The Psychology of Economic Inequality

by Michael Kraus

The U.S. is one of the most unequal and rigidly stratified societies in the industrialised world. Why does this not generate stronger resistance?

First published: 11 August, 2014 | Category: Inequality

The United States is one of the most unequal and rigidly stratified societies in the industrialised world.  In the wake of the Great Recession, it has become increasingly clear that success in America flows to the wealthy and the well-connected.  Why do these inequities persist in the face of steady unemployment, abject poverty and rising homelessness?  Why do they not meet with stronger resistance?  A crucial part of the explanation has to do with our psychology: economic inequality continues largely without objection in American society in part because of basic psychological processes at work within everyday Americans. 

Economic inequality is a direct affront to one of America’s most deeply entrenched systems of belief: the ‘American Dream’ and its promise of equality of opportunity.  The American Dream is pervasive in political speeches and contemporary fiction and cinema, and is a core right referenced in historical government documents (i.e., the Bill of Rights).  It holds that all Americans have an equal opportunity to life, liberty, and the pursuit of happiness, provided they work hard.  Increasing economic inequality, by contrast, may imply that opportunities at the top are closed off for everyday Americans—the rich accumulate wealth and real opportunity while the rest of us scrap over the remains.

Simultaneous belief in the American Dream on the one hand and the stifling immobility caused by rising economic inequality on the other creates what social psychologists call cognitive dissonance: a state in which two belief systems come into conflict with each other.  Dissonance is painful for people, particularly from cultures (like that of the U.S.) which consider hypocrisy a vice.  To avoid dissonance, people tend to evade or reject beliefs that conflict with those to which they are already strongly attached, or else to form additional beliefs that restore internal consistency between new information and their existing commitments.  Given the entrenched nature of belief in the American Dream, the tension between it and observable realities of economic inequality is generally resolved in favour of the former.  That is, Americans tend to downplay or justify widening inequality in order to sustain their belief in the possibility of a brighter tomorrow.

Evidence for how Americans downplay economic inequality comes from research conducted in 2011 by two social psychologists named Mike Norton (of Harvard) and Dan Ariely (of Duke University).  Norton and Ariely asked participants to estimate how wealth is distributed between those at the top and bottom of society’s hierarchy, and found that Americans dramatically underestimate existing levels of economic inequality.  They also found that this ignorance crosses class, ideological and demographic lines—young, old, rich, poor, liberal and conservative alike were all likely to underestimate levels of wealth inequality in society.  Their conclusion was that Americans are blissfully and perhaps wilfully unaware of the economic conditions that shape their lives. 

Americans also acquiesce in and condone high levels of economic inequality.  A recent Gallup poll suggests that Americans are surprisingly unfazed by record disparities.  Only 39% of Americans surveyed were “very dissatisfied” with the distribution of wealth in the United States—a distribution, recall, that places nearly 50% of the total income earned by Americans in the hands of just 10% of the population).  Americans are just now recovering from a recession period in which housing foreclosures were rampant and unemployment levels topped 8% for more than three years.  Even in these conditions only 40 in 100 people were “very dissatisfied” with distribution.  This pattern of responses, although potentially caused by a host of other factors (e.g., political knowledge), is consistent with what we would expect from cognitive dissonance at work.

Those who benefit most from the status quo—the people at the top of society’s hierarchy—are especially motivated to downplay the injustice of economic inequality.  Over the last several years I’ve worked in laboratories at UC Berkeley and the University of Illinois that have examined the ways in which people who think of themselves as the highest ranking members of society—those with the most money, education and best jobs—perceive the causes of economic inequality.  The research, spanning a dozen empirical studies, suggests that those at the top of the hierarchy are particularly likely to justify economic inequality as fair and natural. 

In a 2009 study I designed along with Dacher Keltner of UC Berkeley, we presented a sample of participants with a graph showing rising economic inequality in America and asked them to explain the causes of this economic pattern.  We found that those who self-identified as belonging to the top of society’s hierarchy tended to believe that economic inequality was a natural result of individual differences in hard work, talent, and skill.  In contrast, those self-identifying as lower in the hierarchy thought that economic inequality was caused more by external forces like markets, political influence and educational opportunities.

In follow-up work conducted in 2013, Keltner and I examined American lay theories about the origins of social hierarchy.  In a large online survey we found that those who ranked themselves higher in society reported a greater belief that the world is fair and that society’s structure is based on merit than did their lower-ranking counterparts.  Moreover, these same high-ranking individuals tended to believe that social hierarchy was essentialist—a stable, inherent and biological feature of individuals—whereas lower-ranking individuals believed that social hierarchy was more malleable and externally determined.  Together these studies suggest an alarming tendency on the part of those at the top of American society to believe that rising economic inequality is a natural product of the merits and favourable genes of the wealthy.

The tendency for high status individuals to downplay the severity of inequality extends to government officials.  In the study describing this phenomenon, Bennett Callaghan of the University of Illinois and I examined the frequency with which members of the U.S. House of Representatives sponsored legislation to reduce economic inequality (e.g., sponsoring a bill to raise the minimum wage).  We found that as wealth increased, members of Congress became less likely to sponsor such legislation.  This pattern was particularly true of Democrats; Republican members of Congress were less likely to sponsor decreases in economic inequality regardless of their wealth. 

Decades of research in the social sciences reveals that when economic inequality deepens, society suffers.  Many Americans cling to the hope that as the harms of inequality mount, policies to reduce it will become more popular and harder to discredit.  Unfortunately, these hopes fail to account for our basic psychology: we, and those in power in particular, cling to the status quo and, in the service of avoiding cognitive discomfort, overlook or rationalise economic inequality even as it causes some of the most significant social problems in our society.  If they are to be successful movements for social change must confront not only the complex political and economic conditions that create economic inequality, but also the powerful forces of legitimation that exist within our own minds. 


Michael W. Kraus is Assistant Professor of Psychology at the University of Illinois.

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