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Economic Inequality: It’s Far Worse Than You Think

Stashed in: Wealth!, Winner take all., Awesome, economics, Economics, Wealth, Rich people get richer., @chrisrock

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Wake up and smell the stale champagne, sheeple! You have NO IDEA how much richer the very rich are than you, and you way overestimate how much economic mobility there is in the US. And even the mobility that exists is more downward than upward! Didn't think of that, did you?

I didn't. 

In a candid conversation with Frank Rich last fall, Chris Rock said, "Oh, people don’t even know. If poor people knew how rich rich people are, there would be riots in the streets."


In their 2011 paperMichael Norton and Dan Ariely analyzed beliefs about wealth inequality. They asked more than 5,000 Americans to guess the percentage of wealth (i.e., savings, property, stocks, etc., minus debts) owned by each fifth of the population. Next, they asked people to construct their ideal distributions. Imagine a pizza of all the wealth in the United States. What percentage of that pizza belongs to the top 20% of Americans? How big of a slice does the bottom 40% have? In an ideal world, how much should they have?

The average American believes that the richest fifth own 59% of the wealth and that the bottom 40% own 9%. The reality is strikingly different. The top 20% of US households own more than 84% of the wealth, and the bottom 40% combine for a paltry 0.3%. The Walton family, for example, has more wealth than 42% of American families combined.

We don’t want to live like this. In our ideal distribution, the top quintile owns 32% and the bottom two quintiles own 25%. As the journalist Chrystia Freeland put it,  “Americans actually live in Russia, although they think they live in Sweden. And they would like to live on a kibbutz.” Norton and Ariely found a surprising level of consensus: everyone — even Republicans and the wealthy—wants a more equal distribution of wealth than the status quo.

This all might ring a bell. An infographic video of the study went viral and has been watched more than 16 million times.


Americans believe our economic system unfairly favors the wealthy, but 60% believe that most people can make it if they’re willing to work hard. Senator Marco Rubio says that America has “never been a nation of haves and have-nots. We are a nation of haves and soon-to-haves, of people who have made it and people who will make it.” Sure, we love a good rags-to-riches story, but perhaps we tolerate such inequality because we think these stories happen more than they actually do.

We may not want to believe it, but the United States is now the most unequal of all Western nations. To make matters worse, America has considerably less social mobility than Canada and Europe.

George Carlin joked that, “the reason they call it the American Dream is because you have to be asleep to believe it.”

Spoiler - this went longer than I expected.

This article (and it’s relations) are fascinating looks at wealth distribution in  America. 

It’s pretty interesting as a single data point. 

And frankly I think it’s horrible and distracting and otherwise not helpful.

If  you looked at an article about health, personal growth, continuing education, or measurable improvements in sports - it would be very similar. 

The distribution curve is skewed - it looks like a long tail with a steep head.  Very few super high achievers dropping rapidly down to the long slow tail. 

And none of it would mean anything. 

Single data point analysis are easy to get dramatic about but they don't show and tell a complete picture. 

Wealth distribution is a perfect example. 

Four reasons wealth is a stupid metric

1) it imbues some magical trait to money.

     Money isn’t magic. It’s a way to keep score like levels in Destiny or golf scores or birds on a power line. 

     In the grand scheme of things wealth is a “so what”. It doesn’t stop aging, cure bad social behavior, or intrinsically have people be any more compassionate. Money doesn’t equate to better parenting, better people managing, or being a better surfer. 

     Yes, you can buy better surfboards, hire a nutritionist and trainer, get a social coach, and an army of nannies.

     You will still suck at surfing, rely more on your plastic surgeon, make social gaffes, and have kids who despise you.

     That guy “Steve Jobs” - fabulously rich, fairly young, and cancer still killed him. 

2) making and keeping money takes effort

     That word “effort” is the killer. 

     Any way you look at it - making a billion dollars take work. So does making a million. 

     It doesn’t matter if it’s physical labor (stocking the store shelves) or intellectual (learning ruby) or spiritual (getting up the courage to pitch an idea to investors) - it’s effort. 

     Effort is required (a lot) to be a top level athlete, great parent, golf pro, or level 34 in Destiny.

     Effort is scary and frequently doesn’t work. So it’s absolutely not an easy path or for the faint of heart. 

     Effort takes grit. I should repeat that - Effort takes Grit.

     Yeah some people inherit money - someone is still managing it. Often trust-fund babies blow it all when they get control. Having doesn’t mean keeping. 

     So the effort or lack thereof is a HUGE piece of the puzzle - how much effort is someone willing to do to get rich? 

     Personally, I’m at a pretty comfortable place for now.

     I get paid plenty for the effort I put into my work. I’m not personally willing to put in a ton more effort just to make money.

     For now, I’d rather enjoy the fleeting childhood of my sons, keep my body in shape, and laugh with great friends. 

     Effort is a limited resource - and where you put it is where you get results. My kids are amazing :-)

3) money is a result of helping people - with something they are willing to pay you for

     You have to help a lot of people to become a billionaire (or really even a millionaire).

     Helping a lot of people takes effort...

     If you are NOT helping a lot of people you won't end up wealthy.

     Even if you are helping a lot of people - if it’s not something they will pay for, you will feel happy but won’t get wealthy.

4) money != happy

     Maybe I’m the only one who has met miserable, rich humans. 

     I can’t be the only one who’s met happy people who are not rich.

     At some time - more of anything is just a pain in the ass. I’ve got a friend who helps the wealthy manage their physical stuff - it’s a nightmare. 

     The living frugalish example of Warren Buffet may be the smartest move any wealthy person ever made. 

     This may be the #1 fallacy. Money is NOT happy - so why worship it??

I’m all about the happy.

Happy is a combination of things, different combos for everyone.

If making a gazillion dollars is your happy then you’ll figure out how to do it.

If staying up late playing Destiny is your thing - hello level 35 but there’s no money and until something large changes there won’t be any money in that path. 

As a culture, worshipping at the throne of money is a horribly waste of time and effort.

Thank you :-)

Let me see if I understand what you're saying.

You're saying that sure there might be wealth inequality but wealth does not suggest that those people are happy.

Also: I'm all about something that is 100% off-topic! But I'm happy so I wrote a dissertation about it to tell you that the actual topic is not important. :p

The loquacious got me!!

I'm saying that wealth inequality is just like any other inequality - you get out what you put in. 

Squats, swimming butterfly, writing ruby, sales pitches - can all be unequal distributions.

I suck at squats, ruby, and sales pitches - and I'm not putting much effort into moving up the curve.

If you want to make more $$ - it's well within the realm of doable. 

You an eat/exercise/live better to improve your health (or put the effort into anything else).


So what if the Walton's have more money than I do??

I can surf better than they can and they probably don't care. 

Articles like this frustrate me. 

If you are on the low end of any scale, figure out how to get out of there. It's not that hard (I've done it so I'm pretty sure anyone else can also).  

We need more articles about "sure you got dealt a poor hand - but this ain't poker. Get some knowledge, exert some effort, use your bootstraps". 

Yes, it's more descriptive (inequality is way worse than people think) thank prescriptive (here's how to do better for yourself).

We do have a ton of prescriptive articles, but I have come to realize that not everyone has the kind of mobility that you and I have.

There's a whole population within America that is barely scraping by their existence.

If nothing else, this article reminds us that they are real and they're not scraping by because they're lazy. It's really hard to pull yourself up when you have no bootstraps.

So maybe that's the exploration??

Finding people who did come up from zero to success. 

Gary Vaynerchuk comes to mind. 

As do: Tony Robbins, M&M, Andrew Ly, Eli Wiesel, Lowell Hawthorne, Gurbaksh Chahal

So we know it's possible - now how do we get people motivated to find bootstraps?

Pretty sure Gary V is the scion of one of the biggest, most monopolistic liquor stores in the New York area? Lowell Hawthorne also inherited the thriving bakery. Andrew Ly... yes his family lost almost everything when they were refugees, but obviously they stuck together and pooled their resources to succeed. Gurbaksh Chahal is a woman-beater and allegedly trying to sink his own company, so not a big locus of admiration for most people. And the rest of them I think are individual contributors... talented but essentially solo acts.

Yeah all the people Bill mentions have one thing in common: They're good story tellers.

I'm pretty sure none of them actually started in poverty, despite the fantastic stories they tell.

So it's impossible to go from poverty to wealth??

Seriously - that's the party line??

We're a fairly curious set of people - someone must have done it.

Maybe the Sriracha guy??

Hahaha, so funny Bill! Of course not. But as an immigrant myself -- my family came here with the proverbial $100 between the 4 of us, boo hoo -- I completely agree that many immigrants to this country ESPECIALLY FROM ASIA come here with a lot of cultural capital that is helpful to them in the absence of monetary capital. Do you think that's impossible? Is that your party line?

I don't think it's unreasonable to ask you to be a bit more fair in your assessments of people's actual assets, that's all. And I know you are capable of it! I'm sorry but inheriting a thriving business is not making it from poverty to wealth. It's going from wealth to greater wealth! Potentially even being white and educated is not POVERTY in this culture. None of us can pull ourselves up ENTIRELY by our own bootstraps... isn't that fair to say?

Joyce, I totally agree with you :-)

Yes - cultural capital and yes you are pointing out one of the available bootstraps. 

I bet there are more than that. 

Lots of people have all kinds of great assets - they can use them to move out of bad situations. 

How do we get more people to recognize that and actually start moving?

We start with last week's New York Times piece "it's not the inequality, it's the immobility":

This was followed by a piece in The Atlantic today:

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