Inequality: Costs and Remedies

WHEN Thomas Piketty’s book Capital was published three years ago, I had hoped it would mark the beginning of a serious discussion about the growing wealth inequality in the United States and, indeed, throughout much of the world. Unfortunately, this has not happened, the matter shouldered aside by the more incendiary issues of terrorism, immigration, and populist nationalism and, on the part of politicians and media alike, a seeming unwillingness to delve too deeply into its many implications.

But the wealth gap continues to widen: as of 2016, the top 1 percent of the population of the US owned 38.6 percent of the nation’s wealth, representing a mean average household wealth of US$18,623,000. By contrast, the bottom 90 percent of US citizens held just 22.8 percent of total wealth, and the bottom 40 percent actually had a negative household wealth approaching US$11,000. Similarly, the global elite 1 percent owns 50.1 percent of the world’s wealth, even though almost half the world’s population earns less than US$2.50 a day and, of this group, 1.3 billion people somehow manage to survive on less than US$1.25 a day.

These two books — Walter Scheidel’s The Great Leveling and Harry Frankfurt’s On Inequality — take different approaches to wealth disparity, one historical and the other ethical.

Scheidel’s scope of study — compared to Piketty’s focus on the United States and Europe since the Industrial Revolution, a period for which detailed records exist by which to accurately assess disparities in income and wealth — is extremely ambitious as he attempts to assess levels of inequity as far back as prehistoric times. Unlike the voluminous hard data available to Piketty, though, for most of the period Scheidel studied few detailed records exist. Consequently, he closely examined what archaeology has found: graves, for instance, that yielded greater ornaments or weapons than others, or the size and contents of excavated ancient dwellings. From these and similar findings he was able to extrapolate probable levels of wealth inequity in antiquity.

Given the realities of human nature, it is hardly surprising that varieties of inequity appear to be a consistent feature of human societies; even the burial sites of hunter-gatherers reveal that some of their dead were buried with more jewelry, weapons, and gifts than was common for most.

However, Scheidel concludes that significant inequality did not really “take off” until after the end of the last Ice Age when a transition “to new modes of subsistence and new forms of social organization that eroded forager egalitarianism and replaced it with durable hierarchies and disparities in income and wealth (began). For these developments to occur, there had to be productive assets that could be defended against encroachment and from which owners could draw a surplus in a predictable manner. Food production by means of farming and herding… came to be the principal driver of economic, social, and political change.”

He observes that the two most crucial determinants of inequality were individual possession of land and livestock and the ability to transmit accumulated wealth to heirs. Over time, as settlements grew in size, both the magnitude and complexity of inequity increased.

While in the earliest societies the number of very wealthy was relatively small, consisting primarily of the religious-political elite, as communities expanded in size and wealth the number of those who were better off swelled: joining the rulers were bureaucratic servants of the state, landed families, and wealthy merchants.

Capital versus labor

One of Piketty’s most important findings was that, over time, the return on capital always exceeds gains in income originating from labor. Scheidel’s findings affirm this, for the elites consistently dodged taxation, especially on wealth accumulation.

Scheidel notes, however, that the upward march of inequality has experienced dramatic collapses in the past, such as followed the decline of the Roman Empire in the West and after the Black Death decimated Europe’s population. Time and again, past wealth inequities were compressed as a consequence of one or more of what he calls “the Four Horsemen of Leveling” — mass mobilization warfare, transformative revolution, state failure, and lethal pandemics.

Despite such leveling, however, within only a few generations the growth of wealth disparity resumed.

Piketty’s Capital also noted this pattern when he discussed the period of wealth compression from the 1930s into the early 1970s, and its subsequent rebound. What we now remember as a “golden age” — when gains in income and wealth were more widely distributed — was the direct result of the 20th century’s two world wars and the Great Depression that eroded the wealth of the rich through higher taxes, rapid devaluation of currencies, and destruction of physical assets. But, as is clear from the vantage point of the 21st century, this egalitarian period did not last long, either.

Is a future fearsome visit of one or more of the “Four Horsemen,” then, the only way that our current period of massive inequity can end?

There are policies that have worked in the past to deliver greater prosperity to the majority, including creating and sustaining vital social nets (for unemployment, illness and old age), the existence of thriving labor unions, and truly progressive taxation on income and accumulated wealth, as was demonstrated in the immediate post-World War II period. However, since the wealthy and powerful are always seeking ways to enhance their status advantage over the rest of us, inevitably they succeed in weakening or destroying these same policies, as is clear from the West’s social and political history since the 1970s.

Dr. Frankfurt’s On Inequality addresses inequality from the moral perspective. He concurs with Scheidel that some level of inequity appears inevitable, since each person possesses different talents and because we seem inclined to compete to attain status within our social groups. It is also possible that a certain modest level of inequity serves a useful social function by, for example, prodding us to invest in higher education or to acquire greater technical skills.

The moral issue involves concepts we almost never hear discussed anymore: sufficiency vs. excess.

If every person had enough of what he or she needed to function fully and without fear of immanent loss, then the fact that some possessed “more” would not be much cause for worry or complaint. However, when the excess accumulated by some effectively deprives others of essentials the result is an immoral situation.

“From the point of view of morality,” Frankfurt writes, “it is not important that everyone should have the same. What is morally important is that each should have enough…” This is his “doctrine of sufficiency.” Unfortunately, addressing — let alone acting to correct — severe wealth inequality is absent from the agendas of most Western states. Only China has made addressing the consequence of wealth inequality — poverty — a priority. In the United States, on the other hand, our government is currently pushing measures that would increase it.

We know what policies work to correct wealth inequity. What we lack is the will and courage to demand them!

The author was a member of the Iowa State House of Representatives and also served in the Iowa executive branch. He retired in 2004.