The Great Leveler, Walter Scheidel

Introduction: The challenge of inequality

• The four horsemen of leveling: mass mobilization warfare, transformative revolution, state failure, and lethal pandemics
• Ways in which to measure inequality:
  • Gini coefficient: measures extent to which the distribution of income or material assets deviate from perfect equality. Perfect equality: Gini=0, one person controls everything: Gini=1
  • Percentage share of total income or wealth: i.e top 1% share higher incomes or assets than other 99% * Gini computes overall degree of equality, percentage shares describe the shape of the distribution
• Income prior to taxes and public transfers is known as “market” income, income after transfers is called “gross” income, and income net of all taxes and transfers is defined as “disposable” income
• Most of this book refers to “market” income, taxes and transfers are hard to trace depending on the society
• Why does economic inequality matter?
• It can hinder economic growth; lower disposable income inequality has been found to lead to faster economic growth and longer growth phases
• The credit bubble that helped trigger the 2008 recession was in part due to low income households drawing on readily available credit, from the wealthy at the top, to borrow for the sake of keeping up with consumption patterns of more affluent groups
• Under conditions where lending is more restrictive, wealth inequality also disadvantages low income groups as it blocks their access to credit
• In developed countries, higher inequality is associated with less economic mobility across generations. Higher income families get access to better education, residential segregation sees public services disproportionally attracted to affluent areas
• High levels of inequality are correlated with lower levels of self-reported happiness, but not so much health. This makes sense, as happiness can be hindered by discouraging social comparison

  Part 1: A brief history of inequality

  Chapter 1: The rise of inequality

• Our ancestors, Australopithecus, from 3 to 4 million years ago were more sexually dimorphic, with male body mass advantages of over 50%. Evolution attenuated this sexual inequality both among males and between the sexes
• As our brains and physiology changed, physical differences made less of an impact on inequality. As lower status men could form coalitions and make weapons to battle from afar (rocks, spears, bows), which played an equalizing role in the physical sense, but privileging knowledge/skill over size
• In a site north of Moscow, dated from about 30000-40000 years go, the remains of a man and two children were found buried with loads of ivory beads and more, with estimates of the time required to make all these objects at 2-5 years. Despite this, social and economic inequality in the paleolithic era likely remained sporadic and transient
• The Holocene era brought with it temperate conditions, allowing for the thriving of humans and most life in general. This allowed Homo sapiens to rely on local concentrations of resources, occupational specialization grew, strictly defined asset ownership developed as well as the perimeter defence of territory, and intense competition between groups that led to enslavement of captives (the Chumash of the California coast in year 500-700 were found to do this)—all fostering social hierarchy and inequality
• Two crucial determinants of inequality: ownership rights in land and livestock, and the ability to transmit wealth from one generation to the next
• The different types of wealth: embodied (genetic), relational (partners in labor), and material. In foragers, embodied wealth is more important; whereas in herders and farmers material wealth is most important
• Transmissibility of wealth is about twice as high for farmers and herders than for foragers, and the material possessions available to them were more suitable for transmission
• Inequality and its persistence over time is the result of 3 factors:
  • The relative importance of different classes of assets
  • How suitable they are for passing on to others
  • The actual rates of transmission
• If wealth is passed on between generations, random shocks related to health, parity, and returns on capital that would typically rebalance resource distribution is instead dampened. Resources accumulate over time rather than redistributing elsewhere
• Agricultural development in societies, i.e., ways in which to develop and maintain wealth surplus, foster political inequality in these societies. A historical survey found that 86 percent of Native American societies (out of 258) surveyed found that those lacking significant surplus production also lacked signs of political inequality
• 80% of hunter gatherer societies had no ruling class, whereas 75% of agrarian societies do. Agrarian societies with wheat, rather than, say, roots, are more conducive to political rule as grain is more suitable for long term storage
• In early societies/chiefdoms, state-directed allocation of material resources converted political inequality into income and wealth inequality, as political elite and administrators were allocated more materials (land, labor (slaves), etc.)

  Chapter 2: Empires of inequality

• The Han dynasty (200BCE-200CE) and Roman Empire (200BCE-200CE) feature historical accounts of inequality.
• In the Han dynasty, the elite, aristocrats, government officials, and war officials normally earned status and resources via land ownership. They would regularly employ tactics to evade taxes (e.g., falsifying census records, creating fake names, collect taxes from tenants and pay less than received and pocket and pocket the difference).
• Attempts to equalize power from elite to lower class were attempted throughout the dynasty, however, these attempts waned over time and discontinuities in leadership would disrupt them as well
  • There would sometimes be a change of elite rule, due to warfare or internal politics, but the wealth at the top would mostly be redistributed to those next in line
• In the Roman Empire, wealthy elites and retired war senators would accumulate properties—normally at the expense of the middle class, shoving them downwards towards the lower class. Property and material assets would concentrate towards these few over time, serving to increase polarity between the lower and upper rungs of the wealth ladder
• Within these examples, imperial income inequality could be hindered only through conquest, state failure, or wholesale systems collapse—all violent upheavals. Despite some attempts, peaceful ways of combatting inequality have not made a meaningful impact in these historical accounts
• In premodern societies, very large fortunes regularly owed more to political power than to economic prowess. This could be somewhat managed by the state rulers’ abilities and willingness to engage in tyrannical intervention

  Chapter 3: Up and down

• After the fall of the Roman rule, state collapse served to redistribute wealth throughout Europe and counter-act inequality
• Prior to the Black Death, a millennia later, Europe was more developed and unequal than it had been since the Roman Empire. General stability and development lay fertile ground for increased inequality
• This changed when the Black Death struck in 1347, which is estimated to have killed more than 25% of the European population by 1400. As a result, labor became scarce and unskilled labor and farm wages increased 2X. Commoners, from England to Egypt, enjoyed better diets and grew taller bodies
• In late medieval-early modern Europe, urban regions suffered from more inequality (compared to rural regions) due to: greater division of labor, differentiation in skills and incomes, spatial concentration of elite households, and the inflow of poorer migrant workers
• According to a Florentine census of 1427, wealth inequality correlated with the scale of urbanism—the larger the city the larger the wealth inequality

  Part 2: War

  Chapter 4: Total war

• After defeat in World War Two, Japan underwent significant wealth leveling. Throughout the war the Japanese government directed resources (labor and capital) towards war efforts, impacting the top 1% the most. After the war, hyper-inflation devalued the capital owned by the top 1%, and exterior forces attempted to maintain a wider distribution of wealth
• Post war, American occupation enforced the democratization of Japanese economic institutions. They postulated that low distributions of wealth to Japanese industrial workers and farmers hindered domestic consumption and led to overseas economic expansionism. Massive taxes were imposed on the affluent, where the assets themselves were taxed rather than income.
• Unionization that was absent pre-war returned post war, providing improved benefits and a general consensus on wage structures for employees

  Chapter 5: The great compression

• Fiscal leveling constitutes of three main ingredients during war time: military mass mobilization, progressive enhancement of tax rates, and targeting of elite wealth of top income
• While mass conscription applied to most, the wealthy normally got off due to age or privilege and stood to profit from commercial involvement in the war industry. Thus, countries like the UK, United States, and Canada imposed significant taxes on the incomes and estates of the rich as a means to keep things fair and ensure national cohesion
• More autocratic nations like Germany and Russia opted to borrow or print money to sustain war efforts, this however led to hyperinflation, which eventually ended up compressing inflation by reducing the value of the capital of the elites (?)