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Inequality Perceptions in the United States of America (and Beyond)

Information is vital both in economic research and decision-making. It is hard enough to measure inequality, poverty and to obtain solid, comparable, measures of them – this issue hinders the effectiveness of computations and policies. But to further complicate matters, the information obtained is rarely decently distributed across populations, which, in turn, affects people’s economic behaviors and democratic decisions. The way towards equality is paved with accurate information, and this should be a guideline for the future.

Inequality in America and many other countries was shaped and enhanced by politics, where the outcome of democratic elections should reflect the views of the median voter. However, polls consistently show that there are large discrepancies between what most voters want and what the political system delivers. It can be argued that the current system seems to operate on a “one-dollar-one-vote” basis instead of one vote per person.

The importance of such fairness to most individuals has been shown by research, going so far as that most individuals would rather accept an inefficient outcome – even hurting themselves – than an unfair one. Studies that compared individuals’ views about what a good distribution of income might look like in the US confirm that most (from all demographic groups) think there is too much inequality. In most people’s ideal distribution, the top 40 percent had less wealth than is currently held by the top 20 percent, and this brings up many questions about propaganda.

To some extent, all countries and all leaders develop narratives that shape how people perceive their government and country. What is different today is that we have far greater understanding of how to shape perceptions and beliefs thanks to the advances in research in the social sciences. Opposed to the reality that perceptions and preferences can be shaped, mainstream economics incorrectly assumes that individuals have well defined preferences and fully rational expectations and perceptions.

If this were true, there would be little scope for advertising. Many, if not most Americans possess a limited understanding of the nature of the inequality in our society: they believe that there is less inequality than there is, they underestimate its adverse economic effects. They underestimate the ability of government to do anything about it and they overestimate the costs of acting. They even fail to understand what the government is doing – many who value highly government programs like Medicare don’t realize that they are in the public sector. In a recent study, respondents, on average thought that the top 5th of the population had just short of 60% of the wealth, when in truth that group hold approximately 85% of the wealth.

Americans are not alone in these misperceptions of the degree of inequality. Looking across countries, it appears that there is an inverse correlation between trends in inequality and perceptions of inequality and fairness. One suggested explanation is that, when inequality is as large as it is in the US, it becomes less noticeable – perhaps because people with different incomes and wealth don’t even mix. But important as perceptions and beliefs are in shaping individuals’ behavior, they are even more important in shaping collective behavior, including political decisions effecting economies. Evidence doesn’t always resolve these disputes: the advocates of different perspectives see evidence in unusual ways – at times, equality may even be considered detrimental.

In the most recent case of the 2016 US election, it has also been claimed that more equality may be feeding a greater sense of unfairness, indignation, and impotence, all because of the decline in what social scientists call horizontal inequality: systematic disadvantages across gender, racial, ethnic, religious, and sexual orientation lines. There are signs that rising horizontal equality is feeding unhappiness and despair in those left behind by economic transformation, and in those who see their identity and core values unbearably threatened by uncontrollable shifts in mores and norms. Thus, this dimension of equality affects people’s perception of other issues such as income inequality. There is also evidence that people who felt threatened by rising horizontal equality were more likely to vote Republican and, especially, for Trump, but the more educated people are, the more they embrace horizontal equality in the US.

Overall, it becomes clearer and clearer that improvements on perceptions, smoothing of confirmation biases and the elimination of information asymmetries about inequality are urgent. Even if the effects are not direct, both US citizens and the world population would benefit from such efforts.

 

Ana Paisana Belo, 890

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Author: studentnovasbe

Master student in Nova Sbe

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