2016-12-06 21:12:20
Economic Scene: A Dilemma for Humanity: Stark Inequality or Total War

Is there nothing to be done about galloping inequality?

Last year the typical American family experienced the fastest income gains since the government started measuring them in the 1960s. But the top 1 percent did even better, raising their share of income higher than it was when President Obama took office.

Mr. Obama has led the most progressive administration since Lyndon B. Johnson’s half a century ago, raising taxes on the rich to expand the safety net for the less fortunate. Still, by the White House’s own account, eight years of trench warfare in Washington trimmed the top 1-percenters’ share, after taxes and transfers, to only 15.4 percent, from 16.6 percent of the nation’s income. It increased the slice going to the poorest fifth of families by 0.6 percentage point, to a grand total of 4 percent.

The policies also helped push the Republican Party even further to the right, leading to the Tea Party — whose rabid opposition to government redistribution still shakes American politics. They did nothing to salve — and perhaps even added to — the stewing resentment of white working-class Americans who feel left out of the nation’s advancements, producing the electoral victory for Donald J. Trump, who has proposed a tax plan that amounts to a lavish giveaway to the rich.

The point is not that President Obama should have done better. He probably did the best he could under the circumstances. The point is that delivering deep and lasting reductions in inequality may be impossible absent catastrophic events beyond anything any of us would wish for.

History — from Ancient Rome through the Gilded Age; from the Russian Revolution to the Great Compression of incomes across the West in the middle of the 20th century — suggests that reversing the trend toward greater concentrations of income, in the United States and across the world, might be, in fact, nearly impossible.

That’s the bleak argument of Walter Scheidel, a professor of history at Stanford, whose new book, “The Great Leveler” (Princeton University Press), is due out next month. He goes so far as to state that “only all-out thermonuclear war might fundamentally reset the existing distribution of resources.” If history is anything to go by, he writes, “peaceful policy reform may well prove unequal to the growing challenges ahead.”

Professor Scheidel does not offer a grand unified theory of inequality. But scouring through the historical record, he detects a pattern: From the Stone Age to the present, ever since humankind produced a surplus to hoard, economic development has almost always led to greater inequality. There is one big thing with the power to stop this dynamic, but it’s not pretty: violence.

The big equalizing moments in history may not have always have the same cause, he writes, “but they shared one common root: massive and violent disruptions of the established order.”

The collapse of the Roman Empire in the second half of the fifth century, reinforced by a bubonic plague pandemic, brought about Western Europe’s first great leveling. Productivity collapsed and the aristocracy’s far-flung assets were expropriated, while Rome’s trade networks and fiscal structures were destroyed.

Inequality bounced back, of course. By 1300 the richest 5 percent of people had amassed nearly half the wealth in the cities of Italy’s Piedmont. But another bubonic plague known in history as the Black Death changed all that, killing a quarter of Europe’s population in the 14th century and cutting the share of wealth of Piedmont’s rich to under 35 percent.

Mr. Scheidel’s depressing view is bound to upset liberal politicians and social scientists, who quite naturally might prefer to live in a world in which events might move political and social systems to figure out a more equitable way to distribute the fruits of growth without the plague, the guillotine or state collapse.

The standard understanding of inequality’s dynamics, at least until recently, was tamer. Posited in the 1950s by the Russian-born American economist Simon Kuznets, it held that disparities would grow in early stages of industrialization, as the successful few took advantage of new opportunities, but stabilize and decline as things like mass education, rising wages and social insurance naturally — and peacefully — raised incomes at the bottom.

Professor Scheidel’s analysis “omits benign forces,” said Branko Milanovic, a professor of economics at the Graduate Center of the City University of New York. His book “Global Inequality” (Harvard University Press), published this year, takes a more sympathetic view of Kuznets’s analysis.

“It makes a lot of sense as far as it goes,” he said of Professor Scheidel’s thesis, “but do I believe this is the entire story about how inequality can decline? No.”

Robert J. Gordon, the economic historian at Northwestern University who recently published “The Rise and Fall of American Growth” (Princeton), also argues that Mr. Scheidel’s view is too narrow. Big shocks might be needed to shake societies and their political systems to counteract widening income disparities, he acknowledges, but violence is hardly indispensable.

President Franklin D. Roosevelt introduced the New Deal as a huge public effort to restore employment and raise incomes and spending in response to the Depression of the 1930s, not war, Professor Gordon points out.

“It takes a big shock to create the right political situation, but it is the underlying politics that change things,” he said. “The Great Depression created a political opportunity, like the assassination of President Kennedy created a big political moment for Lyndon Johnson.”

Still, violence does seem to pack more punch than other crises. The New Deal did provide a big equalizing push — increasing union membership, providing employment for the less educated and raising tax rates. But World War II was much more of a game changer. For one thing it significantly improved the earnings of those at the bottom of the social system by vastly raising demand for unskilled labor to serve the war effort.

The sense of social cohesion and sacrifice inspired by the war also underpinned an egalitarian social ethos that supported higher taxes and discouraged titanic profits and pay for chief executives. Between 1939 and 1945 the income share of the richest 10 percent dropped by more than 10 percentage points. And it did not start inching back up until the 1980s.

But whatever was holding large-scale inequality in check, it is now spent.

Many social scientists — not to say left-leaning politicians — would like to believe that there are ways to push back: higher minimum wages, perhaps a universal basic income to help curb poverty; sharply higher income tax rates for the rich along with a wealth tax; a weakening of intellectual property rules, curbs on monopolies and coordination of labor standards around the world; maybe a dollop of capital given to each citizen so all can benefit from the high returns on investment.

Dream on. As Professor Scheidel bluntly puts it: “Serious consideration of the means required to mobilize political majorities for implementing any of this advocacy is conspicuous by its absence.”

So what does this leave us with? Another world war, with or without thermonuclear weapons? Let’s hope not. State collapse looks highly unlikely outside of some bits of sub-Saharan Africa. Revolution? Little chance, given the absence of any powerful ideological challenge to capitalism.

“The world of the future is likely to be quite stable and have very high inequality,” Mr. Scheidel told me. Maybe we should just learn to stop worrying and love it.