TOPICS > Economy

Land of the Free, Home of the Poor

August 16, 2011 at 12:00 AM EST
Financial gains over the last decade in the United States have been mostly made at the "tippy-top" of the economic food chain as more people fall out of the middle class. The top 20 percent of Americans now holds 84 percent of U.S. wealth, as Paul Solman found out as part of a Making Sen$e series on economic inequality.
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JUDY WOODRUFF: Now, the opening chapter of an occasional series about inequality in America. It’s a subject that’s getting more attention in light of the weak economy and the ongoing debate around budget cuts and raising revenues.

Billionaire businessman and philanthropist Warren Buffett, who has argued in favor of higher taxes on the wealthiest, cited the growing disparity in an interview on PBS last night with Charlie Rose.

WARREN BUFFETT, Berkshire Hathaway: It should be a land of opportunity. And people that get rich. They — nobody is going to confiscate everything or anything of the sort.

But the distribution in this country — market system has led to extremes. A guy that is wired like me — I don’t have any special status in this world. I’m not — a great nurse, a great teacher may be much more valuable to society than I am. I’m wired so that I can figure out what things are worth. So…

WARREN BUFFETT: Yes. So, I get super rich.

And somebody whose adenoids are in a certain arrangement gets rich. But television makes a lot of people rich. I mean, Lou Gehrig held out for $25,000 in the late ’30s. You know, they benched him. They didn’t bench him, breaking his streak, but he had a long — he had a long struggle.

Television has made the .230 hitter or the .240 hitter better than Ted Williams at .406.

So, it — there’s a lot of serendipity. We — everybody in this country owes their good fortune in some way to the rest of the country.

JEFFREY BROWN: NewsHour economics correspondent Paul Solman has been looking into the reality and impact of the wealth gap in the U.S. today.

Here’s the first of several stories, part of his ongoing reporting Making Sense of financial news.

PAUL SOLMAN: Near Times Square, at the line for “Late Show” tickets, we borrowed David Letterman’s audience for a short quiz on economic inequality.

So, this is three different societies.

MAN: Uh-huh.

PAUL SOLMAN: It’s the distribution of wealth in the societies. Where do think these three places are?

In each chart, we explained, yellow represents the richest fifth of the population, blue the second richest, and so on, down to orange, the poorest fifth. Which chart, we asked, represents the distribution of wealth in the United States?

So, this one’s exactly equally distributed from the top to the bottom.

In the first chart, each one-fifth of the population has 20 percent of the wealth. In the middle pie chart, a middling amount of inequality: The richest fifth owns 36 percent, the poorest fifth, only 11 percent. And in the third chart, extreme inequality, where the richest fifth owns 84 percent of the nation’s wealth, while the bottom two-fifths, 40 percent of the population, owns an almost invisible 0.3 percent of the nation’s property.

Which one do you think the United States is?

MAN: I would — I might say this one.

PAUL SOLMAN: You think the United States is completely equal, 20 percent, 20 percent?

MAN: It’s not exactly equal, but that might be my guess that would be the closest, or maybe this one. It’s one of the top two.

PAUL SOLMAN: And you?

WOMAN: Maybe the middle.

PAUL SOLMAN: What? The United States would be the middle?

MAN: I think the middle one is U.S.

PAUL SOLMAN: Middle one is U.S. Middle one is U.S. Middle one is U.S.

Which one would you think the U.S. was?

MAN: Hopefully that.

MAN: This would have to be Third World. This would have to be places like India.

PAUL SOLMAN: A place that would be incredibly unequal, right?

WOMAN: Yes.

MAN: Definitely.

MAN: The U.S. would be here.

PAUL SOLMAN: U.S. would be here. And this one?

MAN: I don’t think that exists.

PAUL SOLMAN: At least he got that one right. The completely equal pie economy is completely made up.

The middle pie represents the wealth distribution of Sweden. The bottom pie? We asked two presumably low-income workers near the tourist line for “Letterman.”

What place would have a distribution like this? What…

MAN: United States.

MAN: United States?

MAN: United States.

PAUL SOLMAN: United States?

Yes, this chart represents the land of opportunity, ours.

DAN ARIELY, Duke University: The study had a few different parts to it.

PAUL SOLMAN: Psychologist Dan Ariely designed the quiz. First consistent finding: Most Americans don’t realize how unequal our country really is.

DAN ARIELY: People don’t understand how much wealth the top 20 percent have. They actually have 84 percent of the wealth. And they think they have much less. And more disturbingly, people don’t understand how little wealth the bottom of the distribution have. The bottom 40 percent of the U.S. have about 0.3 percent of the wealth, basically zero. And people think they have much more than that.

PAUL SOLMAN: But how can that be, given the spread of McMansions and luxury brands in America’s wealthy communities so easy to contrast with almost any poor neighborhood in the country?

Harvard Business School Professor David Moss:

DAVID MOSS, Harvard Business School: People look around them at their local communities. And local communities tend to be more equal than the broader society. And so, as they look around, that’s essentially their judgment — or our judgment — I should include myself — see the same thing.

PAUL SOLMAN: So there isn’t that much inequality in Newton, Mass., where you live, for example?

DAVID MOSS: Much less, much less than — than in the society as a whole.

PAUL SOLMAN: Maddie McWilliams, who attends high school at upscale Newton, agrees.

HIGH SCHOOL STUDENT: It’s getting easier for people to ignore the inequality. They can stay far away from it.

PAUL SOLMAN: Insulate themselves?

HIGH SCHOOL STUDENT: Yes, I think so.

PAUL SOLMAN: Another reason people don’t realize the extent of inequality, most of it is explained by gains at the tippy-top.

Harvard economist Richard Freeman:

RICHARD FREEMAN, Harvard University: In the last 30 years or so, the share of national — of income that has gone to the upper 0.1 percent — not to the upper 1.0 percent — 0.1 percent — rose by 10 percentage points. That is one of the most astounding patterns I have ever seen in data.

PAUL SOLMAN: Point-one percent?

RICHARD FREEMAN: Point-one percent, yes.

People sometimes say, oh, the rich, it’s the upper 10 percent, it’s the upper 5 percent. No, no, this is the 0.1 percent. Warren Buffett has this wonderful statement where he says: Yes, there’s been a class war in the United States. And my class, namely the super rich people, have won.

PAUL SOLMAN: A graphic, recent example, this New York Times online slide show of children’s playhouses, which can cost up to a quarter-of–million dollars. Meanwhile, more and more Americans, millions of them, can’t afford their own homes.

DENISE BARRANT, homeowner: My house is in foreclosure. I owe them at least $100,000 more than my house is worth, probably closer to $150,000 more than my house is worth.

PAUL SOLMAN: Are they coming to take it away?

DENISE BARRANT: At some point, they will. They haven’t yet, but at some point, they will.

PAUL SOLMAN: And then where will you go?

DENISE BARRANT: I have no idea. I have — I try not to think about it, because I really have no idea.

PAUL SOLMAN: Denise Barrant has a college degree from Lehigh University, some master’s level courses and a paralegal certificate. She once had a job at a health insurance company paying $80,000 a year, plus a part-time job, just for fun, she says, selling clothes at Talbots.

But for three years, she’s been unemployed, free-falling out of the middle class and into poverty, living in a well-to-do Boston suburb she could once afford.

DENISE BARRANT: Even the organizations that were helping people before have been stretched so much, that they’re having a hard time helping people.

PAUL SOLMAN: You mean it’s hard for you to find a food pantry?

DENISE BARRANT: There is one in the next town over. And it was funny. I remember, the first time I went, the people were like, well, you don’t look like you should be here.

PAUL SOLMAN: Don’t have a lot of college grads like yourself at the food pantry.

DENISE BARRANT: I’m sure they didn’t at the beginning, but I’m sure they do now.

PAUL SOLMAN: Barrant’s situation has deteriorated since we first interviewed her earlier this year, and she said this:

DENISE BARRANT: The top 1 percent is living well, and they don’t get it.

PAUL SOLMAN: One of her fellow interviewees was security guard Bobby Hicks.

BOBBY HICKS, security guard: Fifteen years ago, I was — I was working as an office products delivery truck driver.

PAUL SOLMAN: And you were doing better doing that than you are now?

BOBBY HICKS: Yes, absolutely.

PAUL SOLMAN: Though Hicks was born in America; Christi Pierre-Louis in Haiti, her job frustration echoes his.

CHRISTI PIERRE-LOUIS: It makes me feel like the American dream is not just — is not for me. It’s just not for me.

Maybe it’s for the wealthy, just not for me, because it doesn’t matter how high I reach. You know, I’m reaching up my hands, and it seems like it’s still — I’m still — still very far away from it. It’s like someone literally pulling it. As much as I’m running after it, they’re running away with it, and I don’t get my piece of the American dream, because I work hard in this country, too. I pay my taxes, just like everyone else. I work here. I go to school. And I’m doing my best, but, still, my best is just not good enough.

PAUL SOLMAN: So, the U.S. looks unequal to a Haitian?

Economist Richard Freeman is not surprised.

RICHARD FREEMAN: We’re high for a poor country, in terms of inequality, and we’re a rich country. We’re about the same level of inequality as China. And, of course, China, half the population are rural peasants who are not part of the modern world.

And if we were to compare us with African countries, dictators in different places, you know, taking a lot of the wealth from normal people, we would be among the top half of the African countries of inequality. So, the U.S. really has reached an extraordinary level of income inequality.

PAUL SOLMAN: The luxury goods speak for themselves. But who knew that the kids of the wealthy were flying private jets to camp this summer? OK, to some, this might be cause for indignation, but, to others, it’s not that simple.

STEVEN DAVIS, University of Chicago: Inequality is the flip side of providing powerful incentives for people who generate a lot of income.

PAUL SOLMAN: Economist Steven Davis:

STEVEN DAVIS: Part of the success of the United States’ economy lies in the fact that, if you succeed in a big way commercially, you’re rewarded for that. And the taxes on your success are modest, say, compared to what they are in a — in a country like France or in the Scandinavian countries.

PAUL SOLMAN: But as Dan Ariely found in part two of his study, and as our own informal survey confirmed, when people didn’t know which countries the pie charts represented, they overwhelmingly chose the one representing a much more equal and yet still prosperous country, Sweden, as the place they’d prefer to live. A function of their politics, we wondered?

DAN ARIELY: We had 7,000 people distributed around the U.S., different levels of income, education, wealth, political opinions — 92 percent of the Americans picked Sweden over the U.S. When we broke it by Democrats and Republicans, Democrat, it was 93 percent, Republican, it was 90.5 percent.

So there’s a difference, but the difference is tiny. And one of the possibilities is that, when we dig deep down and we ask people to examine their core beliefs about a just society, Americans are really quite consistent in terms of thinking this is way too much inequality, and we want something that is much more equal to Sweden.

PAUL SOLMAN: And so, last question: Which distribution do you prefer?

Which society do you want to live in?

WOMAN: I’m going to go with this one, though.

PAUL SOLMAN: You want to be in the unequal society?

WOMAN: Sure.

PAUL SOLMAN: On the off chance that you will be in the yellow?

You can let us know online.

JEFFREY BROWN: Paul’s next report examines the connections between the growing wealth gap and the financial crisis.

Editor’s Note: In the pie charts used to illustrate this story, the middle pie chart represents the income distribution of Sweden. For more, see ‘”Building a Better America–One Wealth Quintile at a Time” by Dan Ariely and Michael I. Norton.