Sweden’s Super-Duper Rich

Update: Watch Land of the Free, Home of the Poor and Americans Facing More Inequality, More Debt and Now More Trouble? to see the first two parts of Paul Solman’s ongoing series of reports on U.S. economic inequality.

Turns out the world inequality skew is even more marked than we thought, or suggested on Tuesday’s story about inequality. A number of viewers have pointed out that wealth in Sweden too is more unequally distributed than we claimed in our middle pie chart. We should have realized as much from the note in Dan Ariely and Michael Norton’s original pie chart experiment paper (emphasis added):

“We used Sweden’s INCOME rather than wealth distribution because it provided a clearer contrast to the other two wealth distribution examples; although more equal than the United States’ wealth distribution, Sweden’s wealth distribution is still extremely top heavy.”

In other words, pie chart No. 2 made even Sweden seem much more equal than it is, since it was using income, not wealth, to define the size of the pie wedges.

Making Sense

This only emphasizes Ariely’s point, of course: most people want to live in economies with wealth distributions that don’t seem to exist in today’s world, outside of Cuba, perhaps.

Some viewers also pointed out that the data don’t include other important aspects of wealth like “capitalized” Social Security and Medicare (that is, the present value of all future payments) and, said economist Robert Lerman (Urban Institute and American University), a person’s “human capital” — the present value of their future earnings. By that standard, some young people would have little measured wealth, but lots of earnings power that will translate into wealth when they get older.

True, the wealth data don’t include any of this. But then neither do they include potential inheritance: family wealth that hasn’t yet been passed on. Professor Lerman: “Notwithstanding these points, the super-duper rich do have an unbelievable amount of money compared even to the well-off.” The Ariely/Norton survey is itself based on philosopher John Rawls’ famous “veil of ignorance” thought experiment. The results suggest what Rawls supposed: that if you don’t know where you’ll wind up in an economy, you’ll opt for more, rather than less, equality. In the case of Americans, a lot more equality than we’re experiencing now, it seems.

[Dan Ariely has also weighed in on the issue](http://www.pbs.org/newshour/bb/business/july-dec11/makingsense_08-16.html#comment-289341112):
Our paper on this topic is [here](http://www.people.hbs.edu/mnorton/norton%20ariely%20in%20press.pdf). And if you are interested, recent data on the U.S. distribution [[is here](http://www.levyinstitute.org/pubs/wp_589.pdf)].

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions _Follow Paul on Twitter._