The very best lecture of the very best class I have ever taken (how’s that for some superlatives!) was Dr. Kearl’s Econ 110 course finale. His class was (and remains) infamously difficult, but truly fits the cliché in that it changed the way I see the world—or at least provided me with a new lens. Nearly a decade ago, I sat spell-bound as Professor Kearl wrapped up the semester with four “mini-sermons,” as he sardonically refers to his final lecture. Although the details became hazy as time has passed, I have never been able to shake the impact of that class.
Flash forward to my waning days as an MBA student at BYU—preparing to take the world by storm (my new-found euphemism for moving to perpetually-rainy Seattle). I convinced a handful of classmates to come with me to sit in on Kearl’s semester wrap-up, skipping a test review because frankly, this was more important. This time I took notes. Here’s my summary:
If I were to give you ten dollars and ask you to divide it up with a stranger in any manner of your choosing, how would you do it? The catch: the other person has to accept your distribution in order for either of you to get anything.
Self interest would dictate that you would split the money with you walking away with the lion’s share: after all, the other person is better off no matter what you choose to give them, even if it’s just 50 cents. But that’s not how we act, either as givers or recipients. Think about it— if you were on the other side of things, at what point would you say no just to spite a greedy offer? One dollar? Two? Four?
Another quick, but compelling, hypothetical situation was proposed by the philosopher John Rawls. Known as the Original Position thought experiment, Rawls proposes a condition in which everyone starts behind a “veil of ignorance” (could you imagine?!), entering life by drawing a card with one of several values which indicate the portion of the world’s cumulative wealth they would receive. Under such a set of circumstances, not knowing which card you would be dealt, what ratio between the highest and lowest cards would be acceptable to you? 10:1? 4:1? 2:1?
When Kearl polled the class, there were a few 1:1s (Commies!), but more than 90% of the class had an answer 5:1 or less, myself included. In America, looking at the median net worth of the top and bottom quintiles, the ratio is 9:1, far above what most of us in the room would be comfortable with... if we didn’t know what end of the scale we would end up on.
Not only that, but most of us really have no idea where we actually fall on that distribution. A lot of fuss has been made lately about the 1%, but what about the rest of us? Kearl asked the class to estimate our parents’ net income (remember this is primarily for undergrads) and then asked us how we would label ourselves: rich, poor, middle class. Then came the stats:
- If your household income is greater than $50,000, that puts you in the upper half of Americans—let alone the rest of the world (as an undergrad, I vaguely remember him talking about if the oft-quoted “If the world were a village of 100 people”).
- A household income of $120,000 puts you in the top 10%.
- A household income of $150,000 puts you in the top 3%.