Income and wealth inequality is consistently a central topic in the news and political discourse. Recently, an Oxfam report came out indicating that the world’s eight wealthiest people hold more wealth than fifty percent of the world. This report included the latest in a seemingly constant stream of new statistics indicating just how far the divide between the wealthy and the poor has grown. This disparity got me wondering about the historical implications; how has worldwide inequality fluctuated throughout history? Are there historical parallels to determine potential consequences? Luckily Thomas Piketty has done extensive research on historical and modern income and wealth inequality, and has drawn some important conclusions from the data.
Some of Piketty’s crucial contributions stem from his book Capital in the Twenty-First Century. The New Yorker, has a collection of charts clearly demonstrating rising inequality in the twentieth century and beyond. Piketty’s central reason for inequality is r>g or the return on capital is greater than the growth of the overall economy. The last chart shows this divergence very clearly. Around the middle of the twentieth century, the after tax return on capital exceeded the world growth rate. Piketty projects that this divergence will continue, leading to worsened wealth and income inequality. Piketty’s overall conclusion is that inequality will continue to grow as long as capital returns exceed overall economic growth. Is this a problem? Are there historical examples of falling inequality?
Walter Scheidel has a fascinating piece in The Atlantic on historical cases of falling inequality, and it is not exactly encouraging. Historically, inequality has only fallen after periods of catastrophe: massive wars, plagues, and violent revolutions. The most recent worldwide fall in inequality was after World War II. Scheidel primarily attributes this fall due to government intervention in the private section and the destruction of large swaths of capital, reducing capital income. Theoretically economic collapses such as the housing crash of 2008 should rebalance wealth and incomes, but they have not. Capital income did fall, but it was middle and lower class people who faced a large portion of the collapse. Also of note is that no fall in worldwide inequality has ever lasted very long. Scheidel attributes this to the a variety of factors, such as populations growing or changes in tax rates. Zack Beauchamp at Vox put together two data sets, Piketty’s and Alfani’s that provide a simple depiction of inequality since the dark ages. The data and the Scheidel’s piece evidence that the tendency for inequality to rise is innate to Western economies.
What can be done to avoid the seemingly inevitable violent wealth equalizing process? That is unclear. What is clear, however, is that inequality will fall, through violence or, hopefully, through some other nonviolent way.