James Kwak at The Baseline Scenario has a great discussion of income inequality in the United States today. Citing a short paper by Michael Norton and Dan Ariely, Kwak breaks down the actual, estimated, and preferred income distribution as stated by respondents to the survey conducted by Norton and Ariely. According to the results, Americans perceive income inequality in the United States to be far more equal than it actually is, and desire it to be more equal still (see figure below). As Kwak summarizes, Americans want to be more like Sweden.
Ironically, however, developing the level of distributional equality that exists in Sweden is predicated on paying higher marginal taxes and accepting a much greater level of government involvement in the economy, two things that recent developments in American politics suggest are not on the front burner.
There’s another irony, however; one captured by Jon Stewart’s “Mob Swap” proposal last week. Across Europe, governments have been engaged in efforts to reign in the welfare state, to introduce a greater efficiency and reduce government debt burdens. These moves have provoked protests across Europe. Last week alone, 100,000 people took to the streets of Belgium to protest cuts in government spending, millions took part in protests in France challenging a proposal to increase the retirement age, and workers shut down the London underground. Meanwhile, Americans are protesting against expanded government programs, including the Troubled Asset Recovery Program (TARP) and the Obama health insurance reforms. The grass, it appears, is always greener!