Building a Better Nation

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Building a Better NationOne Wealth Quintile at a Time



Wealth Inequality - An Introduction

Richest 1% hold 40% of global assets

10% hold 85%

Bottom half barely holds 1%

Most equal countries Countries better placed

than USDenmark UK

Japan India

Sweden Portugal

Norway Russia

Germany Egypt/Greece

INCOME INEQUALITY

The more divided the country becomes in terms of wealth, the more reluctantthe wealthy become to spend on common needs like medical care, parks



WEALTH DISTRIBUTION IN INDIA

Top 1%: 16% of wealth

Top 5%: 38% of wealth

Top 10%:53

% of wealth Bottom 80%: 30% of wealth

Bottom 50%: 8% of wealth

Bottom 20%: 1% of wealth

Bottom 10% 0.2% of wealth

Source: University of Western Ontario, 2006



´Build a Better Americaµ

Figure out how Americans

think about wealth inequality

Conduct a survey to understandtheir perceptions about

America·s inequality numbers

Ask them to ´Build a better

Americaµ and what should be

the ideal distribution of wealth



Background

Most studies earlier estimated

that wealth inequality in

America is high

± Top 1% hold 50% of wealth

Determining ideal

distribution of wealth difficult

± Friction between policymakerswho shape the distribution

Estate Tax/Death Tax



John Rawls

American philosopher ² moral

and political

Author: Theory of Justice

Rawlsianism ± ´Most reasonable principles of justice

are those that everyone would accept

to agree to from a fair positionµ

Thought Experiments

± Veil of Ignorance

± Rawl·s Constraint

Random allocation ending up

anywhere in the distribution

± Original Principle



The Experiment

Asked Americans to construct distributions of wealth

they consider just and fair

Two main goals

±

Explore if general consensus Ideal level of wealth inequality

Differences outweigh any consensus

± If sufficient agreement exists

Insert the preferences of citizens into policy debates



The Respondents

Sample set had to be a fair representation of the Americancitizenry

51%

49%

Respondents

Females Male

Mean Age = 44.1

Survey was completed in Dec 2005. Set randomly drawn from 1 million

Americans

HouseholdIncome

$45000

Voting Pattern

2004

50.6% Bush

46.0% Kerry

Household Income

$48000

Voting Pattern

2004

50.8% Bush48.3% Kerry

Sample Stats Country Stats



Starting Definition of Wealth

´Wealth also known as Net Worth is defined as

the total value of everything someone owns

minus any debt that he or she owes. A

person·s net worth includes his or her bankaccount savings plus the value of other things

such as property, stocks, bonds, art,

collections, etc minus the value of things like

loans and mortgagesµ



% of wealth possessed by each quintile- A distribution

21%

11%

18%

35%

15%

Option 1

20%

20%

20%

20%

20%

Option 2

85%

11%

4% 0.1% 0.2%

Option 3

Candidates asked to observe Rawls Constraint

Choose the nation they think is best and just



RESULTS

21%

11%

18%35%

15%

Sweden

20%

20%

20%

20%

20%

Utopia

85%

11%

4% 0.1% 0.2 %

America

47%43%

10%

51% vs 49%



Results ² An eye opener

US is far less desirable thaneither Sweden or the utopianequal distribution

Overwhelming preference forSweden over US across gender

92.7% Females ² 90.6% Male

Slight preference for Sweden overEqual

Americans prefers someinequality



Phase II ² Explore Beliefs about their society

Removal of ´veil of ignoranceµ

Two proposed graphs

Asked respondents to estimate what percentage of

wealth is owned by all quintiles starting from the top20% and ending with the last 20%

For ideal control distribution, they were asked to

estimate what should each quintile ideally hold

Extreme hints (All 20% or one holds 100%)



Phase II : And the results are«



Results ² Phase II

Two clear messages:

1. Respondents are horribly

uninformed about the wealth

distribution in their country

(59% vs 84%)

2. Their ideal distribution was

much more equitable than

their current condition

Top owns only 32% Second quintile is

unchanged

Thus shows more concern

for the less fortunate

59

84

0

10

20

30

40

50

60

70

80

90

Perception Actual

Top Quintile



Detailed Results



Survey Highlights

Two sets of outcomes observed

Predictable Unpredictable

Target Audience

Income Political Affiliation

Gender



Outcomes - I

Predictable outcomes

± Actual distribution: Males, Democrats and

wealthier individuals estimated more unequal

distribution of wealth than the other Females,Republicans and poorer individuals

± Ideal distribution: Women, Democrats and poor

desired more equal distribution than their

counterparts



Outcomes - II

Unpredictable outcomes: ± All groups desired more equal distribution of

wealth than their estimates

±

All groups desired some inequality - even thepoorest respondents

± All groups agreed that such redistribution shouldhappen by moving wealth from top quintile to thebottom three quintiles

INEQUALITY



Messages Drawn

Large group of Americans prefer to live in a country

more like Sweden (more equitable wealth distribution)

than the US

Groups across political spectrum prefer equaldistribution of wealth

± despite disagreements about policies affecting such

distribution - taxation, welfare etc



Concluding Remarks

Why are more Americans not advocating for greater

redistribution of wealth?

People are unaware of the economic inequality

People carry overoptimistic beliefs aboutopportunities for social mobility

Sample validity: Public disagreements about thecauses of inequality drown out consensus arrived at

Americans exhibit disconnect between theirattitudes toward economic inequality and their self-interest and public policy preferences



Some thoughts«

Economists have often tried to justify this

± Marginal productivity theory

Higher income ² greater contribution to society

± Financial Recession 2008 contradictory

Growing Inequality ± Flip side: Shrinking Opportunity

± Distortions leading to inequality

Monopoly power

Preferential tax treatment

Creates new distortions

± Smart people get into finance

± Unhealthy economy

Modern Economy requires collective action

± Inequality shows that collective action has been missing on

various counts



Now, do the same thoughtexperiment for yourself

If you could end up anywhere in the distribution,where would you like to end up. Keeping this in

mind, what is your ideal distribution?



Indeed it is fine if reasonable people

have different ideas about whether

we should extend the Bush Tax cuts

for people making more than

$250,000. Or disagree about the

fairness of estate taxes but when we

have those debates, it is critical that

everyone has a clear understanding

of how things really are.

We are becoming a plutocracy.

Building a Better Nation

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