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Building a Better NationOne Wealth Quintile at a Time
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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
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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
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´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
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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
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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
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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
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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
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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
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% 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
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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%
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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
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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%)
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Phase II : And the results are«
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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
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Detailed Results
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Survey Highlights
Two sets of outcomes observed
Predictable Unpredictable
Target Audience
Income Political Affiliation
Gender
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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
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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
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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
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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
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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
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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?
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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.