The Wealth Gap: Checking NPR

NPR is running an ongoing story on the "wealth gap" in America. This is just the same old story: the rich have more money (shock, horror!); the rich have gotten rich, the poor have gotten poorer; etc. There's some truth to it, but NPR also contributes to distorting the truth, and brings in some new canards.

I got wise to their story last night on Marketplace, with "behavioral economics" researcher Dan Ariely. The question Ariely investigated was people's perceptions about the wealth gap.

ARIELY: Right now the top 20 percent of the people have about 85 percent of the wealth. People think that they only own 68 percent of the wealth, so people underestimate the inequity, but if you ask them what's kind of an ideal world in the Rawls kind of sense that you would actually want to participate in, they say 33 percent.

Ryssdal: I'm stuck on the idea that there is a segment of society out there that thinks that inequality is the way it ought to be.

Is Ryssdal a socialist? I ask this question honestly. Is he really "stuck" on the idea that there should be any inequality of wealth at all in society? Does he actually believe that a productive person who invents, say, a new way to produce power cheaply and cleanly, should be no more wealthy than a high school dropout whose only skill is to flip burgers? At first blush it sounds like he does think this. That's a bit shocking, especially coming from NPR's business reporter.

Moving on to Ariely's comments: there's a bit of a stolen base here. The Rawls conception of a "fair society" is (roughly) this:

[A] fair society is a society that if you knew everything about it, you'd be willing to join it in a random place in the distribution. You would be willing to toss the dice and put you in one bin of wealth, for example.

Ariely's questionnaire presupposes the Rawls conception and asks people to consider how equal they would want society to be given this definition. But Rawls' is not the only conception of the "best" or "fairest" society.

In later posts I may tackle some of the other problems with a naive analysis of the "wealth gap", including: the fact that there is tremendous movement among the quintiles (for example, if you are in the bottom quintile in one year, there is about a 90% chance you have moved to a higher quintile within a few years; the same is true for people in the top quintile moving down); the fact that wealth and income is often measured per household, and this is misleading since average household sizes have become smaller, especially among the middle class.