The history of inequality (by Peter Turchin) - 0 views
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Today, the top one per cent of incomes in the United States accounts for one fifth of US earnings. The top one per cent of fortunes holds two-fifths of the total wealth.
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As the Congressional Budget Office concluded in 2011: ‘the precise reasons for the rapid growth in income at the top are not well understood’.
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In his book Wealth and Democracy (2002), Kevin Phillips came up with a useful way of thinking about the changing patterns of wealth inequality in the US.
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He looked at the net wealth of the nation’s median household and compared it with the size of the largest fortune in the US. The ratio of the two figures provided a rough measure of wealth inequality, and that’s what he tracked, touching down every decade or so from the turn of the 19th century all the way to the present.
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We found repeated back-and-forth swings in demographic, economic, social, and political structures
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From 1800 to the 1920s, inequality increased more than a hundredfold.
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Then came the reversal: from the 1920s to 1980, it shrank back to levels not seen since the mid-19th century.
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From 1980 to the present, the wealth gap has been on another steep, if erratic, rise. Commentators have called the period from 1920s to 1970s the ‘great compression’. The past 30 years are known as the ‘great divergence’.
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I'd like to pull this citation and superimpose another period-chart onto my timeline.
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when looked at over a long period, the development of wealth inequality in the US appears to be cyclical. And if it’s cyclical, we can predict what happens next.
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Does observing just one and a half cycles really show that there is a regular pattern in the dynamics of inequality? No, by itself it doesn’t.
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In our book Secular Cycles (2009), Sergey Nefedov and I applied the Phillips approach to England, France and Russia throughout both the medieval and early modern periods, and also to ancient Rome.
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And the cycles of inequality were an integral part of the overall motion.
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Cycles in the real world are chaotic, because complex systems such as human societies have many parts that are constantly moving and influencing each other.
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Understanding (and perhaps even forecasting) such trend-reversals is at the core of the new discipline of cliodynamics, which looks at history through the lens of mathematical modelling.
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First, we need to think about jobs.
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One of the most important forces affecting the labour supply in the US has been immigration
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it turns out that immigration, as measured by the proportion of the population who were born abroad, has changed in a cyclical manner just like inequality.
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Another reason why the labour supply in the US went up in the 19th century is, not to put too fine a point on it, sex.
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This connection between the oversupply of labour and plummeting living standards for the poor is one of the more robust generalisations in history.
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The population of England doubled between 1150 and 1300.
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causing the population of London to balloon from 20,000 to 80,000.
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fourfold increase in food prices and a halving of real wages.
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when a series of horrible epidemics, starting with the Black Death of 1348, carried away more than half of the population, the same dynamic ran in reverse.
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The tug of war between the top and typical incomes doesn’t have to be a zero-sum game, but in practice it often is
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Much the same pattern can be seen during the secular cycle of the Roman Principate.
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Naturally, the conditions affecting the labour supply were different in the second half of the 20th century in the US. An important new element was globalisation
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an oversupply of labour tends to depress wages for the poorer section of the population. And just as in Roman Egypt, the poor in the US today eat more energy-dense foods — bread, pasta, and potatoes — while the wealthy eat more fruit and drink wine.
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Falling wages isn’t the only reason why labour oversupply leads to inequality. As the slice of the economic pie going to employees diminishes, the share going to employers goes up.
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And so in 13th-century England, as the overall population doubles, we find landowners charging peasants higher rents and paying less in wages: the immiseration of the general populace translates into a Golden Age for the aristocrats.
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the number of knights and esquires tripled between 1200 and 1300.
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Only the gentry drank wine, and around 1300, England imported 20,000 tuns or casks of it from France per year. By 1460, this declined to only 5,000.
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In the US between around 1870 and 1900, there was another Golden Age for the elites, appropriately called the Gilded Age.
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And just like in 13th-century England, the total number of the wealthy was shooting up. Between 1825 and 1900, the number of millionaires (in constant 1900 dollars) went from 2.5 per million of the population to 19 per million.
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In our current cycle, the proportion of decamillionaires (those whose net worth exceeds 10 million in 1995 dollars) grew tenfold between 1992 and 2007 — from 0.04 to 0.4 per cent of the US population.
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On the face of it, this is a wonderful testament to merit-based upward mobility. But there are side effects. Don’t forget that most people are stuck with stagnant or falling real wages. Upward mobility for a few hollows out the middle class and causes the social pyramid to become top-heavy.
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As the ranks of the wealthy swell, so too do the numbers of wealthy aspirants for the finite supply of political positions.
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The civil wars of the first century BC, fuelled by a surplus of politically ambitious aristocrats, ultimately caused the fall of the Republic and the establishment of the Empire.
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So far I have been talking about the elites as if they are all the same. But they aren’t: the differences within the wealthiest one per cent are almost as stark as the difference between the top one per cent and the remaining 99.
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very intense status rivalry
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Archaeology confirms a genuine and dramatic shift towards luxury.
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Social Darwinism took off during the original Gilded Age, and Ayn Rand (who argued that altruism is evil) has grown astonishingly popular during what we might call our Second Gilded Age.
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Twilight of the Elites (2012): ‘defenders of the status quo invoke a kind of neo-Calvinist logic by saying that those at the top, by virtue of their placement there, must be the most deserving’. By the same reasoning, those at the bottom are not deserving. As such social norms spread, it becomes increasingly easy for CEOs to justify giving themselves huge bonuses while cutting the wages of workers.
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Labour markets are especially sensitive to cultural norms about what is fair compensation, so prevailing theories about inequality have practical consequences.
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the US political system is much more attuned to the wishes of the rich than to the aspirations of the poor.
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Inverse relationship between well-being and inequality in American history. The peaks and valleys of inequality (in purple) represent the ratio of the largest fortunes to the median wealth of households (the Phillips curve). The blue-shaded curve combines four measures of well-being: economic (the fraction of economic growth that is paid to workers as wages), health (life expectancy and the average height of native-born population), and social optimism (the average age of first marriage, with early marriages indicating social optimism and delayed marriages indicating social pessimism).
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In some historical periods it worked primarily for the benefit of the wealthy. In others, it pursued policies that benefited the society as a whole. Take the minimum wage, which grew during the Great Compression era and declined (in real terms) after 1980.
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The top marginal tax rate was 68 per cent or higher before 1980; by 1988 it declined to 28 per cent.
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In one era, government policy systematically favoured the majority, while in another it favoured the narrow interests of the wealthy elites. This inconsistency calls for explanation.
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How, though, can we account for the much more broadly inclusive policies of the Great Compression era? And what caused the reversal that ended the Gilded Age and ushered in the Great Compression? Or the second switch, which took place around 1980?
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Unequal societies generally turn a corner once they have passed through a long spell of political instability.
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We see this shift in the social mood repeatedly throughout history — towards the end of the Roman civil wars (first century BC), following the English Wars of the Roses (1455-85), and after the Fronde (1648-53), the final great outbreak of violence that had been convulsing France since the Wars of Religion began in the late 16th century.
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Put simply, it is fear of revolution that restores equality. And my analysis of US history in a forthcoming book suggests that this is precisely what happened in the US around 1920.
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The worst incident in US labour history was the West Virginia Mine War of 1920—21, culminating in the Battle of Blair Mountain.
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Although it started as a workers’ dispute, the Mine War eventually turned into the largest armed insurrection that the US has ever seen, the Civil War excepted. Between 10,000 and 15,000 miners armed with rifles battled against thousands of strikebreakers and sheriff deputies.
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Quantitative data indicate that this period was the most violent in US history, second only to the Civil War. It was much, much worse than the 1960s.
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The US, in short, was in a revolutionary situation, and many among the political and business elites realised it.
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The US elites entered into an unwritten compact with the working classes. This implicit contract included the promise that the fruits of economic growth would be distributed more equitably among both workers and owners. In return, the fundamentals of the political-economic system would not be challenged (no revolution).
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The deal allowed the lower and upper classes to co-operate in solving the challenges facing the American Republic — overcoming the Great Depression, winning the Second World War, and countering the Soviet threat during the Cold War.
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while making such ‘categorical inequalities’ worse, the compact led to a dramatic reduction in overall economic inequality.
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The co-operating group was mainly native-born white Protestants. African-Americans, Jews, Catholics and foreigners were excluded or heavily discriminated against.
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When Barry Goldwater campaigned on a pro-business, anti-union and anti-big government platform in the 1964 presidential elections, he couldn’t win any lasting support from the corporate community. The conservatives had to wait another 16 years for their triumph.
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But by the late 1970s, a new generation of political and business leaders had come to power. To them the revolutionary situation of 1919-21 was just history. In this they were similar to the French aristocrats on the eve of the French Revolution, who did not see that their actions could bring down the Ancien Régime — the last great social breakdown, the Fronde, being so far in the past.
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This heavily mirrors many aspects of Strauss & Howe's observations. Namely that generational cohorts roughly conform to archetypes precisely *because* memory of prior situations moves from accessible-memory (in those who have it) to history/myth once those who remember it have died.
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It is no coincidence that the life of Communism (from the October Revolution in Russia in 1917 to the fall of the Berlin Wall in 1989) coincides almost perfectly with the Great Compression era.
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when Communism collapsed, its significance was seriously misread. It’s true that the Soviet economy could not compete with a system based on free markets plus policies and norms that promoted equity.
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Yet the fall of the Soviet Union was interpreted as a vindication of free markets, period. The triumphalist, heady atmosphere of the 1990s was highly conducive to the spread of Ayn Randism and other individualist ideologies. The unwritten social contract that had emerged during the New Deal and braved the challenges of the Second World War had faded from memory.
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all of these trends are part of a complex and interlocking system. I don’t just mean that everything affects everything else; that would be vacuous.
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Rather, that cliodynamic theory can tell us specifically how demographic, economic and cultural variables relate to one another, and how their interactions generate social change.
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Cliodynamics also explains why historical reversals in such diverse areas as economics and culture happen at roughly similar times. The theory of secular cycles was developed using data from historical societies, but it looks like it can provide answers to questions about our own society.
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Three years ago I published a short article in the science journal Nature. I pointed out that several leading indicators of political instability look set to peak around 2020.
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2020-2025 is a date-range that continues to pop up in my forecasting readings - and from quite a variety of sources.
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In other words, we are rapidly approaching a historical cusp, at which the US will be particularly vulnerable to violent upheaval. This prediction is not a ‘prophecy’. I don’t believe that disaster is pre-ordained, no matter what we do. On the contrary, if we understand the causes, we have a chance to prevent it from happening. But the first thing we will have to do is reverse the trend of ever-growing inequality.
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"After thousands of scholarly and popular articles on the topic, one might think we would have a pretty good idea why the richest people in the US are pulling away from the rest. But it seems we don't. As the Congressional Budget Office concluded in 2011: 'the precise reasons for the rapid growth in income at the top are not well understood'. Some commentators point to economic factors, some to politics, and others again to culture. Yet obviously enough, all these factors must interact in complex ways. What is slightly less obvious is how a very long historical perspective can help us to see the whole mechanism."
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