Why income distribution can't be crowd-sourced.

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Sept. 27 2010 7:50 PM

Theoretical Egalitarians

Why income distribution can't be crowd-sourced.

Earlier this month I published a 10-part Slate series (PDF; serial version; slide show) about the 30-year rise in income inequality that Princeton's Paul Krugman has dubbed "The Great Divergence." In the first installment, I noted that in 1915, when the richest 1 percent accounted for about 18 percent of the nation's income, the prospect of class warfare was imminent. Today, the richest 1 percent account for 24 percent of the nation's income, yet the prospect of class warfare is utterly remote. Indeed, the political question foremost in Washington's mind is how thoroughly the political party more closely associated with the working class (that would be the Democrats) will get clobbered in the next election. Why aren't the bottom 99 percent marching in the streets?

One possible answer is sheer ignorance. People know we're living in a time of growing income inequality, Krugman told me, but "the ordinary person is not really aware of how big it is." The ignorance hypothesis gets a strong assist from a new paper for the journal Perspectives on Psychological Science: "Building a Better America—One Wealth Quintile at a Time." The authors are Michael I. Norton, a psychologist who teaches at Harvard Business School, and Dan Ariely, a behavioral economist (and blogger) at Duke. Norton and Ariely focus on the distribution of wealth, which is even more top-heavy than the distribution of income. The richest 1 percent account for 35 percent of the nation's net worth; subtract housing, and their share rises to 43 percent. The richest 20 percent (or "top quintile") account for 85 percent; subtract housing and their share rises to 93 percent. But when Norton and Ariely surveyed a group whose incomes, voting patterns, and geographic distribution approximated that of the U.S. population, the respondents guessed that the top quintile accounted for only 59 percent of the nation's wealth.

In his book The Wisdom of Crowds, James Surowiecki cites example after example in which collective judgment proves remarkably accurate. When a finance professor polled his class about the number of jelly beans in a jar, individual answers were all over the map, but when he averaged them, the group estimate was less than 3 percent off. When a British statistician reviewed tickets from a contest to guess the weight of an ox at a livestock fair, he found similarly diverse answers, but when he averaged them, the group estimate (1,197 pounds) was less than 0.1 percent off. Such "crowd-sourcing," however, turns out to be a terrible method for estimating the distribution of wealth. Norton and Ariely's respondents were off by 31 percent, even though wealth distribution (unlike income distribution) has remained essentially unchanged for a generation.

Norton and Ariely broke down the responses by income group and found the guesses became slightly more accurate as you moved up the income scale. But more striking was the uniformity among income groups. All five quintiles imagined the top quintile to possess about 60 percent of the nation's wealth. (Again, the real figure is 85 percent.) More surprising still, the average guess of a respondent who'd voted for George W. Bush in the 2004 presidential election was not appreciably different from the average guess of a respondent who'd voted for John Kerry. The Kerry voters imagined the top quintile's share to be larger than the Bush voters did, but again, both figured it was about 60 percent.

Real vs. Imagined Wealth Distribution in the U.S.

Norton and Ariely also asked respondents what they thought the ideal distribution of wealth should be, and found, again, little difference among income groups, or between Bush voters and Kerry voters. Most favored a wealth distribution resembling that in … Sweden! But when you examine Norton and Ariely's method, that particular finding gets a little shaky. They showed respondents three unlabeled pie charts. One depicted utopian equality, with wealth distributed equally among five groups. The second depicted the United States, with wealth distributed very unequally among five groups (one of which gobbled up 85 percent—Norton and Ariely put it at 84 percent, but let's not quibble). The third depicted Sweden, where the top quintile accounts for 35 percent of the nation's wealth. Neither the Swedish pie chart nor the U.S. pie chart was identified by nation. Norton and Ariely were astonished that 47 percent of respondents—remember these were all Americans—chose the pie chart depicting Sweden. But surely most survey-takers, when presented with two extreme options and one that lies in the middle, will instinctively gravitate, like Goldilocks, toward the middle option. More surprising to me was that second place went to Utopia (43 percent). Only 10 percent voted for the pie chart depicting the country the respondents actually live in.

Americans' ignorance about wealth (and, probably, income) distribution is encouraging in the sense that it offers hope that most voters might opt for government policies more conducive to equality if only they knew how unequal things were. But it's dismaying in the sense that people who occupy a position of relative privilege seem to go out of their way to avoid acknowledging it. A recent example is M. Todd Henderson, a law professor at the University of Chicago whose annual household income exceeds $250,000, putting him comfortably ahead of 98 percent of his fellow Americans. Henderson was foolish enough to write a blog post venturing that even though he and his wife earn more than $250,000, his Hyde Park neighbor Barack Obama shouldn't raise his taxes because "we can't afford it" after paying the mortgage, the kids' private school tuition, the nanny, etc. You can imagine the response he got. Henderson, who promptly took the post down (futile in this era of Web caches) used the occasion to excavate deeper wells of self-pity ("The electronic lynch mob that has attacked and harassed me—you should see the emails sent to me personally!—has made my family feel threatened and insecure…. You have caused untold damage to me personally"). Henderson said he was sorry—not for making asinine claims about how much money you need to get by in America, but for violating his wife's privacy by splashing details of their financial lives all over the Internet. (He said his wife "disagrees vehemently with my opinion." Sensible woman.)

I know a lot of people like Henderson—well, maybe not quite as clueless as Henderson, but liable, in private, to confide that making hundreds of thousands of dollars a year doesn't make them feel rich. 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. Perhaps a similarly large number consider themselves middle class because they can't face that they're poor. What we can conclude with some certainty is that counting dollars belonging to oneself relative to others is a much more emotionally distorted activity than counting jelly beans.

Timothy Noah is a former Slate staffer. His  book about income inequality is The Great Divergence.

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