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Barrie McKenna

Gap between rich and poor won't be closing any time soon Add to ...

It is what economist Paul Krugman calls "the Great Divergence" - the growing gap between rich and poor in America.

Countless studies assure us it's real. The rich, as measured by income or net worth, have been steadily and impressively growing more affluent since the 1970s. By some measures, the moneyed class may be richer than it has ever been.

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The wealthiest 1 per cent of Americans, for example, now pocket nearly one-quarter of the country's income. They also control as much half of total wealth, including property, bank accounts, investments, art and the like. And their share of the pie has roughly doubled in the past four decades.

Income is more evenly shared in Canada. But not by much, and the trend toward greater concentration at the top is identical. Between the mid-1990s and the mid-2000s, income inequality grew faster in Canada than in all but one of 17 leading developed countries, according to the Conference Board of Canada's 2010 performance report.

And yet we don't like to acknowledge inequality, in spite of its obvious link to poverty, crime and other social problems. Many people may be oblivious to the fact that it even exists.

Nor are people inclined to redistribute wealth, Robin Hood-style. Voters generally aren't fond of politicians who would tax millions of us more to engineer a more egalitarian society.

The inequality debate prompted Harvard University marketing professor Michael Norton and Duke University behavioural economist Dan Ariely to explore Americans' perceptions of income utopia. And the two have come up with some surprising and provocative answers in a new study: Building a Better America, One Wealth Quintile at a Time.

Their conclusion: Americans don't have a clue about how unfairly wealth is shared in their country. And their utopian model is Sweden - one of the developed countries that looks the least like their own.

The academics drew their data from 5,522 respondents, matching the demographic makeup of the country.

Participants were asked to look at three pie charts with wealth distributed between chunks of 20 per cent of the population. One chart showed wealth distributed equally between the five pieces of the pie; another showed the U.S. reality; and a third matched Sweden, where roughly 32 per cent of the country's wealth is in the hands of the richest 20 per cent.

A startling 92 per cent of American respondents, including more than nine out of 10 Republicans who voted for former president George W. Bush, picked the Swedish model as the ideal. Even the rich agreed that wealth should be more evenly shared.

"Americans seem to prefer to live in a country more like Sweden than the United States," the authors said.

Respondents also failed to recognize their own reality. They estimated that the richest 20 per cent of Americans probably control 59 per cent of the wealth. The actual figure they control is 84 per cent.

The authors argued that "Americans prefer some inequality to perfect equality, but not to the degree currently present in the United States."

That said, professors Norton and Ariely acknowledged there is a disconnect between what people say they want for their society and the kinds of policies they would actually embrace. "Americans may remain unlikely to advocate for policies that would narrow this gap," they concluded.

Consider the current U.S. political landscape. Americans appear poised to toss out dozens of Democrats in the November midterm elections. The result could be significantly less equality as Republican gains make it more likely that Congress will renew a batch of expiring Bush-era tax cuts for the wealthy, slash government spending and perhaps even roll back the recent expansion of health care.

Canadians also appear to be drifting to the right - and toward fiscal austerity - as the country digs itself out of the recession. Liberal governments in British Columbia and Ontario are facing challenges from the right. New Brunswick went Conservative last week.

In Ottawa, the Harper government is shifting its priorities, too, dialing back on fiscal stimulus and turning its attention to deficit reduction as it prepares its next budget.

The concentration of wealth grew worse during the boom years. Narrowing the wealth gap is likely to prove even more challenging as the economy enters an era of slow growth, flat wages and unusually grumpy voters.

Follow on Twitter: @barriemckenna

 

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