Return of the oppressed

From the Roman Empire to our own Gilded Age, inequality moves in cycles. The future looks like a rough ride

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Jack Whinery and family, homesteaders photographed in Pie Town, New Mexico, October 1940. Photo courtesy the Library of Congress

Jack Whinery and family, homesteaders photographed in Pie Town, New Mexico, October 1940. Photo courtesy the Library of Congress

Peter Turchin is Professor of Ecology and Evolution at the University of Connecticut and Vice-President of the Evolution Institute. He wrote War and Peace and War: the Rise and Fall of Empires.

Today, the top one per cent of incomes in the United States accounts for one fifth of US earnings. The top one per cent of fortunes holds two-fifths of the total wealth. Just one rich family, the six heirs of the brothers Sam and James Walton, founders of Walmart, are worth more than the bottom 40 per cent of the American population combined ($115 billion in 2012).

After thousands of scholarly and popular articles on the topic, one might think we would have a pretty good idea why the richest people in the US are pulling away from the rest. But it seems we don’t. As the Congressional Budget Office concluded in 2011: ‘the precise reasons for the rapid growth in income at the top are not well understood’. Some commentators point to economic factors, some to politics, and others again to culture. Yet obviously enough, all these factors must interact in complex ways. What is slightly less obvious is how a very long historical perspective can help us to see the whole mechanism.

In his book Wealth and Democracy (2002), Kevin Phillips came up with a useful way of thinking about the changing patterns of wealth inequality in the US. He looked at the net wealth of the nation’s median household and compared it with the size of the largest fortune in the US. The ratio of the two figures provided a rough measure of wealth inequality, and that’s what he tracked, touching down every decade or so from the turn of the 19th century all the way to the present. In doing so, he found a striking pattern.

We found repeated back-and-forth swings in demographic, economic, social, and political structures

From 1800 to the 1920s, inequality increased more than a hundredfold. Then came the reversal: from the 1920s to 1980, it shrank back to levels not seen since the mid-19th century. Over that time, the top fortunes hardly grew (from one to two billion dollars; a decline in real terms). Yet the wealth of a typical family increased by a multiple of 40. From 1980 to the present, the wealth gap has been on another steep, if erratic, rise. Commentators have called the period from 1920s to 1970s the ‘great compression’. The past 30 years are known as the ‘great divergence’. Bring the 19th century into the picture, however, and one sees not isolated movements so much as a rhythm. In other words, when looked at over a long period, the development of wealth inequality in the US appears to be cyclical. And if it’s cyclical, we can predict what happens next.

An obvious objection presents itself at this point. Does observing just one and a half cycles really show that there is a regular pattern in the dynamics of inequality? No, by itself it doesn’t. But this is where looking at other historical societies becomes interesting. In our book Secular Cycles (2009), Sergey Nefedov and I applied the Phillips approach to England, France and Russia throughout both the medieval and early modern periods, and also to ancient Rome. All of these societies (and others for which information was patchier) went through recurring ‘secular’ cycles, which is to say, very long ones. Over periods of two to three centuries, we found repeated back-and-forth swings in demographic, economic, social, and political structures. And the cycles of inequality were an integral part of the overall motion.

Incidentally, when students of dynamical systems (or, more colourfully, ‘chaoticians’ such as Jeff Goldblum’s character in the film Jurassic Park) talk about ‘cycles’, we do not mean rigid, mechanical, clock-like movements. Cycles in the real world are chaotic, because complex systems such as human societies have many parts that are constantly moving and influencing each other. Despite this complexity, our historical research on Rome, England, France, Russia and now the US shows that these complex interactions add up to a general rhythm. Upward trends in variables (for example, economic inequality) alternate with downward trends. And most importantly, the ways in which other parts of the system move can tell us why certain trends periodically reverse themselves. Understanding (and perhaps even forecasting) such trend-reversals is at the core of the new discipline of cliodynamics, which looks at history through the lens of mathematical modelling.

So it looks like the pattern that we see in the US is real. Ours is, of course, a very different society from ancient Rome or medieval England. It is cut off from them by the Industrial Revolution and by innumerable advances in technology since then. Even so, a historically based model might shed light on what has been happening in the US over the past three decades.

First, we need to think about jobs. Unless other forces intervene, an overabundance of labour will tend to drive down its price, which naturally means that workers and their families have less to live on. One of the most important forces affecting the labour supply in the US has been immigration, and it turns out that immigration, as measured by the proportion of the population who were born abroad, has changed in a cyclical manner just like inequality. In fact, the periods of high immigration coincided with the periods of stagnating wages. The Great Compression, meanwhile, unfolded under a low-immigration regime. This tallies with work by the Harvard economist George Borjas, who argues that immigration plays an important role in depressing wages, especially for those unskilled workers who compete most directly with new arrivals.

Immigration is only one part of a complex story. Another reason why the labour supply in the US went up in the 19th century is, not to put too fine a point on it, sex. The native-born population was growing at what were, at the time, unprecedented rates: a 2.9 per cent growth per year in the 1800s, only gradually declining after that. By 1850 there was no available farmland in Eastern Seaboard states. Many from that ‘population surplus’ moved west, but others ended up in eastern cities where, of course, they competed for jobs with new immigrants.

This connection between the oversupply of labour and plummeting living standards for the poor is one of the more robust generalisations in history. Consider the case of medieval England. The population of England doubled between 1150 and 1300. There was little possibility of overseas emigration, so the ‘surplus’ peasants flocked to the cities, causing the population of London to balloon from 20,000 to 80,000. Too many hungry mouths and too many idle hands resulted in a fourfold increase in food prices and a halving of real wages. Then, when a series of horrible epidemics, starting with the Black Death of 1348, carried away more than half of the population, the same dynamic ran in reverse. The catastrophe, paradoxically, introduced a Golden Age for common people. Real wages tripled and living standards went up, both quantitatively and qualitatively. Common people relied less on bread, gorging themselves instead on meat, fish, and dairy products.

The tug of war between the top and typical incomes doesn’t have to be a zero-sum game, but in practice it often is

Much the same pattern can be seen during the secular cycle of the Roman Principate. The population of the Roman Empire grew rapidly during the first two centuries up to 165AD. Then came a series of deadly epidemics, known as the Antonine Plague. In Roman Egypt, for which we have contemporary data thanks to preserved papyri, real wages first fell (when the population increased) and then regained ground (when the population collapsed). We also know that many grain fields were converted to orchards and vineyards following the plagues. The implication is that the standard of life for common people improved — they ate less bread, more fruit, and drank wine. The gap between common people and the elites shrank.

Naturally, the conditions affecting the labour supply were different in the second half of the 20th century in the US. An important new element was globalisation, which allows corporations to move jobs to poorer countries (with that ‘giant sucking sound’, as Ross Perot put it during his 1992 presidential campaign). But none of this alters the fact that an oversupply of labour tends to depress wages for the poorer section of the population. And just as in Roman Egypt, the poor in the US today eat more energy-dense foods — bread, pasta, and potatoes — while the wealthy eat more fruit and drink wine.

Falling wages isn’t the only reason why labour oversupply leads to inequality. As the slice of the economic pie going to employees diminishes, the share going to employers goes up. Periods of rapid growth for top fortunes are commonly associated with stagnating incomes for the majority. Equally, when worker incomes grew in the Great Compression, top fortunes actually declined in real terms. The tug of war between the top and typical incomes doesn’t have to be a zero-sum game, but in practice it often is. And so in 13th-century England, as the overall population doubles, we find landowners charging peasants higher rents and paying less in wages: the immiseration of the general populace translates into a Golden Age for the aristocrats.

As the historian Christopher Dyer wrote, life was good for the upper-crust English around 1300. They drank more wine and spent their spare cash building or refurbishing castles, cathedrals, and monasteries. They didn’t just enjoy a better living standard; they also grew in number. For example, the number of knights and esquires tripled between 1200 and 1300. But disaster struck in 1348, when the Black Death removed the population surplus (and then some). By the 15th century, while the common people were enjoying their own Golden Age, the aristocracy had fallen on hard times. We can infer the severity of their financial straits from the amount of claret imported from France. Only the gentry drank wine, and around 1300, England imported 20,000 tuns or casks of it from France per year. By 1460, this declined to only 5,000. In the mid-15th century, there were simply fewer aristocrats and they were much poorer.

In the US between around 1870 and 1900, there was another Golden Age for the elites, appropriately called the Gilded Age. While living standards for the majority declined (seen vividly in dwindling average heights and life expectancies), the moneyed classes were enjoying ever more luxurious lifestyles. And just like in 13th-century England, the total number of the wealthy was shooting up. Between 1825 and 1900, the number of millionaires (in constant 1900 dollars) went from 2.5 per million of the population to 19 per million. In our current cycle, the proportion of decamillionaires (those whose net worth exceeds 10 million in 1995 dollars) grew tenfold between 1992 and 2007 — from 0.04 to 0.4 per cent of the US population.

This seems like a peculiar development. The reason for it — cheeringly enough, you might say — is that cheap labour allows many enterprising, hard-working or simply lucky members of the poorer classes to climb into the ranks of the wealthy. In the 19th century, a skilled artisan in the US could expand his workshop by hiring other workers, eventually becoming the owner of a large business; Sven Beckert’s The Monied Metropolis (2003) describes many instances of this story playing out. In America today, enterprising and hard-working individuals start dotcom companies or claw their way into jobs as the CEOs of large corporations.

On the face of it, this is a wonderful testament to merit-based upward mobility. But there are side effects. Don’t forget that most people are stuck with stagnant or falling real wages. Upward mobility for a few hollows out the middle class and causes the social pyramid to become top-heavy. Too many elites relative to the general population (a condition I call ‘elite overproduction’) leads to ever-stiffer rivalry in the upper echelons. And then you get trouble.

In the US, there is famously a close connection between wealth and power. Many well-off individuals — typically not the founders of great fortunes but their children and grandchildren — choose to enter politics (Mitt Romney is a convenient example, though the Kennedy clan also comes to mind). Yet the number of political offices is fixed: there are only so many senators and representatives at the federal and state levels, and only one US president. As the ranks of the wealthy swell, so too do the numbers of wealthy aspirants for the finite supply of political positions.

When watching political battles in today’s Senate, it is hard not to think about their parallels in Republican Rome. The population of Italy roughly doubled during the second century BC, while the number of aristocrats increased even more. Again, the supply of political offices was fixed — there were 300 places in the senate and membership was for life. By the end of the century, competition for influence had turned ugly. During the Gracchan period (139—110BC), political feuding led to the slaughter of the tribunes Tiberius and Gaius on the streets of Rome. During the next century, intra-elite conflict spilt out of Rome into Italy and then into the broader Mediterranean. The civil wars of the first century BC, fuelled by a surplus of politically ambitious aristocrats, ultimately caused the fall of the Republic and the establishment of the Empire.

Beside sheer numbers, there is a further, subtler factor that aggravates internal class rivalry. So far I have been talking about the elites as if they are all the same. But they aren’t: the differences within the wealthiest one per cent are almost as stark as the difference between the top one per cent and the remaining 99. The millionaires want to reach the level of decamillionaires, who strive to match the centimillionaires, who are trying to keep up with billionaires. The result is very intense status rivalry, expressed through conspicuous consumption. Towards the end of the Republic, Roman aristocrats competed by exhibiting works of art and massive silver decorations in their homes. They threw extravagant banquets with peacocks from Samos, oysters from Lake Lucrino and snails from Africa, all imported at great expense. Archaeology confirms a genuine and dramatic shift towards luxury.

The US political system is much more attuned to the wishes of the rich than to the aspirations of the poor

Intra-elite competition also seems to affect the social mood. Norms of competition and extreme individualism become prevalent and norms of co-operation and collective action recede. Social Darwinism took off during the original Gilded Age, and Ayn Rand (who argued that altruism is evil) has grown astonishingly popular during what we might call our Second Gilded Age. The glorification of competition and individual success in itself becomes a driver of economic inequality. As Christopher Hayes wrote in Twilight of the Elites (2012): ‘defenders of the status quo invoke a kind of neo-Calvinist logic by saying that those at the top, by virtue of their placement there, must be the most deserving’. By the same reasoning, those at the bottom are not deserving. As such social norms spread, it becomes increasingly easy for CEOs to justify giving themselves huge bonuses while cutting the wages of workers.

Such cultural attitudes work with economic forces to widen inequality. Economists know very well that few markets are ‘efficient’ in the sense that their prices are set entirely by the forces of supply and demand. Labour markets are especially sensitive to cultural norms about what is fair compensation, so prevailing theories about inequality have practical consequences. And labour markets are also strongly affected by government regulation, as the economist and Nobel laureate Joseph Stiglitz has argued. So let’s consider how politics enters the equation here.

The US, as we saw, breeds strong links between wealth and politics. Some wealthy individuals run for office themselves. Others use their money to support their favoured politicians and policies. As a result, the US political system is much more attuned to the wishes of the rich than to the aspirations of the poor. Kevin Phillips has been one of the most influential voices raised in alarm at the dangers for democracy of growing wealth disparity.

Inverse relationship between well-being and inequality in American history. The peaks and valleys of inequality (in purple) represent the ratio of the largest fortunes to the median wealth of households (the Phillips curve). The blue-shaded curve combines four measures of well-being: economic (the fraction of economic growth that is paid to workers as wages), health (life expectancy and the average height of native-born population), and social optimism (the average age of first marriage, with early marriages indicating social optimism and delayed marriages indicating social pessimism). Inverse relationship between well-being and inequality in American history. The peaks and valleys of inequality (in purple) represent the ratio of the largest fortunes to the median wealth of households (the Phillips curve). The blue-shaded curve combines four measures of well-being: economic (the fraction of economic growth that is paid to workers as wages), health (life expectancy and the average height of native-born population), and social optimism (the average age of first marriage, with early marriages indicating social optimism and delayed marriages indicating social pessimism).

Yet the US political system has been under the influence of wealthy elites ever since the American Revolution. In some historical periods it worked primarily for the benefit of the wealthy. In others, it pursued policies that benefited the society as a whole. Take the minimum wage, which grew during the Great Compression era and declined (in real terms) after 1980. The proportion of American workers who were unionised changed in a similarly cyclical fashion, as the legislative field tilted first one way then the other. The top marginal tax rate was 68 per cent or higher before 1980; by 1988 it declined to 28 per cent. In one era, government policy systematically favoured the majority, while in another it favoured the narrow interests of the wealthy elites. This inconsistency calls for explanation.

It is relatively easy to understand the periods when the wealthy bent the agenda to suit their interests (though of course, not all rich people care exclusively about their own wealth). How, though, can we account for the much more broadly inclusive policies of the Great Compression era? And what caused the reversal that ended the Gilded Age and ushered in the Great Compression? Or the second switch, which took place around 1980?

History provides another clue. Unequal societies generally turn a corner once they have passed through a long spell of political instability. Governing elites tire of incessant violence and disorder. They realise that they need to suppress their internal rivalries, and switch to a more co-operative way of governing, if they are to have any hope of preserving the social order. We see this shift in the social mood repeatedly throughout history — towards the end of the Roman civil wars (first century BC), following the English Wars of the Roses (1455-85), and after the Fronde (1648-53), the final great outbreak of violence that had been convulsing France since the Wars of Religion began in the late 16th century. Put simply, it is fear of revolution that restores equality. And my analysis of US history in a forthcoming book suggests that this is precisely what happened in the US around 1920.

Reforms that ensured an equitable distribution of the fruits of economic growth turned out to be a highly effective counter to the lure of Bolshevism

These were the years of extreme insecurity. There were race riots (the ‘Red Summer of 1919’), worker insurrections, and an Italian anarchist terrorist campaign aimed directly at the elites. The worst incident in US labour history was the West Virginia Mine War of 1920—21, culminating in the Battle of Blair Mountain. Although it started as a workers’ dispute, the Mine War eventually turned into the largest armed insurrection that the US has ever seen, the Civil War excepted. Between 10,000 and 15,000 miners armed with rifles battled against thousands of strikebreakers and sheriff deputies. The federal government eventually called in the Air Force, the only time it has ever done so against its own people. Add to all this the rise of the Soviet Union and the wave of socialist revolutions that swept Europe after the First World War, triggering the Red Scare of 1921, and you get a sense of the atmosphere. Quantitative data indicate that this period was the most violent in US history, second only to the Civil War. It was much, much worse than the 1960s.

The US, in short, was in a revolutionary situation, and many among the political and business elites realised it. They began to push through a remarkable series of reforms. In 1921 and 1924, Congress passed legislation that effectively shut down immigration into the US. Although much of the motivation behind these laws was to exclude ‘dangerous aliens’ such as Italian anarchists and Eastern European socialists, the broader effect was to reduce the labour surplus. Worker wages grew rapidly. At around the same time, federal income tax came in and the rate at which top incomes were taxed began to increase. Somewhat later, provoked by the Great Depression, other laws legalised collective bargaining through unions, introduced a minimum wage, and established Social Security.

The US elites entered into an unwritten compact with the working classes. This implicit contract included the promise that the fruits of economic growth would be distributed more equitably among both workers and owners. In return, the fundamentals of the political-economic system would not be challenged (no revolution). The deal allowed the lower and upper classes to co-operate in solving the challenges facing the American Republic — overcoming the Great Depression, winning the Second World War, and countering the Soviet threat during the Cold War.

It almost goes without saying that there was a racist and xenophobic underside to all this. The co-operating group was mainly native-born white Protestants. African-Americans, Jews, Catholics and foreigners were excluded or heavily discriminated against. Nevertheless, while making such ‘categorical inequalities’ worse, the compact led to a dramatic reduction in overall economic inequality.

The ‘New Deal Coalition’ which ruled the US from 1932 to the late 1960s did so well that the business community, opposed to its policies at first, came to accept them in the post-war years. As the historian Kim Phillips-Fein wrote in Invisible Hands (2010):
Many managers and stockholders [made] peace with the liberal order that had emerged. They began to bargain regularly with the labour unions at their companies. They advocated the use of fiscal policy and government action to help the nation to cope with economic downturns. They accepted the idea that the state might have some role to play in guiding economic life.

When Barry Goldwater campaigned on a pro-business, anti-union and anti-big government platform in the 1964 presidential elections, he couldn’t win any lasting support from the corporate community. The conservatives had to wait another 16 years for their triumph.

But by the late 1970s, a new generation of political and business leaders had come to power. To them the revolutionary situation of 1919-21 was just history. In this they were similar to the French aristocrats on the eve of the French Revolution, who did not see that their actions could bring down the Ancien Régime — the last great social breakdown, the Fronde, being so far in the past.

The US elites, similarly, took the smooth functioning of the political-economic system for granted. The only problem, as they saw it, was that they weren’t being adequately compensated for their efforts. Feelings of dissatisfaction ran high during the Bear Market of 1973—82, when capital returns took a particular beating. The high inflation of that decade ate into inherited wealth. A fortune of $2 billion in 1982 was a third smaller, when expressed in inflation-adjusted dollars, than $1 billion in 1962, and only a sixth of $1 billion in 1912. All these factors contributed to the reversal of the late 1970s.

It is no coincidence that the life of Communism (from the October Revolution in Russia in 1917 to the fall of the Berlin Wall in 1989) coincides almost perfectly with the Great Compression era. The Red Scares of, firstly, 1919—21 and then 1947—57 suggest that US elites took the Soviet threat quite seriously. More generally, the Soviet Union, especially in its early years, aggressively promoted an ideology that was highly threatening to the political-economic system favoured by the US elites. Reforms that ensured an equitable distribution of the fruits of economic growth turned out to be a highly effective counter to the lure of Bolshevism.

Nevertheless, when Communism collapsed, its significance was seriously misread. It’s true that the Soviet economy could not compete with a system based on free markets plus policies and norms that promoted equity. Yet the fall of the Soviet Union was interpreted as a vindication of free markets, period. The triumphalist, heady atmosphere of the 1990s was highly conducive to the spread of Ayn Randism and other individualist ideologies. The unwritten social contract that had emerged during the New Deal and braved the challenges of the Second World War had faded from memory.

What, then, explains the rapid growth of top fortunes in the US over the past 30 years? Why did the wages of unskilled workers stagnate or decline? What accounts for the bitterness of election rhetoric in the US, the growing legislative gridlock, the rampant political polarisation? My answer is that all of these trends are part of a complex and interlocking system. I don’t just mean that everything affects everything else; that would be vacuous. Rather, that cliodynamic theory can tell us specifically how demographic, economic and cultural variables relate to one another, and how their interactions generate social change. Cliodynamics also explains why historical reversals in such diverse areas as economics and culture happen at roughly similar times. The theory of secular cycles was developed using data from historical societies, but it looks like it can provide answers to questions about our own society.

Our society, like all previous complex societies, is on a rollercoaster. Impersonal social forces bring us to the top; then comes the inevitable plunge. But the descent is not inevitable. Ours is the first society that can perceive how those forces operate, even if dimly. This means that we can avoid the worst — perhaps by switching to a less harrowing track, perhaps by redesigning the rollercoaster altogether.

Three years ago I published a short article in the science journal Nature. I pointed out that several leading indicators of political instability look set to peak around 2020. In other words, we are rapidly approaching a historical cusp, at which the US will be particularly vulnerable to violent upheaval. This prediction is not a ‘prophecy’. I don’t believe that disaster is pre-ordained, no matter what we do. On the contrary, if we understand the causes, we have a chance to prevent it from happening. But the first thing we will have to do is reverse the trend of ever-growing inequality.

Correction, Feb 13, 2013: When first published, this article misidentified Michael Bloomberg, the mayor of New York City, as an inheritor of a large fortune. In fact he amassed most of his wealth himself.

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Comments

  • Tim

    minor point-- regarding the West Virginia Mine War of 1920, "The federal government eventually called in the Air Force", the US Air Force was formed in 1947.

    • http://www.aeonmagazine.com/ Ed Lake

      You're right in a sense; at the time it was called the US Army Air Service and hadn't yet been separated from the army. It changed names several times before attaining its independence following the Second World War. But the US military has had an airborne division since 1907.

    • Peter Turchin

      As a result of the mounting death toll resulting from the Battle of Blair Mountain, the Harding administration imposed the martial law on West Virginia and sent troops. They also set up a base for air operations. Army bombers were used for aerial surveillance, not for combat. There were also private (but not army) planes that dropped homemade bombs on the miners. The Wikipedia article has a photo of one bomb that failed to explode after being dropped.

      http://www.glendale.edu/chaparral/apr05/blair.htm
      http://en.wikipedia.org/wiki/Battle_of_Blair_Mountain#The_battle

  • rameshraghuvanshi

    There is nothing new in your story.From ancient times might is always right.Might people always dominated on poor people.In Russia when communism ruled there also rich and powerful people were dominating on common men.I don't believed blindly that in future their will be equity in all people.Might will always govern on poor people. Survival is fittest is universal law and no one can change it.

    • Gary

      While the basic principle you stated is true, the article highlighted the large possible range of inequality. Why not learn from the insights to push for changes that could bring about meaningful improvement in the lives of "the poor".

      • rameshraghuvanshi

        I agree with you that we must try our best to improve the condition of poor but Sir from ancient times some intellectual people were doing this.why not we changes the sorrow misery of people.?I think recent research in nuroscience proves we have no freewill that we cannot know ourselves because we are full of hidden inner drives and that we are different so universal morality is immoral .Our aim must be understand rather than edify, I think man himself change when circumstances changes and technology have such power to changes the circumstances.Just study how fire, wheel, steam engine and computer changed circumstances and edify man`s life

  • Windham

    I agree that when elites can't sort it out between themselves, this is a recipe for major social disturbance. The political discourse in Washington has been really ugly for several years now. And this is just the tip of the iceberg.

    The correlations you observe are most interesting. I wonder , where the data you used to build your graph came from.

    • Peter Turchin

      The sources of raw data are quite standard and easily accessible. The health and marriage age data are from the Historical Statistics of the United States and the wages data are from MeasuringWorth.org by Officer and Williamson. If you are interested to see how these raw data are combined into the generalized well-being curve, see my blog at the Social Evolution Forum:

      http://socialevolutionforum.com/2013/02/08/the-double-helix-of-inequality-and-well-being/

  • eeby

    Wow - you had me for a while there, until you identified Michael Bloomberg as the heir to his family's fortune. He's the one who made it - a John (not a Norman) Rockefeller. I'd like to be able to rely more on the rest of what you wrote, because it's interesting and feels (well, felt) persuasive. Is Aeon just one more magazine trying to break into the media's front ranks without an adequate fact-checking and copyediting staff? Good luck with that.

    • http://www.aeonmagazine.com/ Ed Lake

      Thanks for pointing that out. The article has been corrected and a note has been appended.

      • Peter Turchin

        Actually, the main idea of the sentence is that "Many well-off individuals ... choose to enter politics" and Blooomberg is certainly a good example of it. The qualifier "typically not the founders of great
        fortunes but their children and grandchildren" is of secondary importance. But I agree with the correction, it removed a potential source of misundrstanding. Thanks to all for pointing it out and making the change.

  • tombarnes

    Regarding higher taxes and inequality, in Chris Hayes book 'Twilight of the Elites'
    on p.224 Hayes says,"The higher the taxes in a given country, the less
    inequality" and in the same paragraph he says, "Total tax revenue as
    percentage of GDP in the United States is at 24.8 percent down from 29.5
    percent in 2000. You can compare that to Denmark which has the highest
    level of tax revenue as a percentage of GDP(48.2 percent) and the most
    equality out of any OECD country."
    You don't hear about this much but
    according to Hayes our Ginni Coefficient problems(income inequality)
    could be mended with the stroke of a liberal high tax pen.

    Also
    when it comes to income inequality, no one mentions recent changes in
    Trust Law. The Rule Against Perpetuity which basically made it hard to
    keep fortunes intact over 100 years has been discarded and now you may
    establish Trusts which last a thousand or more years. This would tend to
    concretize wealth and keep the Ginni coefficient high.

    This blog sums up the issue, unfortunately the links no longer work. I wonder why?
    http://www.estatevaults.com/lm/archives/2005/02/16/dynasty_trusts_are_the_opposite_of_great_legacies.html

    Obama recently proposed a change.
    http://online.wsj.com/article/SB10001424052748703752404576179031767463642.html

    The
    days of the Reaganesque economic hero trip are over. In the past we
    wrung value out of the land but nowadays the government picks the
    winners. Now we wring value out of subclause D, section 5g and take
    market share. It seems our big fat Ginni(coefficient) could be made
    thinner with some dietetic regs and laws.

    • Peter Turchin

      I don't think it's as easy as that. Certainly, we need to make our tax system progressive (the current one, if you include all the taxes, is regressive). But that's not enough - there needs to be a cultural sea change, which I don't see coming in the next year or two.

      • http://togetrichisglorious.blogspot.com/ Colin77

        Curious how you figure that our tax system is regressive. Can you please elaborate?

        • TypicalMoron

          Capital gains, carried interest, FICA cap, sales tax, etc, etc, etc.

    • CMMA

      Obviously the simple reasoning that "the higher the taxes in a given country, the less inequality" does not hold. See http://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_as_percentage_of_GDP
      Zimbabwe tops that list and we also have Lesotho in the top 10.

  • LabanTall

    I'm reminded of Obama's State of the Union address, as reported on the BBC.

    "The president said he would strengthen the middle classes and introduce immigration reform".

    Given that "immigration reform" = "more immigration", the middle classes will not be strengthened, the wealthy classes will. Obama's statement does not compute.

    • Alana Silver

      Unsanctioned immigration has decreased to its lowest levels in decades during President Obama's first term, due in part to the Bush economic collapse, and due in other part to Obama's enforcement of immigration law, which has imprisoned and deported more immigrants than any previous president.

      Sanctioned immigration has also been drawn down, for reasons of the economy, and also because fewer skilled immigrants find the social environment of this country appealing to them.

      There is (for now) precious little to indicate that these factors will meaningfully change, even if some form of "immigration reform" is adopted, especially if it's a form that can please all political factions currently in higher office.

      Thus this particular aspect of wealth inequality generation won't have the direct effect that your calculation claims it will.

      • Hirschibold

        "other part to Obama's enforcement of immigration law, which has
        imprisoned and deported more immigrants than any previous president."

        Well, that's wonderful regurgitation, but not quite true. In fact, it's a lie, based on deliberate conflation & cooking of the books at ICE, redefining apprehension and deportation, etcetera. When you look at the methodology for the studies that show Obama as a strict enforcer, you will discover that Obama has actually deported fewer people than any president, including both Bush II and Reagan, both of whom were horrible on immigration as well.

        • Alana Silver

          The numbers are produced by the immigration authorities and reported out as required by the laws passed by Congress.

          Any evidence you have of gross malfeasance in either the recording or the reporting of these statistics should be reported to the authorities.

          I've found no evidence of a multi-decadal conspiracy carried out through the thirty-three years of the terms of Presidents Reagan through to President G. W. Bush and now into the second term of President Obama.

          Molly Ball reported today for The Atlantic on the current summary statistics of U.S. immigration flows and their likelihood of calming and eventually settling debate on this matter.

          • Hirschibold

            There is no conspiracy, and why would I report something which is already common knowledge and has been written about in article after article. Since you don't like homework, though, I'll get you started. From Mark Krikorian's testimony before congress:

            In any case, the real lying here is from the administration itself. It should come as no surprise that they are playing games with statistics to create a false impression. It wasn’t enough that Obama inherited an infrastructure built up by the two previous administrations to deport many more illegal and criminal aliens than before — they had to lie in order to be able to boast of a “record level” of deportations. Representative Lamar Smith, House Judiciary chairman, has unearthed the facts on the Obama administration’s statistical lies.

            First, a little necessary background: The people who count in the “removals” numbers (which is what administration flacks mean when they boast of “deportations”) are legal immigrants who’ve committed crimes or illegal aliens caught inside the country. (Theimmigration statistics yearbook says, “Removals are the compulsory and confirmed movement of an inadmissible or deportable alien out of the United States based on an order of removal. An alien who is removed has administrative or criminal consequences placed on subsequent reentry owing to the fact of the removal.”) Those numbers do not include “returns,” who are Mexicans caught sneaking in by the Border Patrol and dumped back across. (The yearbook again: “Returns are the confirmed movement of an inadmissible or deportable alien out of the United States not based on an order of removal. Most of the voluntary returns are of Mexican nationals who have been apprehended by the U.S. Border Patrol and are returned to Mexico.”)

            The reason this matters is that, as Representative Smith determined, the administration has started counting certain “returns” as “removals” in order to artificially inflate the numbers and create a “record level” of deportations. Specifically, those illegals caught by the Border Patrol who are shuttled to a different town along the border before they’re returned are being dishonestly counted as deportations. The point of this Alien Transfer Exit Program (ATEP) is to disrupt smuggling networks and make it harder to just keep crossing until you get through. But they’re still just returns, without any “administrative or criminal consequences placed on subsequent reentry.” This has falsely increased the number of total removals by more than 100,000 in the past two years. Smith noted, “When the numbers from this Border Patrol program are removed from this year’s deportation data, it shows that removals are actually down nearly 20% from 2009.”

            This is not just a case of spin or fudging or “political lying,” as VDH describes it below. This is pure fabrication. And, naturally, the MSM fall for it.

          • dalecarville
          • frosty dufour

            This is a good example of how difficult it is to discern any truth when all sides have something to gain by skewing the truth, whatever that may be.

    • http://www.facebook.com/people/Freemon-Sandlewould/100003255271533 Freemon Sandlewould

      All this clap trap pseudo science fits very neatly within the limited precepts of the Occutards. There is nothing new in this article. Just junk ideas. Try again. Back to the drawing board for you!

      • Senor Equis

        You sound like a DHS/NSA trollbot. Try presenting a factual rebuttal.

      • ApathyNihilism

        Personal insults help no one. Provide reasons and argument for your assertion that this is "clap trap pseudo science" and "junk ideas". Better yet, provide a compelling alternative mode.

  • Basileos

    It occurred to me in the aftermath of the 2008 crash that the elites have really pulled out all the stops vis a vis their treatment of the working man. Looking back at my own lifetime, I judged the early 1990s to be the deflection point. I'm glad/not so glad to see my belief is vindicated by someone higher up the IQ-totem pole, such as Mr Turchin.

    Come to think about it, spending the rest of my life at the receiving end of a "great divergence"-cycle really is a bummer.

    • Peter Turchin

      It's a bummer. Let's hope it doesn't get worse...

      • Basileos

        ...before it gets worse - and my wallet dries up - I'll purchase "Secular Cycles". Seems like a thrilling read. I'll probably devour it two or three times and afterwards it'll go right next to Strauss and Howe on the old bookshelf.

        Keep up the good work. From now on I'll 'amazon' your name from time to time to check for new publications.

        • Peter Turchin

          "Secular Cycles" has a lot of data, graphs, and tables. "War and Peace and War" is the popular version. And I promise that later this year I will finish my next popular book. For progress reports, check my blog on socialevolutionforum.com

  • smc

    Peter- It's not clear to me who would be trying to lead a rebellion around 1920. I could see who the revolutionary actors were 1908-1922, but I don't see who they are today. I was part of Occupy, and it was incredibly disorganized. There is a "Social Entrepreneurship" movement today, which has nothing to do with organizing people.

    I do think collapse, which we had a foretaste of after Katrina, is possible.

    Social commentator @Dougald Hine talks about learning how to be poor gracefully.

    • smc

      Should be
      "It's not clear to me who would be trying to lead a rebellion around 2020."

      • dalecarville

        "I could see who the revolutionary actors were 1908-1922, but I don't see who they are today."

        Your comment is a landmark in the history of stupidity.

        "The black swan theory or theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight.

        The theory was developed by Nassim Nicholas Taleb to explain:

        The disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology

        The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities,)

        The psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs"

        http://en.wikipedia.org/wiki/Black_swan_theory

  • eddy.canuck

    I read somewhere that to explosion of Single Mothers has contributed to a 12% increase in above mentioned Gini Coeffcients "inequality" measure since 1980. However, that does not include the similar impact upon Men not working to their full potential (again I recall some study that found Married males earn 19% more than single, unattached men).

    Together both would have a significant effect on greater observed "inequality" - when in fact it just represents the breakdown of the Family unit.

  • economyisstrange

    Hi PeterT,

    A well written article and a rather fair one (not one sided).

    However, I disagree with your reasoning that the lack of Soviet threat led to the the roaring 1990-201x. As you correctly pointed out, more labour = less bargaining power for the labour, the fall of the Iron curtain unleashed 1bn - 2bn people into the world labour market and the result was exactly as expected.

    (India was a socialist state till 90s, China till mid 80s, Eastern europe block, Russian block).

  • http://www.facebook.com/people/Erik-Kengaard/100003738481878 Erik Kengaard

    Newspaper archives are a great source of data on wages, rents and land prices during the 20th century. For example, in the Washington Post there is an article covering a contractor, South Valley Drywall, who can't find drywall installers.
    Estimates on Google for South Valley Drywall Installer salaries were $37,000 on Indeed, $34,320 at Salary List.
    $37,000 is $17.79 an hour.
    In 1975 the Ukiah Unified School District (California) advertised (Thursday, November 6, 1975, Ukiah Daily Journal) for construction work, and the salary provided for drywall installation was $10.27 an hour plus additional amounts for health, vacation, etc. According to the US Department of Labor Inflation Calculator, $10.27 in 1975 equals $44.43 in 2013.

  • Senor Equis

    And people wonder why the elites in D.C. seem so hellbent on constructing a surveillance state and a DHS with 2,000 armored vehicles and 2 billion bullets...this author can bet if Nancy Pelosi hasn't heard of cliodynamics her top aides have and know trouble is coming.

  • A Kaleberg

    This is all well known and has been well studied by European historians. This might explain why they aren't as big on the capitalist snake oil as us Americans. For an English language introduction, read Hackett-Fisher's The Great Wave. Still, I'm glad to see more people talking about it now, rather than swallowing the usual garbage ideology which seems to have been the only viewpoint allowed in the popular media. (As for the Soviet Union, it was due to crash in the mid-80s. If George Kennan, the father of the Cold War, is to be believed, it was only Reagan's policies that was holding the union together for its final decade.)

  • PeterB1517

    This was a fantastic article. Exactly what I was looking for. In history, what trends reverse income inequality, given that today, it is the news that it is highest since the 1920s. The writing was clear and interesting. It moved. It wasn't too long. "Just one rich family, the six heirs of the brothers Sam and James Walton, founders of Walmart, are worth more than the bottom 40 per cent of the American population combined ($115 billion in 2012)" is simply mind blowing. I listened to the 10 hours of Hedrick Smith's "Who Stole the American Dream", but in some ways, got a better historical perspective from this article. Well done!

  • Ionut Georgian Ciobanu de Radu

    Loved reading this - thank you. Phenomenal writing (hopefully the data behind it is solid). I'd love to see it (besides that chart, I'm hoping there is more thorough research done).

  • CoffeyTime

    There are a few major reasons that would make this ratio smaller, thus make things "more equal":

    - War, since it destroys wealth accumulated (if damaged, confiscated or simply dropping in value such as real estate), reduces labor pool (thus making laborers more rich), kills entire business industries due to lack of demand/resources/labor/government/etc.

    - Financial crash/crisis, since it destroys much of the "equity" one has invested in various financial (and non-financial) instruments. Since most corporations are heavily vested into financial instruments to a point of having massive debt-to-equity ratios, this is a no-brainer. The heavy debt load accumulated during the good times actually compounds the problem during the bad times as the trickling income makes it hard for many business to produce the same income and carry their debt load unaffected.

    - Government (and by extension, the Fed), since it determines taxation, laws & regulations.

    And now here's why I think this cycle is different, thus preventing a reversal ("ratio compression"):

    1. There is no _real_ war and there will be no real war unless attacked. All wars carried out today are outsourced to pay-to-fight military, mercenaries and drones. This setup does not bring the country to its financial knees and does not make (the rich) people poorer.

    2. After the financial crash (which temporarily lowered the ratio) , the Fed has become the buyer of the last resort, restoring much of equity valuations artificially. The liquidity pumping party will not stop, just as it has not in Japan which we are currently imitating (in that aspect alone).

    3. Exponential productivity increases due to automation and technology. The demand for labor will continue to shrink as more and more product manufacturing is being replaced by automation and robots. Great prospects for consumers, terrible prospects for citizens and workers.

    4. The federal government itself is more aligned with affluent parties now than ever.

    So, in summary, it is quite peaceful in the world, there is a "demand" that supports current pricing of things, we don't need so many people to make and run things, and the government is happy with the status quo to maintain "prosperity".

  • Andrii Koroviev

    The author does barely mention that the so called great compression 1930-60s was possible by the exploitation of all the minorities possible. Blacks, women, hispanics, other ethnical minorities had no share in this entente of white blue collar men with no less white white collar men. The author very briefly mentions it, but does little analysis on this crucial issue. And what is such a aborted, narrowed to a minority of population of this country analysis worth? Would such an analysis be accepted to a peer review journal without explicitly mentioning that it was done on a purely white-male sample in the header?!

    • ApathyNihilism

      Many (most) social studies are done on a limited sample. The author does mention that, but it does not invalidate the conclusions drawn.

      • Andrii Koroviev

        The sample is not just limited, it excludes the oppressed minorities. Make a study limited to a sample drawn from the top 1% earners and you'll get a picture of ever rising prosperity in the past 30 years. Race and gender are obvious factors that have the whole departments devoted to study of them and the author doesn't take it into account. These are MAJOR factors!!! Like smoking and cancer...

  • Robert Morris

    Sounds clever, and I think he is really on to something with the elite over-production thing. The data presented in this article, however, is ridiculous. I know history isn't science, but that doesn't mean we should accept any set of numbers at all as useful. The Phillips Curve sounds interesting, but a metric using the fortune of a single person or family is ill-suited to arriving at any broader lesson. We've got the Gini Coefficient for a reason. Use it. Further, The basket of indicators used for "well-being" in the graph above don't indicate anything other than someone trying to fit figures to a thesis. Age of marriage means social optimism? Possibly, but that's more of an assertion than a fact, and sort of ignores feminism and the positive shifts it has brought about. Social well-being increased steadily throughout the Great Depression? That's ... um... a bold statement.

  • Robert McMahon

    There's a misunderstanding here. Since culture spreads so quickly these days, people can talk and get over what differs between them. All of the stuff is there, we have the technology, we just need to talk to each other enough to figure out that we actually, in a very real way, are nearly capable of spreading the wealth to everyone. Especially since most people speak English now.

  • Caio

    There are 17 mentions to the elite in the text, from ancient Rome to post 2008 crisis.

    Could you define 'elite'?

    The largest fortune in the US? Business owners? Top 1%? Top 10%? Politicians? All of those?

    Does not the 'elite' composition change (whatever definition you chose) the most exactly during the times you try to analyze them (economic down/upturns, revolutions etc)?

  • Heather

    And what does this model tell us about how we can restructure our
    societies so that these cyclical swings even out to a happy equillibrium
    state? Or is that any such realistic scenario? Have you looked at
    Japan, for instance, where the ratios of executive pay to worker pay is
    fixed? Does changing the appropriate model parameters to match this
    sort of structure give rise to dynamics that mimic what really happened
    in Japanese history?

  • Anthony J. Alfidi

    Sociologist E. Digby Baltzell worked to remind the ruling elite about the importance of being open to upwardly mobile aspirants from lower classes. That helped stabilize American society. The elites have stopped listening. Maybe they should listen to Charles Dickens instead: http://alfidicapitalblog.blogspot.com/2013/12/ebenezer-scrooge-among-americas-modern.html

  • Eli Levine

    An excellent piece! I look forward to reading some of the books that were mentioned here (especially "Wealth and Democracy").

    However, one question remains: how did things start to "stagflate" in the 1970's? What were the causes of those negatively effective phenomenon that led to the democratically supported reversal of the old social compact between the rich and the poor?

    If we can answer those questions based on empirical observations of the movements and dynamics of those times, we can find ways to prevent similar phenomenon from happening in the future, thus limiting the appeal of the new class of business people who will likely rise against the restoration of the functional society in good time. By doing an honest autopsy of what went wrong, even on our own watches, we can mitigate against future problems and nip the present problems in the bud so that they don't yield fruit for those who will harm society through their actions, behaviors and mindsets.

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