Schansberg: Income Inequality

May 11, 2018

by Eric Schansberg, Ph.D.

“An earthquake achieves what the law promises but does not in practice maintain — the equality of all men.” — Ignazio Silone

There has been tons of attention on income (and wealth) inequality in recent years — much of it driven by a nasty combination of ignorance and envy.

For example, folks often conflate income inequality at a point in time with a lack of economic mobility over time. One can easily have income inequality without any trouble in the realm of economic opportunity — as people move between income classes, up and down the economic ladder.

I’ve written a lot on the topic. Adding to that pile, I’ll offer a brief review of Walter Scheidel’s “The Great Leveler.” In one way, the book is not all that relevant, because one would rarely if ever advocate his historically based “solutions” — an array of disasters such as war — to the supposed and real concerns with income inequality. But his book does help to put those concerns in a more appropriate place — i.e., limited in importance and contextualized with many other variables.

The first part of the book is a brief history of income inequality, ranging from “the great apes” to Europe after World War II. He notes the inequality of power in ape hierarchies. And he notes Europe’s high and generally growing inequality — except for its experience with the fall of the Roman Empire, a plethora of plagues and the Great Depression.

The references to Europe’s periodic “improvements” in income inequality allow Scheidel to set the table for the rest of the book and his focus on “the four horsemen” — War, Revolution, State Collapse and Plagues. He surveys history widely for examples as he draws out the implications for economies in general and economic inequality in particular.

Scheidel notes that the accumulation of capital and wealth proceeds with far greater ease during peaceful times — for example, the 19th century West. In contrast, wars (particularly civil wars) are damaging or even devastating to economies, but “helpful” in promoting economic equality. Revolutions and the State Collapse are first cousins of War — and so, the impact is about the same.

The case for Plagues is less intuitive, since one might imagine that the wealthy would survive them more effectively or that random deaths would leave overall inequality mostly unchanged. But again, it’s the general impact of plagues on overall economic health that causes inequality to fall.

Even for those who are greatly concerned about income inequality, the four horsemen are not an appropriate means to the desired ends. In this sense, Scheidel’s work is interesting and provocative but more tongue-in-cheek than directly applicable.

So, in the final section, Scheidel turns to more likely candidates — second cousins of the horsemen that might yield enough benefits to be worth the costs. He discusses the theory and practice of modest “negative” efforts: “land reform,” debt relief and economic crises. It seems like a stretch to imagine economic crisis as palatable. But land reform and debt relief have been proposed and tried — with far less success than was promised on paper.

Scheidel also covers a positive angle with improved education. This is more promising, especially since we do such a poor job with K-12 now despite spending an inordinate amount of money. It’s easy to imagine how more competition and more private-sector involvement could allow us to make significant improvements with the same spending or less.

Scheidel doesn’t discuss family structure and stability, but this would obvious help with education as well as a myriad of other social concerns. Unfortunately, cultural mores and economic policies act to discourage strong family structure. It can be hoped that the cycle will turn again.

Scheidel’s book is interesting history. But its most useful contribution to politics and public policy is putting income inequality in its place. There are far worse things in life than income inequality.

Eric Schansberg, Ph.D., an adjunct scholar of the Indiana Policy Review Foundation, is an economist at Indiana University Southeast.



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