The Wrongologist

What’s Wrong Today

The Gallup Poll just announced the results of an illuminating poll on US attitudes about what it takes to be rich. Gallup surveyed 1,012 adults over 18
living in all 50 states and the District of Columbia. 53% of those surveyed
said that if they made $150,000 or less per year, they would consider
themselves rich. 30% said less than $100,000 would be enough, and fully 18% would consider themselves
rich if they made less than $60,000 a year. The poll has a 5%± margin
of error.

According to the U.S.
Census Bureau, the median annual household income in the United States is
roughly $50,000 per year. Gallup found those below that level say they would
need to earn $100,000 or more in annual income to be rich. Those at or above $50,000
report they would need to earn $200,000 a year to be rich. In their Survey, the
rich income level expands to $250,000 for those who make $75,000 or more in
annual household income.

Here is Gallup’s
question and the data:

So What’s Wrong?

There
is nothing wrong with the Gallup Survey. What we need to talk about is the misperception of who is
“rich” in the United States. Gallup’s results suggest most Americans
think they need quite a bit less than what the wealthiest 1% of Americans really
earn in order to consider themselves rich. Let’s remember that in 2009, (the last year for which we
have data) the income entry point for being in the top 1 percent was slightly less
than $344,000.

To most
Americans $344k is an unimaginable deal of money and the following remarkable study, (Norton & Ariely, 2010) proves
it: Their work reveals that Americans have no idea that
the wealth distribution (defined for them in terms of “net worth”) is
as concentrated as it is.

When shown
three pie charts representing possible wealth distributions, 90% of the  5,522 respondents – regardless of their
gender, age, income level, or party affiliation — thought that the American
wealth distribution most resembled one in which the top 20% has about 60% of
the wealth. (“Estimated” in the chart below).

In fact, the top 20% control about 85% of the wealth, with the top 1% controlling
nearly 34%. Even more striking, they did not come close on the amount
of wealth held by the bottom 40% of the population: the lowest two quintiles
hold just 0.3% of the wealth in the United States (not visible on the “Actual”
chart below).

People in
the Norton survey said that the “ideal” wealth distribution as a much
more equal distribution. They said that the ideal wealth distribution would be
one in which the top 20% owned between 30 and 40 percent of the privately held
wealth, which is a far cry from the 85 percent that the top 20% actually own.
They also said that the bottom 40% — that’s 130 million Americans — should
have between 25% and 30%, not the mere 8% to 10% they thought this group had,
and far more than the 0.3% they actually had.

The actual United States
wealth distribution plotted against the estimated and ideal distributions:

Congress has continually
debated additional taxes on the “rich” in the past few months, either as part
of a jobs plan or for deficit reduction. Additionally, the Occupy Wall Street
protests have focused attention on the wealthiest 1% of Americans and the fact
that they have disproportionally benefited in the past few years. To illustrate the disparity, The Economist ran the following:

(Right axis is
percent change in after-tax income since 1979. The middle 3 quintiles were
combined and shown as the 21^st to 80^th percentiles)

So, the question of
at what point someone becomes rich and misperceptions of where that point is, by the vast
majority of Americans may influence the debate more than we realize:

• Gallup’s
  findings are that most Americans would consider themselves rich if they made
  $150,000 per year.  

• Norton
  & Ariely shows that most of us have no idea what it takes to be rich in
  America.

A reasonable
conclusion is that the average person probably still believes that they have a
decent shot at getting there, so that maybe they should stand with John Boehner
and Mitch McConnell.

And that would be SO
WRONG.

“Everybody knows the game is fixed
The poor stay poor, the rich get rich
That’s how it goes
And everybody knows” 

Leonard Cohen

Too bad Cohen’s lyric is
untrue:  Very few of us really
know