Wednesday, November 19, 2014

Americans Still Have NO CLUE About How Much Inequality We Have

Washington's Blog | Nov 17, 2014

© theguardian.com
Politicians, Media and Wall Street May Be Trying to Hide the Size of the Gap

Even years after the Occupy protests (love ‘em or hate ‘em, they focused everyone’s attention on inequality),  Americans are still clueless about how much inequality we really have in our country.

As we noted in 2011:
Dan Ariely of Duke University and Michael I. Norton of Harvard Business School demonstrateAmericans consistently underestimate the amount of inequality in our nation.
As William Alden wrote last September:
Americans vastly underestimate the degree of wealth inequality in America, and we believe that the distribution should be far more equitable than it actually is, according to a new study.

Or, as the study’s authors put it: “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.”

The report … “Building a Better America — One Wealth Quintile At A Time” by Dan Ariely of Duke University and Michael I. Norton of Harvard Business School … shows that across ideological, economic and gender groups, Americans thought the richest 20 percent of our society controlled about 59 percent of the wealth, while the real number is closer to 84 percent.
(Indeed, even those who assume they’re educated about inequality may not realize that we’re at lord and serf levels.)

Ariely subsequently explained that both Republicans and Democrats are passionately opposed to the degree of inequality we have in the U.S. … but that politicians may be trying to make us think we’re more equal than we really are (The media and Wall Street are also trying to hide the size of the gap).

Les Leopold reports today on a new study which confirms how clueless Americans are about inequality:

A[n] important study (“How Much (More) Should CEOs Make? A Universal Desire for More Equal Pay”) by Sorapop Kiatpongsan and Michael I. Norton provides insight on why Americans aren’t more upset about rising inequality: It shows we are clueless about how bad it really is. Their analysis of a 2009 international survey of 55,187 people from 40 countries, found that when it comes to understanding the severity of inequality, we’re the most clueless of all.

Americans are virtually blind to the growing gap between CEO pay and the pay of the average worker. As the chart below shows that gap has increased dramatically. In 1965, for every dollar earned by the average worker, CEOs earned 20 dollars. By 2012, that gap mushroomed to 354 to one.



But, when asked in the survey, Americans grossly underestimated this gap. Instead of 354 to 1, the Americans in representative survey think it is only 30 to 1. When asked what the ideal pay gap should be, Americans say that a fair gap would be about 7 to 1.

More amazing still, the survey results, combined for all countries, show that the misconception of inequality doesn’t significantly vary by age, gender, income, political leanings or education.

To see if these finding also hold for the U.S., I waded into the database: Does political affiliation and education impact how the 1,581 Americans in the survey estimated the wage gap? (The data comes from the International Social Survey Programme: Social Inequality IV – ISSP 2009 on the website Gesis. )


As the chart above shows, “Strong Democrats” estimated that the actual ratio between a CEO of a large corporation and an unskilled factory worker was about 36 to 1. “Strong Republicans” said it was 40 to 1. A difference without a distinction.

When it comes to offering opinions about what the wage gap should be, the Strong Democrats thought 5 to 1 was about right, while the Strong Republicans thought it should be about 12 to 1. The two political extremes obviously are much closer to each other than to the current reality of 354 to 1.

***

When it comes to our ignorance of the pay gap, there are no blue states, no red states — only misinformed states of mind. We’re the Know-Nothings of inequality.

Why are we so blind to inequality?

Most of us have no idea that our golden land of opportunity is the runaway leader among developed nations when it comes to inequality, (see chart below.) This dubious distinction runs counter to American Dream that we’ve been indoctrinated with since birth. As a result, we reflexively think that America is epitome of democracy — the fairest most just and most upwardly mobile country in history. That makes it hard for us to account for why we are more unequal than all these other countries. So, I suspect many of us just tune out the data. It’s too jarring to the deep-seated doctrines that comprise our national identity.

***

We may still be living with this cultural hangover and operating from a societal self-image from yesteryear. We are likely to cling to it for quite awhile, in part, because it’s comforting as new economic insecurities take hold. As workers from other nations pass us by, we look in the mirror and still hope we are the fairest of them all.

And see this.

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