December 1, 2007 / New York TIMES
As Always, an Unequal Pie
By DAN MITCHELL
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.
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.
initial comment: This does not follow logically. Just because total wealth production is larger (making "the U.S. the wealthiest nation in history") does not mean that the rich have the ability to take a larger share. Just because the pie is larger does not mean that the rich automatically have the ability to grab a bigger percentage of that pie.
The way this can make sense is if the "total wealth" is defined by the amount of wealth produced beyond a given subsistence level and the "share" going to the rich is defined as a fraction of total production (including the subsistence level). That is, as the pie grows relative to the minimum size of the pie needed for human survival, there is more room for the rich to grab a bigger piece of the total without cutting into that minimum subsistence part of the pie. The rich can gain while the non-rich do better than subsistence.
[In math: let "total wealth" produced per person be equal to W, the rich elite's per-person part of that total be R, and the production necessary to produce a subsistence living standard for one person be M (standing for "minimum"). The rich elite's percentage share -- also known as the "inequality extraction ratio" -- would equal R/W. Assume that M is constant. Having W be below M would have dire consequences (starvation, plague, revolution, etc.)
As W rises, there is a greater "surplus" above subsistence (S = W - M). Some of this broadly-defined surplus is received by the workers and peasants (call this extra per person income E). Ignoring the rich elite's attainment of subsistence, the total per-person income of the lower classes would be E + M.
On the other hand, the total surplus S would equal the total above-subsistence incomes of both classes, R + E. As S/W rises, there is more room for both a bigger share of total wealth production to go to the rich (R/W rising) and for the above-subsistence incomes of workers to represent a larger piece of the total pie (E/W rising).
Alternatively, note that by definition, total production W = R + E + M. Dividing through by W, this means that (the share of the rich, R/W) plus (the share of above-subsistence wages, E/W) plus (the share of subsistence income, M/W) equals unity. The rise in the surplus relative to W means that M/W falls. So both R/W and E/W can rise.]
In prose (whew!), if a country is at or near the subsistence level, there's no room for the rich to skim the cream. But if the country is far above subsistence, the rich can do so without empoverishing the rest, i.e., pushing them toward or below subsistence.
The role of subsistence is not discussed in the NYT. But this issue does appear in the original article: for example, the authors say that "As hunter-gathers slowly evolved into ancient agricultural settlements with surpluses above subsistence, income inequality must have risen."
This is very revealing. I can't claim to have read the whole (88 page) article which the basis for the pontifications of Mitchell and others, but it seems that "subsistence" is defined according to the standard of living of hunter-gatherers. Then, as we get further and further from producing at that level, the rich have more room to rob. The fact that they have not taken more is then used to praise them for being wise, moderate, or generous (see below). The share of total wealth production going to the rich has not risen, so the workers and peasants have seen their standards of living rise relative to subsistence.
[In math, R/W has been (roughly) constant. So the rising surplus as a percentage of total production (S/W) has been translated into a rising share of above-subsistence incomes of the workers and peasants in total production (E/W).)]
But what if the subsistence is not constant? The rise of civilization (as we know it) has been associated with an increase in all sorts of needs. (Needs, in my book, refer to the costs that must be paid to be a human living in society.) Nowadays, I "need" to have a car to get to work (because I live in Los Angeles), while I "need" to have indoor plumbing (by law). I cannot communicate with others without a telephone or some other electronic system. Living in an alienated society, I must have Prozac or some other drug. Etc. The costs of being a human being always seems to be rising. (It was relatively easy to be a hunter-gatherer.)
Rising subsistence means that the cost of maintaining the workers and peasants has been rising over time. The production of an economic surplus -- which is the source of the income for the rich -- likely has not increased as quickly as total production. The fact that the share going to the rich has not risen may not be a sign of their generosity or moderation at all. It might be the result of a rising subsistence level. As noted below, it might also be the result of efforts by the lower classes to resist the power grab by the rich.
The article continues:
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.
final comment: Or perhaps every time the working and poor classes start raising the share of the product they receive, the "elite" calls in the big guns (General Pinochet and his ilk) to suppress them? And every time the rich elite gets too greedy, it leads to a 1929-33 type collapse, a massive upsurge in class struggle from below, or something similar? But the time scale of this data does not allow anyone to conclude anything at all about the causes of the stability of the numbers. In any event, we cannot assume that society is "hard wired" in any way.
There are also more measurement problems than one can shake A Sunday New York TIMES at. How, for example, is the product of a self-sufficient peasant measured? it may be possible nowadays, but what about for one 1000 years ago? In the original article, the authors quote the SRPE winning economist, Simon Kuznets: “Do you really think you can get good conclusions from bad data?” The question is still apt.
Jim Devine
might say that a society is 'hardwired' to produce if it is to reproduce itself, that relations of production and appropriation have not been a constant over those 2000 years, which makes any claim to constancy of distribution seem pretty far fetched or at least propagandistic, especially as we seem ready to enter another moment of 'equitable sacrifice' (which we'd better know by now is not).
ReplyDeleteI suspect this should have something do with the level of division of labor on one hand and the level of unionization on the other.
ReplyDeleteA hunter-gather simply doesn't need any elite, s/he is self-sufficient and can only be robbed by direct coercion; hired worker in a division-of-labor environment is a completely different story.
Suppose a worker is hammering nails all day, 100 nails/hour. Suppose tomorrow he is given a nail-gun, the work is now easier and he does 1000 nails/hour.
So, worker's productivity increased 10 times - should he ask for a payraise now? How much payraise?
The owner might say: look, your work is much easier now - you don't need to swing that heavy hammer anymore, so why should I pay you more? And the nail-gun cost me a lot of money. The worker might find it convincing.
What the worker needs is an organization that can examine the big picture, without it he has no chance. And the more narrow specialization, the more need for unionization.
well
ReplyDeletei agree about the need for unions. i don't think there is much to be gained from arguments to "justice," except politically. it's not a question of justice, it's a question of power.
that said, it's probably important that the power of the worker never overwhelm the power of the boss... just enough to keep him honest
and maybe enough to keep the truth in front of him that well paid workers will make him more money in the long run, something it is hard for ordinary mortals to understand.
one of the arguments used above... the changing standard of "dire poverty" is one I have used with no visible success here, but maybe coming from a more respected source it will be easier to understand.
then, just a word for my hunter gatherer friends. what they had, along with "subistence" income, was freedom and leisure. these were taken away when they became slave-farmers, and now we routinely trade both for plastic beads without ever giving it a second thought.
Frankly this seems to draw on a rather cartoonish picture of the reality of hunter-gatherer societies. In the right environment hunter-gatherers can achieve a level of leisure unimaginable to the typical pre-industrial farm worker. For that matter the typical pre-industrial farm worker often had a higher level of leisure than an industrial factory worker. (For a technical discussion of this you could examine A.V. Chayanov The Theory of Peasant Economy most of the popular picture of the daily life of a Russian serf or a medieval peasant not being true at all.)
ReplyDeleteClassical Liberal Economics, which in this context includes Marxism, simply got caught up with the 19th century idea of big P Progress. Bigger, newer, and certainly more organized, was by definition better. And all of this was worsened by Marx's mistaken understanding of the stages of history. The notion that societies transform from Hunter-Gatherer, to Nomadic, to Agricultural, to Industrial is on examination just a fairly crude historicism. In fact nomadism is a specialized form of society that largely depends on a substructure of settled agriculture, and as often as not the nomads are the middle to upper classes of their society. They exploit a environmental niche that allows them to accumulate moveable wealth (primarily livestock but also gold and in places like Iran fine rugs) which they can trade for the ordinary necessities (metals, tea, sugar, grain all of which depend on a relatively settled population). For a classic explication of how this works you could read Fredrik Barth Nomads of South Persia
What is more there generally remains a level of social stratification and wealth extraction by the elites on all of these societies, you almost always have a chief and a shaman who each will demand a relatively larger share.
So I question the whole premise which would identify hunter-gatherer with 'subsistence', if the fishing is good or the game plenty and the berry picking and nut gathering easy you can have plenty of time to sit around telling stories with a full stomach. Plenty of people spend big money to duplicate the life of a hunter-gatherer, there not being much to separate lounging in a hut wearing a loin cloth from resting in a beach cabana wearing a bikini except the general availability of indoor plumbing and the fact that someone else is catching the fish.
A final semi-related note. In the typical farm system in medieval England the plowing was done with an ox team of eight beasts, yet a study of the sources show that a middling peasants farmer would only own two. Which means on average four peasants would have to cooperate to make up a plow team. But it only takes two people to actually operate a plow, a plowsman and someone to goad the oxen, and the latter task often fell to a boy. Given that this shared team was sufficient to plow the holdings of everyone that contributed to it, it follows that the typical peasant only plowed his fields in one day out of four. Someone alert the Sandwichman, the notion that the typical peasant's labor is exploited to and often beyond subsistence needs a lot more examination than it typically gets.
For example much is made of the fact that peasants paid a certain amount of their rent in kind, which if this was meant for the landlord's subsistence would suggest a schedule. Yet sources I examined back in the day suggested that the obligation was seasonal with everyone delivering the eggs or the chicken or whatever on the same day which given the lack of methods for preserving perishables means some immediate consumption. When you further observe that this rendering in kind often coincided with a feast day you begin to wonder if exaction has blended over into potluck. (I don't know if there has ever been a systematic study of the time relation between rent rendition and feast days, I present this as an observation and nothing more.)
Bruce,
ReplyDelete100% agreement re. gatherer/hunters but, at least on my reading of Marx, I don't think it correct to characterize his analysis as having been one of some predetermined and mechanistic progression.
Juan my reading of Marx is a couple of decades old, but it is my clear recollection that he considered nomadism as a predessor state to agriculture which in turn resulted in tragic results under Lenin and Stalin as nomads were resettled as agriculturalists on land that simply did not support crop production. Perhaps this was simply impressionistic, but it remains vivid,then again it has been a long time since I took Prof Smith's course on nomadism. Pointers are always welcome.
ReplyDeleteGood anarchist argument, Bruce.
ReplyDeleteUnfortunately it doesn't look like division of labor is going away anytime soon, if anything it's getting higher. So, it looks like Marx was right after all.
Bruce,
ReplyDeleteI understand that Marx's work is in the U.S. most often seen as represented in Stalinist state capitalisms, but they were distinct... just as to believe that Lenin's application was based entirely on a Marx he could not have read at the time...
this sort of stuff, notions of correspondance, becomes/is anti-communist ideological garbage but a garbage facilitated by Stalin's own claims, 'free world' red-scare and cold war idiocies...reverberating and compounding each groups stupidities so often realized in not-so-cold-ways.
My point was simply that Marx's dialectical method was not, and could not be, one of deterministic stagism with some auto-mechanical progression from A to B to C to... and no coexistence of contradictory modes of production and different class structures any more than that real retrogressions are impossible. IICR, this was evident in such as his letters to Vera Zasulich (sp?) and within better known writings such as the Grundrisse.
Anyway, my reading of Marx was informed less from academics than experience prior to, which was one large reason I'd always found the whole 'stagist' argument fairly absurd or at least disconnected.