A wealth of issues

Fabian Pfeffer illustrates wealth inequality in the United States with a tower of dollar coins. While a tenth of the US population does not possess a single dollar or is in debt, the coins of the super-rich would reach to the International Space Station and, for the very richest, even to the moon. “Wealth inequality in the United States,” explains sociologist Pfeffer, “has attained astronomical proportions.”

Since last year, Professor Pfeffer has been Chair of Social Inequality and Social Structures at LMU. In particular, he researches and teaches questions relating to social inequality, mobility, wealth, and education, with a focus on quantitative analysis.

Pfeffer studied economics and sociology at the University of Cologne and completed a doctorate in sociology at the University of Wisconsin-Madison. “For my PhD on the subject of social inequality, I had two supervisors who viewed the topic from different angles: One sought to quantitatively describe existing inequality with the greatest possible accuracy, while the other wanted not only to describe and criticize existing relationships, but also to analyze new models for a fairer society.” A combination of the two perspectives on inequality issues continued to inspire him during the decade and more he spent at the University of Michigan, where he was an associate professor and founding director of the Stone Center for Inequality Dynamics, before coming to LMU.

Financial exploitation of minorities

Pfeffer researches social inequality and its perpetuation across eras and generations. His current projects are focused particularly on wealth inequality and its consequences for the next generation. Pfeffer studies why wealth inequalities persist across generations. “There are forms of systemic discrimination in financial systems, for example, which represent a barrier to wealth formation for certain population groups and reinforce inequalities across generations.”

By way of example, Pfeffer cites exploitative financial products, especially in the United States. “Around the financial crisis of 2008, for instance, Black and Hispanic households were deliberately targeted with offers of ‘subprime’ loans,” he observes. “With these loans, they had no chance, say, to leverage their house property for wealth accumulation, but ran into huge financial difficulties.”

Measured in dollar coins, Pfeffer explains, the tower of the typical White household in the United States would reach the top of the Empire State Building – almost nine times as tall as the tower of Black Americans. “And to make it into the top one percent of the US wealth distribution, you’d need to accumulate a stack of dollar coins 22 kilometers tall.”

Germany and Sweden – as unequal as the United States

His research also encompasses the international comparison of wealth inequalities in industrial countries. “Whereas in the United States, income is distributed much more unequally than in other industrialized nations, it may surprise people to learn that levels of wealth inequality in Germany – and Sweden, too, for that matter – are similar to those in the US.” There has been little research to date into such wealth dynamics, Pfeffer notes. “One of the research goals at my chair at LMU is therefore to capture these dynamics and clarify their determinants and effects.” Such efforts have revealed, for example, that family wealth in Sweden has a major influence on the educational success of children.

To be able to answer questions around inequality and mobility, an important part of Pfeffer’s career has been devoted to expanding social-scientific data infrastructure and further developing quantitative methods. For over a decade, for example, he was co-investigator at the Panel Study of Income Dynamics (PSID) in the United States. “This institution has existed since 1968 and is a predecessor of the German Socioeconomic Panel (SOEP).” Another large data project that Pfeffer heads is the Wealth and Mobility Study, which is based on the complete tax data of all inhabitants of the United States.

It is Pfeffer’s ambition to help establish similar infrastructure in Germany. “Over here, access to such administrative data is strongly regulated. However, this can also be seen as an advantage, as the access, when granted, tends to be reliable.” A new organization that will help open up new sources of administrative data is the Munich International Stone Center for Inequality Research (ISI) at LMU, which Pfeffer will build up over the next few years as founding director. In addition to data acquisition, the center will strengthen the national and international networking of inequality researchers, support early-career scientists, and last but not least, forge new paths in science communication.

Astronomical tower of coins

According to Pfeffer, a major focus of the new center will be on analyzing so-called “real utopias.” He thinks that sociologists should sketch out and, crucially, empirically analyze scenarios for a fairer society. “Specifically through the strong international exchange we intend to foster at ISI, I hope we can study new institutions and political measures designed to counteract inequality.”

Returning to the example of the astronomical tower of dollar coins, he raises the following question: “Would it be possible to draw a line way up there, beyond which nobody is allowed to accumulate further wealth – because it gives individuals too much power and political influence and takes opportunities away from the subsequent generation?” That may sound utopian, admittedly: “But empirical inequality research can address such questions, too, and investigate, for instance, whether this money could be used to create a sort of “wealth floor for all” – a minimum stack of dollar or euro coins below which nobody can fall. How high would this wealth floor be? Is it desirable, practical, obtainable? These kinds of future-oriented questions should be part and parcel of inequality research.”