An interesting reality about income inequality in the US.

There’s a chart I saw recently that I can’t get out of my head. A Harvard business professor and economist asked more than 5,000 Americans how they thought wealth was distributed in the United States. This is what they said they thought it was.

Dividing the country into five rough groups of the top, bottom, and middle three 20% groups, they asked people how they thought the wealth in this country was divided. Then he asked them what they thought was the ideal distribution, and 92%, that’s at least 9 out of 10 of them, said it should be more like this, in other words more equitable than they think it is.

Now that fact is telling, admittedly, the notion that most Americans know that the system is already skewed unfairly. But what’s most interesting to me is the reality compared to our perception. The ideal is as far removed from our perception of reality as the actual distribution is from what we think exists in this country.

So ignore the ideal for a moment. Here’s what we think it is, again, and here is the actual distribution. Shockingly skewed. Not only do the bottom 20% and the next 20%, the bottom 40% of Americans barely have any of the wealth. I mean, it’s hard to even see them on the chart. But the top 1% has more of the country’s wealth than 9 out of 10 Americans believe the entire top 20% should have. Mind blowing.

But let’s look at it another way, because I find this chart kind of difficult to wrap my head around. Instead, let’s reduce the 311 million Americans to just a representative 100 people. Make it simple.

Here they are, teachers, coaches, firefighters, construction workers, engineers, doctors, lawyers, some investment bankers, a CEO, maybe a celebrity or two. Now let’s line them up according to their wealth, poorest people on the left, wealthiest on the right. Just a steady row of folks, based on their net worth. We’ll color code them, like we did before, based on which 20% quintile they fall into.

Now, let’s reduce the total wealth of the United States, which was roughly
$54 trillion in 2009, to this symbolic pile of cash, and let’s distribute it among our 100 Americans. Well, pure socialism, all of the wealth of the country distributed equally, we all know that won’t work. We need to encourage people to work, and work hard, to achieve that good old American dream and keep our country moving forward.

So here’s that ideal we asked everyone about. It’s something like this curve. This isn’t too bad. We’ve got some incentive, as the wealthiest folks are now about 10 to 20 times better off than the poorest Americans. But, hey, even the poor folks aren’t actually poor, since the poverty line has stayed almost entirely off the chart. We have a super healthy middle class, with a smooth transition into wealth. And yes, Republicans and Democrats alike chose this curve. Nine out of ten people, 92%, said this was a nice, ideal distribution of America’s wealth.

But let’s move on. This is what people think America’s wealth distribution actually looks like. Not as equitable, clearly, but, for me, even this still looks pretty great. Yes, the poorest 20% to 30% are starting to suffer quite a lot, compared to the ideal, and the middle class is certainly struggling more than they were, while the rich and wealthy are making, roughly, 100 times that of the poorest Americans and about 10 times that of the still healthy middle class.

Sadly, this isn’t even close to the reality. Here is the actual distribution of wealth in America. The poorest Americans don’t even register. They’re down to pocket change. And the middle class is barely distinguishable from the poor. In fact, even the rich, between the top 10 and 20 percentile, are worse off.

Only the top 10% are better off. And how much better off? So much better off that the top 2% to 5% are actually off the chart, at this scale. And the top 1%, this guy, well his stack of money stretches 10 times higher than we can show. Here’s his stack of cash restacked, all by itself.

This is the top 1% we’ve been hearing so much about. So much green in his pockets that I have to give him a whole new column of his own because he won’t fit on my chart. 1% of America has 40% of all the nation’s wealth. The bottom 80%, 8 out of every 10 people, or 80 out of these 100 only has 7% between them, and this has only gotten worse in the last 20 to 30 years.

While the richest 1% take home almost a quarter of the national income today, in 1976, they took home only 9%, meaning their share of income has nearly tripled in the last 30 years. The top 1% own half the country’s stocks, bonds, and mutual funds. The bottom 50% of Americans own only half a percent of these investments, which means they aren’t investing. They’re just scraping by.

I’m sure many of these wealthy people have worked very hard for their money. But do you really believe that the CEO is working 380 times harder than his average employee? Not his lowest paid employee, not the janitor, but the average earner in his company. The average worker needs to work more than a month to earn what the CEO makes in one hour.

We certainly don’t have to go all the way to socialism to find something that is fair for hardworking Americans. We don’t even have to achieve what most of us consider might be ideal. All we need to do is wake up and realize that the reality in this country is not at all what we think it is.

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