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Can We Reduce Economic Inequality in America?

Three reasons why economic inequality persists in America.

"the duty of the man of wealth is to consider all surplus revenues which come to him simply as trust funds... becoming the mere trustee and agent of his poorer brethren." Andrew Carnegie

This is the second of two posts dealing with economic inequality in the United States. In my previous post I discussed how people with less in America (less wealth, income) tend to have poorer health outcomes than their wealthier counterparts. More specifically, the have-nots don't live as long as the haves, and have a greater risk for mortality due to injury/illness. I also discussed how countries with reduced economic inequality have better health outcomes for their poorer citizens, and how Americans, somewhat surprisingly, actually prefer a society that is more equal in its distribution of wealth. In this post, I discuss why inequality continues to increase, despite people's desire to reduce it.

Why then, does inequality continue to increase in America? Research implicates three reasons:

We don't realize inequality exists

Americans don't realize the sheer amount of inequality in the United States, and as a result, they don't have any reason to be alarmed by it. In the last post I mentioned how research by Norton and Ariely (2011) suggests that Americans would ideally like a society with less income inequality. What those researchers also found was that Americans were totally unaware of just how unequally US wealth is distributed. In their study, Norton and Ariely found that while Americans, on average, believe that the richest 20% of people own 58.2% of wealth in America, in actuality, the richest 20% own a whopping 84.8% of the wealth! Americans woefully underestimate the amount of wealth that the richest 20% of Americans own by more than 25%!

While the reasons for this underestimate must be numerous, the result is clear: Americans don't know how deep wealth disparities impact the fabric of American life. This ignorance presents a huge barrier to making health care, education, and everyday life more equitable for all Americans, and simply tolerable for those who have very little.

We don't have clear social classes in America

Inequality is also hard to reduce if we don't acknowledge that people can't readily define their own socioeconomic wealth. We can acknowledge that there are clearer social signals (e.g., cultural practices, physical features) that help people identify themselves with a particular gender or ethnicity. For socioeconomic position, cues that signal status are much more poorly defined. As a result, most people don't even agree on the extent they and their families come from low-income working class backgrounds, or medium to high income middle class backgrounds. As an example, as many as 35% of manual laborers consider themselves to be middle class in the United States. Similarly, almost 45% of skilled service workers (nurses, teachers) consider themselves working class (these are people who earn 4-year college degrees, or even masters degrees; Hout, 2008). In essence, the haves believe they are the have nots and vice versa.

It's also not too hard to find books that talk about how American society has transcended social class categories. Moreover, news organizations are sometimes worried about discussing social class, for fear of inciting class warfare. In fact, in New Hampshire last week presidential hopeful Rick Santorum quipped that "There are no 'classes' in America. Middle-income maybe, but we don't put people into classes. We don't get into class warfare." All together, these factors make it difficult for us to recognize who specifically has an unequal share of economic resources in society, and who is in need of economic assistance.

We rely too heavily on the nobility of the rich

American history is full of wealthy philanthropists like Andrew Carnegie, Bill Gates, Warren Buffett, etc... and rightly so: Americans give more to charity than any other nation. However, recent research suggests that these examples are the exception rather than the rule.

Psychologists have long believed that the values that make people successful in making money, performing well in school, and obtaining wealth are based in self-interest and not in compassion, altruism, or prosociality. More specifically, individuals who make a lot of money tend to do so because they have an uncanny ability to focus on their own dreams, goals, and personal aspirations. Sometimes these pursuits come at the expense of relationships with other individuals and the broader community.

Corroborating this theory, individuals who have more, tend to be less generous, prosocial, and helpful to others. For instance, in a large scale survey of charitable donations, lower income individuals (earning $25,000 or lower annually) tended to give a higher proportion (4.2%) of their annual salaries to charity, relative to their higher income ($75,000 annually) counterparts (2.3%; Independent Sector, 2002).

My colleagues Paul Piff, Dacher Keltner, Stephane Cote, and I (2010) have also conducted research wherein we examined generosity in the laboratory. In one study, higher income individuals helped a distressed experiment partner less than lower income individuals. In a second study, higher socioeconomic status individuals gave less of a 10-point economic windfall (that would later be converted to money) to a partner during an experiment than did lower socioeconomic status individuals.

In essence, these data suggest that there are likely deep-seated, psychological reasons why relying on the charity of the richest 20% of people, those who control the majority of wealth in America, is not a good strategy for reducing inequality in society. In fact, relying on charity has done nothing to stop trending increases in inequality between the rich and the poor.

What would you do to reduce inequality in society? I'd love to hear your opinions in the comments!

References

Hout, M. (2008). How class works: Objective and subjective aspects of class since the 1970s. In A. Lareau & D. Conley, (Eds.). Social Class: How Does it Work? (pp. 25-64). New York: Russell Sage Foundation.

Independent Sector. (2002). Giving and Volunteering in the United States . Washington, DC: Independent Sector.

Piff, P. K., Kraus, M. W., Côté, S., Cheng, B. H., & Keltner, D. (2010). Having less, giving more: The influence of social class on prosocial behavior. Journal of Personality and Social Psychology , 99, 771-784.

Norton, M. & Ariely, D. (2011). Building a better America: One quintile at a time. Perspectives on Psychological Science, 6, 9-12 .

An earlier version of this post appeared on psychology blog Psych-Your-Mind!

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