Why the Poor Don’t Soak the Rich: They Don’t Know How Poor (or Rich) They Really Are

Authored By 
Gautam Nair
Blog contributor 
Policy Fellow
January 27, 2016

Democracy’s skeptics, from Aristotle to Tocqueville, feared that putting the vote in the hands of the masses would allow the poor to use the state as a battering ram to level the mansions of the rich. This was precisely the hope of many of democracy’s modern enthusiasts – that the principle of political equality would translate smoothly into economic and social equality. Neither the fears of those on the right nor the hopes of those on the left have been fully realized, but inequalities of income and wealth survive (and often grow) in democracies around the world. I’m going to explore one candidate explanation for the puzzling coexistence of democracy and inequality: people have deep misunderstandings about the way income and wealth is distributed in society and lack the information they need to fully know their material interests.

Michael Norton and his coauthors have amassed a good deal of evidence that shows that people are greatly misinformed about the degree of wealth inequality in the US and the pay gap between CEOs and workers. One important cause of these misperceptions, Ricardo Cruces et al. suggest, is the fact that people generally live and work among people like themselves, and then draw on these peer groups to make (naïve) judgements about the overall income and wealth distribution in their societies. The authors surveyed households in Buenos Aires and found that individuals’ relative position in the income distribution of their neighborhoods predicted their guesses of where they thought they stood in relation to Argentina as a whole. Most people tended to mistakenly place themselves in the middle of the income distribution, but when the respondents were given accurate information about their true place, they seemed to act in self-interested ways. People who hadn’t realized how (relatively) poor they were became more supportive of redistributive measures while those who hadn’t quite realized how wealthy they were became less supportive.

These findings imply some support for the thesis that misinformation might explain how vast fortunes endure even in democracies. But when Ilyana Kuziemko et al. told Americans about growing inequality and the incidence of taxes, they found that the information caused very limited increases in support for government-led redistribution in the United States, and these increases were, if anything, smaller among those with lower incomes and education.

And, of course, there are a number of other reasons why the poor and middle class might not demand greater redistribution. They might be divided along other lines (old vs. young or white vs. black), oppose the upliftment of those worse off to keep from being in “last place”, or believe that higher taxes on the rich would damage their prospects for upward mobility or slow economic growth. Perhaps, as Ian Shapiro suggests, the poor are separated by such vast “empathy gulfs” that they simply cannot imagine switching places with the rich. And I haven’t yet mentioned the formidable roadblocks to redistribution created by counter-majoritarian institutions (like the US Senate) that tend to protect the conservative status quo, the inability of weak states in developing democracies to tax the rich, and the influence of well-organized interest groups in the policy-making process.

Part of my research at ISPS this year will be to expand scholarship on misperceptions of the income distribution to new domains and subsequently make an assessment of whether it adds up to a coherent alternative account of why the poor don’t soak the rich. If correcting these misperceptions does have a meaningful impact (a big if in my view), then partisans of lower income inequality might think about using this information to change people’s minds. It might also have far-reaching normative implications for how democratic institutions should be designed to protect the material interests of the many.

Gautam Nair is a third-year PhD student in Political Science and an ISPS Graduate Policy Fellow whose research focuses on the political economy of inequality and redistribution in a broad array of contexts.

Area of study 
Poverty & Inequality