Thursday, May 3, 2018

The Great Leveler(s): The Four Horsemen of Greater Income Equality

There has been tons of attention on income (and wealth) inequality in recent years—much of it driven by a nasty combination of ignorance and envy. For example, folks often conflate income inequality at a point in time with a lack of economic mobility over time. One can easily have income inequality without any trouble in the realm of economic opportunity—as people move between income classes, up and down the economic ladder. 

I've written a lot on the topic—in an academic journal (here), in a policy journal (here and here), a long list/review of commentary on Piketty, and through op-eds and blog posts (here, here, here, here, here, here, and here). Adding to that pile, I'll offer a brief overview of Walter Scheidel's The Great Leveler.

In one way, the book is not all that relevant, because one would rarely if ever advocate his historically-based "solutions"—an array of disasters such as war—to the supposed and real concerns with income inequality. But his book does help to put those concerns in a more appropriate place—i.e., limited in importance and contextualized with many other variables.

In this, I'm reminded of a Jim Rome line—that diarrhea is “the great equalizer". It doesn't matter whether you're rich or poor, the big D will bring you to your knees. Along the same lines, Ignazio Silone observes that "An earthquake achieves what the law promises but does not in practice maintain—the equality of all men." Great: we’re mostly equal in terms of diarrhea and earthquakes! (If you want a much more positive example, think about orgasms.)

By way of introduction, Scheidel starts with the important issues outside the scope of his project. First, he notes what the book does not cover: many of the standard reasons why incomes differ—from education and work ethic to luck and discrimination (9-11). Second, he discusses the most popular statistics—as proxies for the state of the world they try to measure (11-18). It follows that looking at less-developed countries or going back in time is an increasingly dubious exercise. But he thinks the effort is still somewhat valuable. Third, he talks about the connections between innovation and inequality—and wonders whether inequality is all that important compared to poverty (18-22). 

Part 1 of the book is a brief history of income inequality, ranging from “the great apes” to Europe after World War II. He notes the inequality of power in ape hierarchies (25-26). And he notes Europe's high and generally growing inequality—except for its experience with the fall of the Roman Empire, a plethora of plagues, and the Great Depression.

The references to Europe's periodic "improvements" in income inequality allow Scheidel to set the table for the rest of the book and his focus on "the four horsemen" (5-9): War, Revolution, State Collapse, and Plagues. He surveys history widely for examples, as he draws out the implications for economies in general and economic inequality in particular.

Scheidel notes that the accumulation of capital and wealth proceeds with far greater ease during peaceful times—for example, the 19th century West. (He cites Piketty's work here [165], which is helpful on the role of capital formation in understanding income inequality.) In contrast, wars (particularly civil wars) are damaging or even devastating to economies, but "helpful" in promoting economic equality.

Revolutions and the State Collapse are cousins of War—and so, the impact is about the same. The case for Plagues is less intuitive, since one might imagine that the wealthy would survive them more effectively or that random deaths would leave overall inequality mostly unchanged. But again, it's the general impact of plagues on overall economic health that causes inequality to fall.

Even for those who are greatly concerned about income inequality, the four horsemen are not an appropriate means to the desired ends. (For one thing, the events are largely exogenous, rather than something to be pursued!) In this sense, Scheidel's work is interesting and provocative but more tongue-in-cheek than directly applicable.

So, in the final section, Scheidel turns to more likely candidates—cousins of the horsemen that might yield enough benefits to be worth the costs. He closes with three chapters on lessons from the past and hopes for the future. But these are relatively speculative, so I'm going to focus on his more concrete proposals.

In Chapter 12, he discusses the theory and practice of modest "negative" efforts: "land reform", debt relief, and economic crises. It seems like a stretch to imagine economic crisis as palatable. But land reform and debt relief have been proposed and tried—with far less success than was promised on paper. 

In Chapter 13, Scheidel covers a positive angle with improved education. This is more promising, especially since we do such a poor job with K-12 now, despite spending an inordinate amount of money. It’s easy to imagine how more competition and more private sector involvement could allow us to make significant improvements with the same spending or less.

Scheidel doesn't discuss family structure/stability, but this would obvious help with education, as well as a myriad of other social concerns. Unfortunately, cultural mores and economic policies act to discourage strong family structure. Hopefully, the cycle will turn again—as it has in the past. (This is the subject of a forthcoming paper for me.)

Scheidel’s book is interesting history. But its most useful contribution to politics and public policy is putting income inequality in its place. There are far worse things in life than income inequality.


Post a Comment

Subscribe to Post Comments [Atom]

<< Home