Walter Scheidel’s The Great Leveler says that it is – almost.

This column is an exploration of the recently published The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century. But first I need to attend to a couple of analytic points.

The first mistake is to confuse income and wealth. To simplify, income is a flow of receipts which give spending power; wealth is a stock of assets which generate a flow of income. We have much better data about New Zealand income than about wealth – in the latter case reasonable quality data starts less than two decades ago (and is not too detailed at the top).

Second, it is a mistake to confuse the level of inequality with an increase in the level of inequality. As far as I can assess, there has been inequality in all human societies. This column is about the extent to which that inequality changes over time.

I know, I know. You dear reader would never make such mistakes. But self-appointed experts regularly do. I probably see two or three instances most weeks.

The central thesis of Walter Scheidel’s Great Leveler is that there is a tendency for the inequality of wealth to increase. He does not offer any theoretical account for this rising wealth inequality perhaps relying on the work of Thomas Piketty whose magisterial Capital in the Twenty-First Century argued that under certain economic circumstances increasing inequality is inevitable. Economists of goodwill have disputed his analytic conclusion, though they do not deny the fact that there has been a rise in the last few decades. Scheidel adopts Piketty’s view.

There is a problem though. If wealth inequality has been rising – Scheidel argues t broadly have for the last ten thousand years – wont all the wealth of the world eventually be owned by a single person or family? Scheidel argues that the rise is restrained by four great levellers. The ‘horsemen’, as he calls them, are war, revolution, social collapse and plague, which sharply decrease wealth inequality. The book illustrates his thesis.

Let me be a bit more cautious about the long-term historical story. Piketty is writing only about the last two hundred odd years – the data before then is much more fragmentary and imprecise; Scheidel’s story is illustrative rather than compelling. In any case the analytics of Piketty only really applies to capitalist market economies.

We need not be surprised that revolution and social collapse reduce inequality, Plague surprised me, because the poor tend to suffer more from it than the rich. One factor is that reducing their numbers reduces the market power of the rich to force down wages. War is even a bit more surprising. Many people think the rich go to war, sacrificing the poor. Scheidel’s implication is that their fortunes – on average – suffer greatly too. If he is right, the rich ought to be out there at the head of peace marches (or at least hiring masses to march for them). Are they that stupid?

Suppose Scheidel is right. Then we seem to need one of the horsemen to restrain any growing inequality. Even Piketty might be uncomfortable with that conclusion for it suggests that efforts of social democrats are going to inevitability fail. The option for a peacenik, if he or she cares about such wealth inequality, is to fuel a social revolution (aside from inventing a new virulent disease).

But Scheidel’s thesis looks a lot thinner if it is confined to the last two hundred years of better data about capitalist market economies; in part because there are not a lot of examples. Certainly the Great War and its aftermath seems to have destroyed a lot of wealth and inequality; social uprisings have done their share too.

But there is a problem period for this thesis. The indications are that in the first four decades after the Second World War there was a social levelling.

I can report that is true for income inequality in New Zealand measured both before and after tax. The scattered fragments of the wealth distribution point in the same direction. I attributed this decrease to social democratic economic management reinforced by full employment. (Another factor, which takes pages to explain, was women joining the market workforce.)

The same story seems to apply in many other jurisdictions. Social democratic values in economic management and benign economic performance seem to have led to reduced economic equality.

Yet from 1985 there seems to have been a turnaround. (Can I hear Scheidel saying ‘gotcha!’?) Today, social democratic values are on the back foot.

There may still be a majority supporting them, at least in democracies. In the American midterm elections, the Democrat vote hugely outweighed the Republican one (and there remain Republicans who also value social democracy). Trump was able to claim a victory of sorts because of the peculiarity in the American constitutional arrangements which favours small states whose inhabitants are not so committed to liberal values. (The same thing happened in his election to president.)

The implication may be that rigged institutional arrangements are used to benefit the wealthy resulting in the growing wealth inequality. There may be other factors, including the changing balance of economies, for the analysis tends to be in terms of individual countries rather than the whole of the world. Additionally, falling interest rates, probably reflecting a slowing down of world economic growth, will temporarily lift wealth inequality and then it could stabilise again.

Social democrats – even New Zealand ones – cannot do much about these latter factors but perhaps they can do something about rigged institutional arrangements.

Certainly we should be supporting efforts to pursue comprehensive international tax regimes and eliminate tax havens. That is going to be a long haul. Domestically, the Greens propose legislation which would reduce the power of the rich to influence political outcomes – one man/woman one vote rather than one dollar. Does Labour support them? Do I hear ‘quelle horreur!’ from the rich and their acolytes? It will be instructive to watch the wealthy undermining any initiatives.

The point is that if social democrats want to pursue their goals it is not merely a matter of enunciating them. They have to design social institutions which facilitate liberal democracy. MMP was an example, but it was not enough.

One way of interpreting Scheidel (and Piketty) is that while there is a tendency for wealth inequality to rise that there are five – not four – horsemen. Social democrats need to start galloping.

Comments (6)

by Charlie on November 18, 2018
Charlie

Brian

I'm not sure what problem you're trying to solve.

Are we talking inequality of outcomes here or inequality of opportunity?

Because in NZ we do well with equality of opportunity. From a govermmental perspective we have excellent equality of opportunity: Anyone with a modicum of effort and average ability can uplift themselves into the middle class. Pay attention at school, avoid crime, get a job, go to work every day and save. It's a simple formula.

What I think you should be focussing on is why some people can't implement that simple plan.

 

 

by Dennis Frank on November 19, 2018
Dennis Frank

Yes, increasing inequality of wealth is inevitable, because it is a natural consequence of human nature.  Those who are good at wealth accumulation & storage tend to remain so, thus the differential increases over time.

Social democrats are unlikely to start galloping.  Most seem content with a sporadic leisurely canter, usually in broad circles.  Those in Germany are heading in the opposite direction to competitors on the field:  down to 10% last time I looked (Greens over 20%).  Provision of social equity is a good idea - shame they are so reluctant to focus on it.  Actually advocating it would help, but leftists have a consistently strong aversion to learning from political experience.

Scheidel's thesis that "inequality declines when carnage and disaster strike and increases when peace and stability return" makes intuitive sense.  Going on the Amazon reviews, his documentation is comprehensive enough to make it authoritative (https://www.amazon.com/Great-Leveler-Inequality-Twenty-First-Princeton/d...).  Inequality as a social state does derive mostly from wealth inequality nowadays, since class-created inequality is less prevalent than it was. 

As Charlie points out, opportunity to prosper on an equity basis is a way out of an un-level society, for those with the ability to exploit opportunities.  The forces of social darwinism select the winners of this game.  Owners and operators of the control system tweak it from time to time to ensure maximal compliance.  Design of the system evolved organically for centuries, regardless that many see it as a social construct nowadays.  Democracy is a useful mask, creating the illusion of the possibility of changing the system.  Collusion of left & right compounds the delusion in the mind of the voter, so business as usual will prevail until climate change brings the next great levelling.

 

by Pat on November 20, 2018
Pat

https://delong.typepad.com/kalecki43.pdf

The fifth horse is not new ....am surprised it wasnt covered by Scheidel, or perhaps he considers this covered by war, for millions of trained returned servicemen wernt going accept a continuation of the circumstances that existed prior to WW2...or at least not quietly.

by Brian Easton on November 21, 2018
Brian Easton

I am astonished, Charlie, that you think we do well at equality of opportunity, given that just recently New Zealand was found to have one of the most unequal education systems in the (rich) world. Everyone would be interested in the evidence for your complacency. 

I would be a little more cautious than you, Dennis, relying on Amazon reviews. I have read the book.  And a little trick, which non-scholars may not be aware of, is that it is possible to build up an impressive reference list without having read everything in it.

Recall Scheildel has no theory of why wealth inequality increases. Pickety has, but it is contested (and depends on emperical assumptions which may be wrong). 

When I was working on the early postwar period when there was falling inequality, I used an image of a Rotorua mudpool. Every so often there is a plop-up which everyone notices. Without it, the mud would be sinking -- in the case of wealth from poor investment decisions, excess consumption, dispersals across the wider family, taxes, gifts and so on. There is no certainty that, despite the plop-ups, the level of the mud is rising. While that seemed a reasonable description for the period I was working with, it may not be true today.   

 

 

by Charlie on November 26, 2018
Charlie

You missed my point Brian. The link you provided talks about inequality of outcome not opportunity.

"The analysis also found children with parents in professional jobs such as managers, nurses, engineers, doctors and teachers were more likely to continue into higher education than those with parents in perceived low-status jobs. In all countries, children with at least one professional parent had significantly higher reading scores than the children of non-professionals."

So this has very little to do with the education system and everything to do with parenting.

You could have the exact same argument about the high prison population: Most of those incarcerated were destined to finish up there, based on their parents behaviours.

by mudfish on December 04, 2018
mudfish

Flabbergasting, Charlie.

The sentence immediately preceding the one you quote from Brian’s link talks about inequality of opportunity and the education system. So your conclusion - that it has very little to do with the education system - from your selected sentence is exactly that, selective.

Hard to do number one on your list, pay attention at school, when material hardship is a fact of life for some. Increasing disparities, exacerbated by wildly skewed, unsustainable housing costs aka the housing crisis, will only make the situation worse for the children of those families at the bottom. Hard to read to your kid at night when you’re working your second job just to pay the rent.

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