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.