Sunday, 2 December 2007
As Always, an Unequal Pie
By DAN MITCHELL
Published: December 1, 2007
THE distribution of wealth lies at the heart of political economics. Nations and empires have risen and fallen, and millions have died, as a result of humanity’s struggle to decide how (or whether) to divide wealth.
But for all that, the level of wealth inequality has remained remarkably consistent over the last 2,000 years, according to a recent study by Branko Milanovic, a researcher with the World Bank, and two economics professors, Peter H. Lindert of the University of California, Davis, and Jeffrey G. Williamson of Harvard University (economics.harvard.edu).
While “human civilization has advanced by leaps and bounds over the past two millennia, income inequality has stayed relatively the same,” Zubin Jelveh of Portfolio.com wrote about the study.
The “inequality extraction ratio” is basically the share of the wealth difference taken by “elites.” Since the United States is the wealthiest nation in history, the potential for elites taking a bigger share of the wealth (without allowing mass starvation) is greater. But they have not done so. “Thus,” the researchers write, “the social consequences of increased inequality may not entail as much relative impoverishment, or as much perceived injustice, as might appear.”
Tim Harford of Slate.com, writing about the same report, called this “faint praise for the United States, perhaps.” But, he added: “It is interesting to observe that while modern societies are rich enough to be much more unequal than their predecessors, they show similar patterns of income inequality. Perhaps — I am speculating wildly — human societies have some hard-wired tolerance for inequality?”
Or perhaps, no matter how wealthy a society, there will always be income inequality, whether or not we are “hard wired” for it.
The 88 page paper is called Pre-Industrial Inequality: An Early Conjectural Map
Did our pre-industrial ancestors have incomes and life expectancies as unequal as they
are today? Or is inequality largely the result of the Industrial Revolution? For want of
sufficient data, these questions have not yet been answered. This paper infers inequality
for 15 ancient, pre-industrial societies using what are known as social tables, stretching
from the Roman Empire 14 AD, to Byzantium in 1000, to England in 1688, to Nueva
España in 1790, to China in 1880 and to British India in 1947. It applies two new
concepts in making those assessments – what we call the inequality possibility frontier
and the inequality extraction ratio. Rather than simply offering measures of actual
inequality, we compare the latter with the maximum feasible inequality (or rent) that
could have been extracted by the elite. The results, especially when compared with
modern countries the world round, give new insights in to the connection between
inequality and economic development in the very long run.