions over taxes, and who should pay what, that there is lot of “blurring of the lines” between (a) assets, and (b) income. Personally, I think that those people who want to make some sort of attempt at intellectual honesty ought to make clear what version of the term “wealth” they may be using at any given moment.

    Andrew Price states that “the richest 20 percent, represented by that blue line, has about 85 percent of the wealth”. Within this statement, I would assume that the term “wealth” is referring to assets, but that the term “richest” might be referring to income only, or perhaps to some combination of income and assets. The conclusions will be very different depending on the meaning that is intended.

    When Obama uses the term “wealthiest Americans”, he’s referring to income, although he may be trying to make people think that he’s referring to income + assets.

    So there’s a lot of obfuscation going on by people who use the terms “wealth” and “rich”.

    What I find specious about the Andrew Price piece is that he only presents data for the wealthiest 20% (presumably based on income), then proceeds to make an assertion about what tax policy ought to be for the top 2% of earners. My view is that if he wants to talk about the wealthiest 2%, that’s fine, but he should admit up front that he has no clue as to how much “wealth” they have.

  54. Bruman says:

    Barry, I was one of (undoubtedly many) who sent you a link to this chart because it looked like something you’d like (and I like it too). One of the conclusions that is obvious is that most people *vastly* overestimate just how little the bottom portions (the bottom 60% actually) of society own, and by extension, how many people there are who own so little.

    But another thing that is interesting is that if this survey is remotely like a random sample (as most surveys are supposed to be), the conclusion is that *even the poor* overestimate how much they actually own. This is a little surprising, since it is easier to understand that people who live in the top 10% of society might think they are only marginally better off than the rest of society, but it is hard to see how the people who are poor themselves also overestimate how much of the pie they really have.

    When I wrote, I suggested that the poor might blame themselves for their own poverty, and therefore estimate that others around them might own more. But this explanation didn’t really seem very satisfying. What seems MUCH MORE LIKELY is that most people are VASTLY UNDERESTIMATING just HOW MUCH the top 20% (and top 1%) of society really has. It’s not so much that the poor and middle class are overestimating their portion as they are underestimating the portion held by the top.

    This connects to the tax discussion as well. The wealthy complain that they pay an enormous portion of society’s taxes, but they conveniently forget that they also enjoy a far disproportionate share of society’s benefits. The discussion of the Kudlow crowd really seems to be about how the top 2% just don’t want to do their share for getting the economy out of a rut. “I’ll take my bailout money, but don’t ask me to pay anything for it. Instead, please cut unemployment benefits and medicaid and school teachers’ pensions – after all, how much did THEY contribute to the boom times?”

  55. hdoggy says:

    The haves don’t have to deal with mandatory savings programs like Social Security and they spend less of their income than the have nots do so when we try and goose aggregate demand, those with limited savings get screwed as their savings lose value and those that cannot save because they’re saving through the government get screwed, because that’s a ponzi. I’m not one to say me too or that’s not fair, I’m only asking that if I save a buck, let it hold it’s value even if that means I’m eating spam while sitting on my mattress with a loaded SR15 and watching internet porn. Teach savings and not credit induced GDP growth and we get a chance at bettering ourselves and keeping the fruits of our labor.

  56. beaufou says:

    SecondLook,
    80-20 the rule of thumb one should really stick up his ass.
    Do you ever think for yourself or just drool in front of numbers?

  57. Herb2 says:

    About income, the calculations for qualifying a low income household for government aid were (are?) markedly different from those for qualifying for a government guaranteed housing loan with the latter including a value for every government benefit while the former included only cash income. A household’s income could be eight thousand or forty-eight thousand.

    Mark to myth or to market creates even larger disparities in measuring net wealth, to say nothing of the effect of an eminent divorce.

  58. Andy T says:

    @DL.

    Hauser’s Law.

    Thanks for that one. BR, the “numbers guy,” should dedicate a thread to that “concept.” The idea that there is a ceiling to Federal reciepts, NO MATTER THE TAX REGIME, blew me away when I first saw it.

    That single concept has profound implications for the future.

  59. formerlawyer says:

    To: Investradamus

    From the abstract: http://www.people.hbs.edu/mnorton/norton%20ariely%20in%20press.pdf

    “We take a different approach to determining the “ideal” level of wealth inequality: Following the philosopher John Rawls (1971), we ask Americans to construct distributions of wealth they deem just. Of course, this approach may simply add to the confusion if Americans disagree about the ideal wealth distribution in the same way that policymakers do. Thus, we have two primary goals. First, we explore whether there is general consensus among Americans about the ideal level of wealth inequality, or whether differences – driven by factors such as political beliefs and income – outweigh any consensus (McCarty, Poole, & Rosenthal, 2006). Second, assuming sufficient agreement, we hope to insert the preferences of “regular Americans” regarding wealth inequality into policy debates.

    A nationally representative online sample of respondents (N = 5,522, 51% female, Mage = 44.1), randomly drawn from a panel of over one million Americans, completed the survey in December, 2005.1 Respondents’ household income (Median = $45,000) was similar to that reported in the 2006 United States census (Median = $48,000), and their voting pattern in the 2004 election (50.6% Bush, 46.0% Kerry) was also similar to the actual outcome (50.8% Bush, 48.3% Kerry). In addition, the sample contained respondents from 47 states.”

    To Poolshark: From the abstract’s introduction:

    “Second, respondents constructed ideal wealth distributions that were far more equitable than even their erroneously low estimates of the actual distribution. Most important from a policy perspective, we observed a surprising level of consensus: All demographic groups – even those not usually associated with wealth redistribution such as Republicans and the wealthy – desired a more equal distribution of wealth than the status quo.”

    To: Thalamus

    “The meek shall inherit the Earth, but not its mineral rights.” – John Paul Getty

  60. b_thunder says:

    Why are wealth estimates so wildly wrong? How can one even begin to estimate how much wealth/assets that belong to the 0.01% of the super-uber-mega rich is hidden in shell companies, offshores, trusts, etc etc ? Unless, of course, the one who’s doing the estimate is one of the perpetrators of such schemes…

  61. b_thunder says:

    BTW, with the new asset bubbles (brought to you by the Helicopter Ben, Brian (soon to be Goldman) Sack and the rest of the FOMC comedy crew) the greatest ever transfer of the (remaining) wealth from the 90% of americans to the top1% is well under way: as asset prices inflate, the owners of te assets benefit. As prices for food, gasoline, income & value added tax, and retirement age go up, more and more folks from the bottom 90% will live paycheck-to-paycheck, with no chance to start accumolating assets.
    Eventually, Obama will be replaced by a real Marxist (or a Fascist), and then the whole thing will go down in flames, except by then 90% of the country will have nothing to lose….

  62. Alaric says:

    BR –
    By your comments, I see from your comments that you usually focus on analyzing data before reaching conclusions. I do not see much data in the “Building a Better America” survey and I am unable to draw any real conclusions other than Americans may have a certain wealth distribution idea.

    1. 5,000 people with a median age of 44 drawn from 1 million ‘nationally representative online panel’ – a representative online panel? How can an online panel be representative of the US (perhaps in 10-20 years, but now when a significant portion of the population over a certain age does not use the internet?)

    2. There is no accounting for income differences in different regions or states. Wealth and income, like real estate, when generalized over the country as a whole, may not result in a strongly meaningful analysis (Nassau County vs Arkansas?). Also not asked were information on the respondent’s career, family, etc which are relevant to parsing the data, rather than just income.

    3. To conclude that “a large representative sample of Americans seem to prefer to live in a country more like Sweeden” just because people have the general idea that wealth distribution should be more evenly skewed is simply rubbish! (particularly since they did not ask their ‘representative online population’ anything about Sweeden.)

    If you find something with more robust data gathering and analysis I and many others would be interested in seeing it.

  63. I am not sure that is only a problem of income inequality and income distribution.
    http://rick.bookstaber.com/2010/10/i-just-finished-reading-robert-reichs.html
    I think it’s more a matter of distinguishing liquidity and consumption traps from craps
    http://mgiannini.blogspot.com/2010/10/liquidity-and-consumption-traps-or.html

  64. Gnatman says:

    All the statistics and data by income group are published periodically at Citizens for Tax Justice.

    One of their latest headlines – “Most House Democrats Supporting Tax Cuts for the Rich Have Lower than
    Average Percentage of High-Income Households in Their Districts”

    So, the politicos are just as misinformed or corrupt

  65. red_pill says:

    Q1. Innumeracy.
    Q2. Nothing. The difference between perceived and actual isn’t that great, only to people like the ones in this blog (a minority). Give them bread and circus (McDonald’s and football) and they’ll keep their mouths shut.

  66. curbyourrisk says:

    And where does Barry Ritholtz fall on this chart???

  67. d4winds says:

    The most remarkable aspect of the charts is strong coherence among different political/demographic groups in both their estimates of the actual and in their ideals. The charts & surveys could be significantly improved by including a top 1% category.

  68. DeDude says:

    “don’t feel too sorry for the poor (they’ll inherit the earth)”

    I am sure they would like to have some bread with that, right here in the present.

  69. Alaric says:

    Gnatman – I would not hang your hat alone on data pushed out by Citizens for Tax Justice, they do have a particular agenda….

  70. [...] Ritholtz has published this graph at his blog The Big Picture showing how badly skewed income distribution in the U.S. has [...]

  71. VRWC says:

    Looking at income by quintile is misleading in and of itself, but what is especially misleading is looking at income pretax.

    Income quintiles can be misleading because the demographics of the quintiles are different…. among the most important, the bottom quintile has WAY more single person households, particularly the elderly, who are WAY more likely to be retired and own their homes outright.

    When Robert reich and Krugman talk about income disparity, they are always talking about pretax numbers which not only ignores the fact that the lower income quintiles pay ZERO income taxes, but also ignores what those lower quintiles receive in transfer payments…. food stamps, housing assistance, Medicaid, Medicare and the earned income tax credit.

    If you examine PER CAPITA SPENDING per income quintile, you get a more accurate picture of the true disparities of wealth in this country, and it is not nearly as bad as is often portrayed by the left.

    Get out of the Krugman/Reich bubble people…. Mr. Ritholtz is quite right in constantly exhorting us to look outside the data sources that confirm our biases…. perhaps he should listen to his own advice on this issue.

    Here’s a good start;

    http://www.realclearmarkets.com/articles/2010/10/07/the_wealth_inequality_mirage_98706.html

  72. kaleberg says:

    re gimlet Says: “If a magic wand was waived and the wealth distributed evenly by quintile, how long would it take for the distribution to become skewed again……”

    That’s only true if there is something to level the playing field, for example, high taxes on the wealthy, inheritance taxes, scholarships, universal health care and so on.

  73. diogeron says:

    Reminds me of the great cartoon in this week’s New Yorker…a disheveled hard hat kind of guy is drinking a beer next to a man with a suit on at the bar and says something like, “As a potential lottery winner, I’m opposed to letting the Bush tax cuts expire on the rich.”

  74. diogeron says:

    @Thalamus

    As John Paul Getty supposedly said, “The meek may inherit the earth but not the mineral rights.”

  75. Investradamus says:

    formerlawyer,

    Yes, I read that. Did you catch this part, as well?

    “For their estimates of the actual distribution, we asked respondents to indicate what percent of wealth they thought was owned by each of the five quintiles in the United States, in order starting with the top 20% and ending with the bottom 20%. For their ideal distributions, we asked them to indicate what percent of wealth they thought each of the quintiles ideally should hold, again starting with the top 20% and ending with the bottom 20%.

    To help them with this task, we provided them with the two most extreme examples, instructing them to assign 20% of the wealth to each quintile if they thought that each quintile should have the same level of wealth, or to assign 100% of the wealth to one quintile if they thought that one quintile should hold all of the wealth.”

    Then take a look at Figure 1, on page 11.

  76. Lord says:

    In part, this is due to our low safety net. Since Social Security only provides for 42% of median working income and pensions are disappearing fast, workers must save large sums if they are to maintain a similar standard of living in retirement. Someone poor or young will have no real wealth while a median retiree household will need around $680k just to maintain their living standard. The indigent will have social benefits, but no one should confuse these with wealth since they are mostly in kind and at the whim of the state. The wealthy will have more than they can spend and control over their time, work, and lives.

  77. DeDude says:

    Because wealth cannot create more wealth (wealth is created by growing the economy/consumption), you get to a point where further concentration of wealth will prevent the creation of any additional wealth. I think we have reached that long time ago. As Barry showed before; economic growth after the 2001 was pretty close to zero if you deducted the home equity withdrawal. There can be no more growth in overall wealth until we reverse the direction of the current income and wealth redistribution so the poor rather than the rich get more of the pie. Unfortunately both the political and economic winds are blowing in the opposite direction, so it looks like a lost decade or two is the most likely outcome.

  78. [...] Don’t Know Jack About Wealth Distribution: W/ Chart [...]

  79. formerlawyer says:

    Investradamus

    I would agree that an internet poll may be skewed given the lack of internet access in certain areas and I have some doubts as to the methodology employed in establishing a “representative sample”. Ideally the paper, once published, will clarify their methodology.

    I am not clear on your point. As I read the abstract, Figure 1 is the result of the first part of the poll, your quote seems to come from the discussion of the second part of the poll. Am I missing something?

    A cognitive bias may have been introduced by the structure of the poll. If I am reading the abstract correctly, Figure 1 representing “ideal situations” that is a nominative (Sweden) distribution of income was presented vs. an equal distribution vs. the actual wealth distributions. This part of the experiment was conducted first. The tentative conclusion was that an “ideal” Rawlian distribution of wealth (for that group) was the Swedish model.

    To that end, if one was patriotic, american-centric or merely suggestable, the second part of the experiment wherein the questions as to actual versus ideal distributions would see any estimate of “actual” distribution as not requiring any significant change to reach an “ideal” stage.

  80. mikaeel says:

    Many of the bottom 20% are on welfare and or are homeless. Why would anyone think that they had any significant wealth. The ones that do pay rent in New York for instance, get subsidies. The funny thing is they actually give that money to landlords who are probably in that 2nd 20%. That means my tax dollars actually go to the members of that 2nd 20%.

    If we ended rent subsidies in NYC, the landlords would have to charge rents that the people could actually afford. If they didn’t lower their rents to affordable levels, many of the buildings in the Bronx and much of Brooklyn would be empty.

    It’s not like the people on welfare are saving the handouts we give them. They are using it to reward the shrewd business men who provide them nice homes they live in.

  81. JChaplin says:

    VRWC Says:
    October 7th, 2010 at 11:57 am

    Looking at income by quintile is misleading in and of itself, but what is especially misleading is looking at income pretax….

    Now I am no economist, but I cannot imagine that looking at per capita spending ALONE is a reliable way to make statements about wealth inequality. Some of big issues we have today for these lower quintiles are problems like Credit Card dept and Mortgage foreclosure (which is because of dept). If this technique was applied to our Gov’t you could say that we are the wealthiest nation in the world, where as I am pretty sure I heard somewhere that we have a huge dept crisis. Someone in the lower quintiles can spend WAY beyond their means, that does not mean they are wealthy by any stretch of the imagination.

    Looking at spending alone tells you little to nothing about savings or debt that individuals may have, which I hope are metrics taken into account when calculating wealth.

    Another point I would like to bring up is how much money can someone actually spend in a year? I don’t think the top 20% are buying new big ticket items everyday even though in theory they could, while in contrast someone in the bottom 20% may purchase a $6000.00 car at some point during the year and thus spend half of their per capita spending for the whole year in one big purchase.

    The people at the bottom 20% may be spending $12k a year, but that is a large portion of their overall income (or wealth although the terms are not interchangeable) while someone in the top 20% is spending $90k a year which is a much smaller percentage of their income/wealth. This leads to the lower quintiles scraping by paycheck to paycheck while the upper quintiles can stash some of that cash…

  82. Lugnut says:

    Q. Why are wealth estimates so wildly wrong?

    A. Easy, human nature. We like to believe that in spite of our relative financial position in life, that we aren’t that far removed from being “successful”. We tend to believe that the majority of us are sitting in the same (fairly similar) boat.

  83. VRWC says:

    J Chaplin,

    Your point that lower quintile spending can be deceiving in the short run because of consumer debt is well taken…. although I doubt it’s a very big problem these days, wouldn’t you agree?

    But I was responding to this particular data set…. one that makes pretax income with no gov’t transfer payments counted the be all and end all data point regarding income disparity and I would argue that this is equally deceptive. Perhaps some combination of the two data sets is a better way to go.

    And you do not address the per capita disparities between quintiles at all (smaller household size). If a single person household in the lowest quintile is spending $20K and a four member family is spending $80K they aren’t as far apart as the data makes them seem….

    Lastly, you cite the wealthy “stashing cash” as if that were a bad thing…. unless it goes in a mattress, that becomes “saving and investment”…. something I think we’d all like to see more of (and which we should stop punishing in our tax code….)