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 risin