The top 20 percent: income inequality in the US

The average Americans don’t seem to realize that while they may feel materially wealthy, their earnings are a pittance compared to how well the best of us are doing.

They do not realize how much money (substitute power) a very select number of people in this country really have and on the flip side, do not realize how many
people have so little.

The problem with not knowing much about income equity is that you have no idea how well you’re doing in relation to anyone else.

Sure, you may have an outstanding quality of life compared to someone living in another country, but how well are you doing in comparison to your neighbors?

Most Americans have absolutely no idea, and they are more likely to support backward economic policies because they misunderstand the true economic situation of the United States.

Anyone remember the argument during the health care debate that we have the best health care in the world? Times that by 100 and you’ll get the argument that the rich need more tax breaks.

Economists measure how poorly a country distributes its resources to the citizens by using what is called the Gini index. The closer a country’s Gini index is to zero, the more equal a society; a Gini index of 100 means that a single person holds all the wealth in a country.

According to the CIA World Factbook, the country with the most equal distribution of wealth is Sweden, which has a Gini index of 23, and the country with the most unequal wealth distribution is Namibia, with a 70.7 score.

The United States has a score of 45, which places us on the bottom half of the 136 countries ranked by the CIA World Factbook. Ivory Coast, where an ongoing civil war to remove the embattled strongman Laurent Gbagbo has killed more than 800 people, actually ranks two places higher and has a more equally distributed society than the United States.

Iran, a country we don’t often think of as having an equal society, also has a far more equal distribution of wealth than the United States.

A study done by Harvard business professor Michael Norton and behavioral economist Dan Ariely of Duke University last year asked Americans how equitable they believed the wealth distribution in America actually was.

Participants were asked to assign a percentage of total wealth to each income bracket and were then asked to show what they believed would be the fairest distribution.
Participants missed the mark by a wide margin, assuming that the top 20 percent own about half of the country’s wealth.

Their ideal distribution would have given the top 20 percent of Americans roughly a third of the country’s wealth, a distribution that looks more like Sweden than Côte d’Ivoire.

In reality, the top 20 percent of income earners in the United States control approximately 85 percent of the country’s wealth, markedly more so than people assumed in the study.

So is income inequality a problem? Isn’t the wealthy having a lot of money the perfect way to allow it to trickle back down through the economy?

The mere fact that income and wealth inequality has risen during decades of conservative economic policies seems to dispel this myth.

We need to start taxing the rich again and quickly. We already economically resemble a banana republic; let’s hope we fix inequality before we start acting like one.

­— cdbabcoc@indiana.edu