Enlightenment Now: The Case for Reason, Science, Humanism, and Progress

Still, an international Gini treats all the Chinese as if they earned the same amount, all the Americans as if they earned the American average, and so on, and as a result it underestimates inequality across the human race. A global Gini, in which every person counts the same, regardless of country, is harder to calculate, because it requires mixing the incomes from disparate countries into a single bowl, but two estimates are shown in figure 9-2. The lines float at different heights because they were calibrated in dollars adjusted for purchasing parity in different years, but their slopes trace out a kind of Kuznets curve: after the Industrial Revolution, global inequality rose steadily until around 1980, then started to fall. The international and global Gini curves show that despite the anxiety about rising inequality within Western countries, inequality in the world is declining. That’s a circuitous way to state the progress, though: what’s significant about the decline in inequality is that it’s a decline in poverty.

Figure 9-2: Global inequality, 1820–2011

Source: Milanović 2016, fig. 3.1. The left-hand curve shows 1990 international dollars of disposable income per capita; the right-hand curve shows 2005 international dollars, and combines household surveys of per capita disposable income and consumption.

The version of inequality that has generated the recent alarm is the inequality within developed countries like the United States and the United Kingdom. The long view of these countries is shown in figure 9-3. Until recently, both countries traveled a Kuznets arc. Inequality rose during the Industrial Revolution and then began to fall, first gradually in the late 19th century, then steeply in the middle decades of the 20th. But then, starting around 1980, inequality bounced into a decidedly un-Kuznetsian rise. Let’s examine each segment in turn.

Figure 9-3: Inequality, UK and US, 1688–2013

Source: Milanović 2016, fig. 2.1, disposable income per capita.

The rise and fall in inequality in the 19th century reflects Kuznets’s expanding economy, which gradually pulls more people into urban, skilled, and thus higher-paying occupations. But the 20th-century plunge—which has been called the Great Leveling or the Great Compression—had more sudden causes. The plunge overlaps the two world wars, and that is no coincidence: major wars often level the income distribution.²⁷ Wars destroy wealth-generating capital, inflate away the assets of creditors, and induce the rich to put up with higher taxes, which the government redistributes into the paychecks of soldiers and munition workers, in turn increasing the demand for labor in the rest of the economy.

Wars are just one kind of catastrophe that can generate equality by the logic of Igor and Boris. The historian Walter Scheidel identifies “Four Horsemen of Leveling”: mass-mobilization warfare, transformative revolution, state collapse, and lethal pandemics. In addition to obliterating wealth (and, in the communist revolutions, the people who owned it), the four horsemen reduce inequality by killing large numbers of workers, driving up the wages of those who survive. Scheidel concludes, “All of us who prize greater economic equality would do well to remember that with the rarest of exceptions it was only ever brought forth in sorrow. Be careful what you wish for.”²⁸

Scheidel’s warning applies to the long run of history. But modernity has brought a more benign way to reduce inequality. As we have seen, a market economy is the best poverty-reduction program we know of for an entire country. It is ill-equipped, however, to provide for individuals within that country who have nothing to exchange: the young, the old, the sick, the unlucky, and others whose skills and labor are not valuable enough to others for them to earn a decent living in return. (Another way of putting it is that a market economy maximizes the average, but we also care about the variance and the range.) As the circle of sympathy in a country expands to encompass the poor (and as people want to insure themselves should they ever become poor), they increasingly allocate a portion of their pooled resources—that is, government funds—to alleviating that poverty. Those resources have to come from somewhere. They may come from a corporate or sales tax, or a sovereign wealth fund, but in most countries they largely come from a graduated income tax, in which richer citizens pay at a higher rate because they don’t feel the loss as sharply. The net result is “redistribution,” but that is something of a misnomer, because the goal is to raise the bottom, not lower the top, even if in practice the top is lowered.