I Dream of Gini
I just wanted to write this review of a book I recently read in order to save the reader from having to plow through this mind-numbing tome crammed with Gini coefficients from various historical periods for which it is impossible to calculate Gini coefficients. What are Gini coefficients you might ask? Wait a minute. First, I want to say that this is an important book. Not for what it says but for what it doesn’t say.
The Great Leveler, Violence and the History of Inequality from the Stone Age to the Twenty-First Century (the title gives you a taste of what you are getting yourself into if you choose to read this book), by Walter Scheidel, tracks income and wealth inequality throughout the ages. It is an intriguing concept. How has wealth and income been apportioned by all the different societies and empires in the history of our world?
Professor Scheidel uses numerous methodologies to estimate the Gini coefficients of various historical societies and even pre-historic society. A Gini coefficient is a measure of statistical dispersion first published by Corrado Gini in 1912. A Gini coefficient of zero (0.00) would indicate that all values in the study are identical (for example, all the people have the same salary). A Gini coefficient of one (1.00) would indicate perfect inequality (for example, one person would have all the salary and the rest none). Economists use Gini coefficients to measure inequality of income or wealth distribution of countries (the World Bank publishes an annual study of Gini coefficients or you can look it up on Wikipedia).
In the real world it is impossible for wealth or income to have coefficients of one or zero or even come real close to such results. Globally, Gini coefficients for income after tax and transfers range from .20s to .60s with Norway one of the lowest at .259 and Haiti one of the highest at .608. Norway was recently voted the happiest country on Earth and Haiti, as we all know, is one of the most miserable places. Does this mean that income inequality is associated with dissatisfaction? Not necessarily. The US has a relatively high Gini at .411 while Niger at .310 is not so nice. Some of the most miserable countries (such as North Korea) don’t report their economic performance so we have no idea of their income inequality.
Reliable economic information doesn't exist for many countries and ancient empires so Prof. Scheidel had to look for other data to reconstruct Gini coefficients in order to discern historical patterns. He spends a great deal of the book illustrating his calculation methodologies for various eras and countries, which is necessary to support his principal finding. His conclusion was that in virtually every period and country income inequality tends to increase over time. He further found that most attempts to reverse or reform this tendency were, at best, partial and always temporary.
The only way to significantly alter income distribution he found was through catastrophic events such as plagues or major wars that decimated the population. This decimation, such as the Black Plague that killed an estimated 30-60% of the population of Europe, requires a restructuring of society in order to adapt to the new conditions. But even with these catastrophic events, income inequality returned over time.
The last great catastrophe that reduced income inequality was in the early part of the twentieth century when two world wars plus the Great Depression (along with the communist revolutions in Russia and China) caused a significant reordering of society and a reduction in income inequality. This Great Compression, which began in the 40s, ran until the 1970s. Progressives look to this period as a time of rapid growth while income inequality was low due to highly progressive tax rates and New Deal redistribution policies. They use this period to justify their call for evermore redistribution programs and benefits along with high taxes to reduce income inequality.
But it is not just the left that looks to the fifties with nostalgia. This is the great period that President Trump wants to resurrect in his campaign promise to Make America Great Again.
But the Great Compression is a statistical anomaly. It was doomed to be temporary. Prof. Scheidel’s investigation shows that income inequality has been increasing across the globe since the 1980s. Although high taxes and a substantial social welfare system have slowed this decompression in Europe there are indications of increasing income inequality there because rising debt has required cutbacks in some benefits (so progressives are deluding themselves if they think that their policy recommendations actually caused the Great Compression). The rapid economic growth of China has skewed the global totals because China’s switch to state capitalism has caused the Gini in China to go from .230 not long after Mao’s death to around .550 now.
Now we must go from the reporting historic economic trends to explaining why these economic trends occurred and what this means going forward. As foraging nomads, our ancient ancestors had little income or wealth inequality because they had little wealth or income at all. Wealth could only be accumulated once our ancestors settled down to farming about ten thousand years ago. Farming allowed the creation of surplus (also known as profit) and wealth accrued to those that controlled the land. But wealth rooted in land could be expropriated by the powerful so some of the men in the community had to specialize in protecting the land and in warfare instead of farming. This specialization as well as the creation of other trades to support the farmers led to the rise of classes among the people and to an unequal distribution of surplus. Surplus was the generator of economic growth but was also the creator of income inequality. This was why the Chinese communists adopted state capitalism to power economic growth that Mao’s communism could not produce. They had to decide if they wanted to be communist and poor or capitalist and rich. Because poor also meant weak, they decided to be rich and strong.
Catastrophes, plagues and wars level the field because they eliminate surplus: capital goods and human capital. But what the book doesn’t address is the Chinese question. Is it better to be equal and poor or unequal and rich? Poor people of today are infinitely better off materially than even the elites of times past.
Prof. Scheidel goes on to contemplate the type of progressive policies that would create less income inequality such as highly progressive taxes on the rich, confiscatory estate taxes and other measures to provide funds for transfer payments to equalize incomes. He even mused that nuclear conflict (to the extent it didn’t wipe out the human race) would greatly reduce inequality. But he doesn’t address the issue of why he thinks we should reduce income inequality.
Is income equality that important that all other aspects of human life must be sacrificed in order to obtain this equality? Prof. Scheidel stated clearly at the beginning of his book, “…economic growth requires some degree of inequality in income and consumption to encourage innovation and surplus production.”
The only way to accomplish the dubious goal of income equality is to give more and more power to the state. Communists and socialists would assert that the surplus produced by the masses and appropriated by the state would be able to provide the economic growth the same as a capitalist system. But the state is not an economic animal. It is a political animal. And the goal of the state is not profit or economic growth but continuance in power. And the innovation and technological advancement that drives economic growth is a disruptor of an orderly (and well controlled) society. Therefore, surplus in communist/socialist economies is directed toward increasing the power of the state and innovation and progress are discouraged.
The civilization we live in, as unequal as it might be, is the culmination of 10,000 years of progress powered by surplus. It is the motivation to create and accumulate surplus that causes the inequality of income and wealth but it is also what has provided all this progress. Would it have been better that we remained wandering across the tundra in search of our next meal?