Coronavirus and Why Inequality is Only Ever Reduced by Disaster

Walter Scheidel (pictured) is a historian at Stanford University as well as the author of eighteen books, including “The Great Leveler”, which presents a history of economic inequality from “the stone age to the twenty-first century”. In the book, which won a number of awards, Scheidel argues that inequality has historically only ever been reduced by “four horsemen”: plague, civil war, mass military mobilization, and government collapse. You can buy “The Great Leveler” here

May 2020

JPPE: The Great Leveler presents this very ambitious thesis that inequality only ever gets reduced by mass military mobilization, plague, civil war, or government collapse. Your previous work dealt with demography, political economy, ancient history, and the classics. Why was a book studying the history of inequality something that you wanted to work on?


Scheidel: Well, I should say I’m not much of a classicist. I’ve always considered myself a historian, and even though I specialize in ancient and premodern history, I’ve always been interested in world history and comparative history, more generally. And I guess the short answer is that I wrote this book because nobody had ever tried to write it before, and it would not have been possible even ten or fifteen years earlier because there simply weren’t enough case studies of the pre-modern period to piece together a broad survey of the evolution of income and wealth inequality across hundreds and even thousands of years. 


And then my more immediate inspiration was Thomas Piketty’s book “Capital in the Twenty-First Century”. I had been familiar with his work already even before this book came out, and when the book actually did come out and was a huge success, I figured that if I didn't sit down now and write the book, then someone else is going to do it. And so, I got going, and I had the thesis already in the back of my mind—Piketty had the same thesis that I did but just for the twentieth century. And what I was trying to do was see if it applied to world history, more generally, and somewhat to my surprise, it turned out this was the case. And because I didn’t run into any obvious counterexamples, I was able to write up a whole book in the course of about two years.


JPPE: Do you believe that high levels of inequality might be partially responsible for producing the shocks that ultimately reduce it? 


Scheidel: What I focused on was the impact of violent shocks on existing levels of inequality. And I think, in that respect, we are on pretty solid ground in that there are long term patterns regardless of what stage of development you are. Whether you are dealing with an agrarian society or an industrial society, the underlying principle and the underlying dynamics assert themselves again and again—it’s this idea that certain types of violent shocks would drive down inequality. 


Now, it is tempting to think that there could be some sort of homeostatic system where, if inequality goes up and exceeds a certain level, it triggers violent events that then reduce inequality. And then inequality rises again, and you have a never-ending series of cycles. That’s intellectually quite appealing. I don’t think that theory is fully borne out by the evidence that I have been able to put together. I think the evidence is much stronger in terms of a consistent effect of violent shocks on inequality, but not in quite the same way the other way around.


JPPE: Are there certain instances in which inequality is responsible for causing the leveling force that ultimately brought it down? One example that seems to speak to this is the case of Germany prior to the Second World War. The high inequality that took place during that time and the decline in German purchasing power seems to have contributed to the socio-political conditions that would ultimately lead to the Second World War and the leveling that took place then. 


Scheidel: I’m not familiar with that particular case study. I think that it is perfectly plausible and possible to tease out this conclusion by statistical analysis. Yet, if you look at world history more generally, you become very wary of cherry-picking. It’s easy to identify individual cases where you can observe such a connection. There are very powerful counterexamples that should give us pause, however.


So, for instance, if you just looked at France in the late eighteenth century, you could say, ‘of course the French Revolution was driven in part by extremely high levels of inequality’, and that makes perfect sense. Yet then you have to bear in mind that France was surrounded by other countries—Britain, the Netherlands, Spain, Italy, Germany—that were just as unequal as France and had no revolutions. 


You also have to bear in mind that the revolution in Russia occurred in a country that was not only not very industrialized, contrary to what Marx expected; it was also not very unequal by the standards of the time. The most unequal countries were the only industrialized ones—Britain, for example. The same is true of China when Mao took over. So, once you put all of these individual cases in context, it’s very difficult to say that a particular level of inequality triggers some kind of societal breakdown, ferments revolution, or leads to other kinds of leveling.


JPPE: In your book, you argued that leveling would not have happened without the presence of a violent shock. You conclude, however, by discussing the possibility that we have moved to a point in history where the “four horsemen” are no longer necessary to reduce inequality. What do you think now?  


Scheidel:  I think the evidence supports the belief that violent shocks are necessary to bring about leveling. They may not be sufficient, and they also act as catalysts. So, if you go back a hundred years or over one hundred years, there were already trends on the way in favor of increasing education, unionization of the workforce, the spread of democracy, and certain kinds of progressive taxation. All these things already existed but they got an enormous boost by World War One, the Great Depression, the New Deal, and World War Two.


And the counterfactual is to think about if they would have gotten an equally big boost had these shocks not occurred, and I’m very pessimistic about that. It’s not a black and white picture; it’s not to say nothing ever changes in the absence of such shocks. It’s just to say the changes would be far less dramatic, and I think that this is quite easy to substantiate empirically. 


Now, as for your other question, when I concluded the book, I had to look forward to the future and I came to the conclusion that the traditional four horsemen were dormant right now. We no longer fight mass military mobilization wars; there are no credible revolutionary movements (at least in high-income countries); states are much more stable in most of the world than they used to be; and pandemics, such as the one that we are encountering right now, are nothing like the pandemics of the past that leveled by reducing the workforce and driving up wages. We’ll see the exact opposite in this case with respect to wages. 


What I neglected to include is that climate change might become a fifth leveling force. I’m sympathetic to that view. It needn’t be a fifth leveling force, but it could revive some of the others. It could lead to conflict, to state breakdown, to more pandemics, and to all kinds of things along those lines. So that’s something I should have perhaps considered more systematically.


Otherwise I never really said that you can’t do anything at all in the absence of such violent shocks. I just wanted to remind people how difficult it is, and I think that’s important to bear in mind when we develop policy programs. We can’t just say ‘let’s go back to the way things were in the fifties’, for a number of reasons. We have to be aware when we develop policy initiatives what the structural impediments are and what very special conditions had to be in place in the past to bring about significant leveling. That’s not a call to defeatism. But I think it’s the historian’s job to put those things in perspective, and in this case, I think our job is to remind people over and over again that it’s really hard work to reduce inequality. 


JPPE: Are there instances of policy successfully reducing inequality that we can try and mimic in the future? 


Scheidel: That’s a very good question. I think there are two cases to consider. One is historically Scandinavian countries—not just Denmark, but also Sweden and Norway—, which used to be highly unequal two hundred years ago with extreme inequality in land ownership and so on. And that already started to get a little better in the course of the nineteenth century and early twentieth century. Those countries were not very heavily touched by the world wars. They were in some sense, however, and we see major contractions of inequality during those periods, but that’s clearly only part of the story. So, there is something going on in those countries, in particular, that put them on a trajectory towards lower inequality, and that was amplified and accelerated by the shocks in the first half of the twentieth century. 


Now, to what extent you can extrapolate from this is a very difficult question because those countries were—especially then— relatively small, not very populous, and they were extremely homogenous in a great many ways—linguistically, ethnically, socially, culturally, and so on. They were the exact opposite in many ways from the United States, which has historically always been very diverse, and there are studies that show that high levels of diversity can obstruct ambitious redistributive programs because there is simply less widespread popular support for those kinds of policies. So, we are talking about apples and oranges.


It’s not quite clear to what extent you can transfer some examples and apply them to different kinds of societies. And I think this is where the case of Latin America comes in. Latin America is very interesting. It’s a major outlier because it never experienced a major reduction in inequality; inequality has always been very high because of its colonial past—slavery, plantation economies, for example. It also never experienced any major leveling shocks. It wasn’t really touched by the World Wars. There were hardly any revolutions outside of Cuba. And so, you had status quo for a really long time and not very many changes. 


And in terms of diversity, some of those societies are more similar to the United States. What you saw there in the first decade of this century was a quite significant trend towards lower inequality in most Latin American countries—such as Brazil—by peaceful means, and that’s very encouraging. It really depended on the concatenation of circumstances that may be hard to replicate—gains from increased investment in education, political changes, a commodities boom in China that shored up certain sectors of the economy. All kinds of things were coming together in just the right way to reduce historically high levels of inequality. 


As I was writing this book, I was wondering whether this peaceful trend might be sustainable, and there were already clouds on the horizon. There was a major economic downturn a number of years ago. And the trends seemed to have stopped in many countries. With what’s happening right now and will be happening as a result of the current pandemic, we can be pretty sure that this trend is not going to continue or be sustainable in the long term. We will have to wait for a revival of this trend.


JPPE: It strikes me that when you ask scholars what the causes of inequality have been, people who study finance will blame financialization or the democratization of credit. Others will blame trade or technology. And others will blame policy. What do you believe the causes of inequality have been?

Scheidel: It’s really like the story of the elephant and the blindfolded men who touch different parts of the elephant, and they try to describe the animal and come up with very different descriptions. In the existing scholarship on the reasons for the increase in inequality from the 1980s onwards, different studies identify different components— as you say, automation, globalization, deregulation, financialization, all kinds of “ations”, the weakening of unions, and the fact that enormous numbers of workers came online with the opening up of China. 


All of these effects really refashioned the post-war order in ways that revived economic growth, which had been flagging in the 70s, but also led to a higher concentration of income and wealth. And all these many factors have been interacting ever since, and this makes it so much more difficult to address the problem because there are so many different factors that are operational and active now and have been for a generation. 


So, if you just address globalization, or robots, or tax reform, you would only really touch one part of the elephant, so to speak. And it would be very difficult to implement comprehensive reforms without at the same time transforming the entire economic system that we live in and depend on. It may be possible in theory, but it doesn’t strike me as a very plausible policy goal in the short run.


JPPE: You also argue that major economic transitions (e.g. the Industrial Revolution), often increase in inequality in the “short-run”. Do you think that we’re in the middle of something like this as we embrace digital technology?


Scheidel: Yes, I’ve seen this argument a number of times and it makes perfect sense to me. I mean, at the beginning of agriculture, if you have a plow and someone else doesn’t have a plow, then you are better off than the other person. Now if you work in Silicon Valley, then you are well off, and if you don’t, then you are in trouble. So, these transitions—regardless of what they were like and what the specifics were like— certainly have disequalizing potential in the sense that they might make society overall richer, but they reward certain groups disproportionately. 


And frankly, the current pandemic is an excellent example. There are people who can work from home; their jobs are more secure; they have higher incomes on average. And there are people who do more traditional kinds of work, for lack of a better word, and they are much more heavily exposed to the economic downturn. You have students who can participate in online instruction because they have broadband access and laptops and those who can’t. All these inequalities already existed, but they are now actually amplified and made more painful by the existing crisis. And I think ultimately this is a symptom of the effects of a broader transition towards a more digital economy.


JPPE: When we consider past plagues, do you think that there is anything fundamentally different about the Coronavirus Pandemic?


Scheidel: Well, the most obvious difference is that even in a worst-case scenario, the coronavirus is going to kill a far smaller share of the population than pandemics of the past and even than the Spanish Flu did a hundred years ago. And mortality is, of course, concentrated among people in advanced ages and spares most of the active workforce and people who are about to enter the workforce. So, there won’t be any kind of demographic shock or Malthusian reset. Real wages are not going to go up because there won’t be a shortage of wages. 


In fact, mass unemployment is going to depress wages, if anything. So, we can mercifully forget about this. Nobody wants that kind of pandemic to ever happen again. And frankly, even if it did happen again in some future year, AI and automation would actually absorb some of those effects. We wouldn’t necessarily have to pay people more; we might just automate more, which aging societies are already doing if you look at Japan. So that’s a fundamental difference. 


In the short run, I think this pandemic is going to increase inequality for all the reasons we touched on and because unemployment is unevenly distributed. This is maybe not that different from earlier pandemics because, in the immediate aftermath of a pandemic, things tend to be quite chaotic. So, the real question is if the current pandemic has the potential to lead to some kind of equalizing change down the line—not tomorrow, but maybe a couple of years from now. 


That’s a very good question, and I think it depends ultimately on how severe this crisis is going to be because historically, the worse the crisis was, the harder the shocks and the greater the potential for equalizing change was. So if quantitative easing works and scientists come up with a decent vaccine within a year or so, there is a pretty good chance we will return to some modified version of the status quo, at least with the respect to inequality—i.e. that the existing inequalities will survive and maybe even be reinforced, which is what happened in 2008 after the Great Recession. 


The alternative is that things really get out of control, that creating new money turns out to be insufficient, that there will be a global depression that lasts for a long time, and that the virus turns out to be intractable—it mutates, and all kinds of horrible things happen. And, as a result of this, we may end up with levels of dislocation, misery, and despair that would drive our policymaking in a certain direction, which would be more like what we had in the 1930s, when conditions were so terrible and the social safety net so rudimentary or nonexistent that all kinds of measures had to be taken that would have been considered too radical just a few years before. 


So, it is quite possible that we find ourselves on the cusp of this sort of change. The ideas are already out there. There was no Bernie Sanders twenty years ago, and much of this will depend on how this is actually going to play out—just how big and disruptive this shock is going to be.


JPPE: Are there specific policies you would like to see implemented? In your NYT op-ed, you called for a new era of progressive policy. Very practically, what are some of your positions?


Scheidel: Well, I think outcomes are going to vary quite a lot by country. In the US, we live in a kind of low hanging fruit society, in the sense that inequality is higher than it needs to be and is higher than in other western capitalist countries for a number of reasons specific to the US—the political system, the fiscal structure, the weakness of unions, and so on. So, there are certain things the US could do that would have an effect longer-term on inequality. 


This includes campaign finance reform; there’s a clear connection between plutocratic influence and certain inequality outcomes. This includes providing better access to health care, improving access to education, protecting and reenabling collective bargaining and unionization. Whether it is tweaking the tax code to make it a bit more progressive and a bit more like what we see in Western Europe. 


None of these approaches would be radical. It’s not a new deal kind of scenario. It’s not a Green New Deal kind of scenario but it would certainly contribute to a reduction in inequality. It wouldn’t take us back to where we were after World War II, but that’s not to be expected anyways. It would certainly improve the situation.


JPPE: Are there areas of the study of inequality that you believe are under covered by researchers and that you would like to see people work on?


Scheidel: Well, that’s actually a very good question. Going back to what we talked about initially, it is still an open question to whether inequality can destabilize society in a systematic way. There have been studies on developing countries (low-income countries)—especially in post-colonial settings in Africa, Asia, and Latin America—that show high levels of inequality are associated with an increased risk of civil war, for instance, or some kind of societal breakdown. 


It seems that crossing a certain GDP threshold protects more affluent societies from these kinds of dislocations, but that doesn’t mean that inequality can’t lead to less extreme forms of social unrest and problems. And that’s something that has not been as well researched as maybe it should be. And if it could be shown that there is such an effect, that should galvanize policymakers and make them think twice about propping up the existing structures that enable the very high degree of inequality that we see right now.

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