Economic inequality is at an all-time high in the United States. Some claim that decades of systematic legislation have resulted in the wealthiest three families owning more wealth than the bottom half of the country.
This trend is not reflected in other countries with developed economies: Out of all 36 countries with comparable economics, the US ranks last in equal income distribution. As a result, we have returned to Great Depression levels of income inequality, and for the first time in American history, the working class pay a higher effective tax rate than billionaires.
The adverse eEffects of economic inequality are well documented. Across societies, higher rates of inequality are associated with a myriad of health and social problems including obesity, mental illness, decreased life expectancy, and higher crime rates. The World Economic Forum ranked income inequality as one of the most important trends driving global risks such as social instability and unemployment. And yet a recent poll shows that less than half of Americans view income inequality as a serious problem. Why don’t people care?
Political scientists, economists, and philosophers have wrestled with this paradox for decades. The answer to this question—at least in part—can be explained by understanding how people experience inequality in their daily lives. Here, we offer one slice of the explanation: the psychology behind inequality perpetuates an unequal system.
People disproportionally care about local inequality
In an age where we are spending more and more time online, it is easy to compare ourselves to others. Yet not all comparisons are created equal (pun intended).
I may care less about a celebrity buying a multimillion-dollar house than my neighbors posting pictures about their luxurious vacation in the Bahamas. This is because social comparisons are particularly salient when made to others in your community. In comparisons with similar people, inequality can drastically shift our behaviors.
In one particularly creative study, researchers examined how a neighbor winning the lottery shaped others’ financial behavior. They pulled data from the Dutch Postcode Lottery, a system that randomly selects a postal code and distributes new BMWs to all lottery participants in that area.
This creates a unique situation where nonparticipants (who did not buy a lottery ticket) are faced with upwards social comparisons to neighbors who just won a new BMW. The feeling of “keeping up with the Joneses” can be potent: Nonparticipants who lived next to winners were far more likely to buy a new car in the six months after the lottery, compared to those who lived in non-winning districts.