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Fix Inequality Now? Be Careful What You Wish For · Trumponomics

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  Speaker 1: Rising inequality is one of the great economic challenges of
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  Speaker 1: our time, and there's widespread agreement among economists that it's
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  Speaker 1: not a good thing and something ought to be done
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  Speaker 1: about it or not. What if the cure is far
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  Speaker 1: worse than the disease? What if the only way to
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  Speaker 1: address rising inequalities total war? Not just a rebellion or
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  Speaker 1: a skirmish hero there, but total war, total revolution, state collapse,
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  Speaker 1: or of course the plague. Welcome to Bloomberg Benchmark, A
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  Speaker 1: happy show about the global economy. I'm Daniel Moss, executive
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  Speaker 1: editor for Global Economics in Washington today, and I'm Scott Landman,
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  Speaker 1: an Economics editor in Washington. And then when you said,
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  Speaker 1: what if the cure for inequality is far worse than
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  Speaker 1: the disease, well, what if it is a disease? Well,
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  Speaker 1: hopefully our guest is going to clear all of that
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  Speaker 1: up for us. His Stanford professor, Walter Schidel. He's studied inequality,
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  Speaker 1: it's ups and down since before we were in the cave,
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  Speaker 1: and probably a bit before them. He's the author of
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  Speaker 1: a new book, The Great Level of Violence and the
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  Speaker 1: History of Inequality from the Stone Age to the twenty
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  Speaker 1: one century. Walter welcome, thanks for having me. Well, no
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  Speaker 1: one could accuse you of going small in your scope
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  Speaker 1: for this book. I read portions of it and came
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  Speaker 1: away profoundly depressed. Am I missing something? No, that's probably
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  Speaker 1: a pretty good description of my overall thesis. So can
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  Speaker 1: you tell us a bit about the scope and breath
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  Speaker 1: of the book. I mean, you go back and cover
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  Speaker 1: not just all the way back to the Stone age
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  Speaker 1: of humans, but you you talk about guerrillas and apes
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  Speaker 1: and the state of society and uh, and I was
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  Speaker 1: struck by your your your statement that the natural state
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  Speaker 1: of inequality is for it to keep growing in the
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  Speaker 1: absence of of shocks like wars and plagues? Is that
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  Speaker 1: what you set out to show or what was your
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  Speaker 1: aim in originally coming up with this idea? Again, that's
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  Speaker 1: a pretty fair summary of my overall thesis. Um, what
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  Speaker 1: I tried to do was really to track the evolution
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  Speaker 1: of inequality in a very long run of history, which
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  Speaker 1: nobody has really done. People usually look at particular times
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  Speaker 1: and places, but nobody has really taken five steps back
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  Speaker 1: and tried to view thousands of years of history and
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  Speaker 1: see if there were any systematic patterns to be observed.
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  Speaker 1: And what I found was that, indeed, as you mentioned earlier,
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  Speaker 1: there is an overarching pattern, which is, if you look
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  Speaker 1: at hundreds and thousands of years of history, every time
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  Speaker 1: we see a major compression and inequality in a distribution
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  Speaker 1: of income and wealth. Every time this compression was linked
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  Speaker 1: to some major disaster that usually involved a great deal
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  Speaker 1: of human suffering, death and destruction. And that's really true
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  Speaker 1: regardless of what do you look at antiquity, or the
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  Speaker 1: Middle Ages, or the modern period. So you come up
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  Speaker 1: with four ways you call it. I think you call
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  Speaker 1: them the four horsemen of inequality. What exactly term? What
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  Speaker 1: terms did you use? Again? I use that term off
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  Speaker 1: the four Horsemen and allowed you to the Apocalypse of
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  Speaker 1: John because it turns out that those of violent shocks
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  Speaker 1: coming four flavors. So the four horsemen seemed to me
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  Speaker 1: to be an appropriate similar. Now, now three of those
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  Speaker 1: have to do with kind of war and revolution, and
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  Speaker 1: the fourth one has to do with plague and pandemics.
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  Speaker 1: You have a chapter in your book about the Black
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  Speaker 1: Death and how that eliminated so many millions of people
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  Speaker 1: that it caused such a rush to uh, you know,
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  Speaker 1: for for laborers to to get wage hikes. They're they're
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  Speaker 1: asking for races like you wouldn't believe. It's nothing like
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  Speaker 1: we probably ever see in our company. But or maybe
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  Speaker 1: we can cut that part out right, Well, this may
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  Speaker 1: be like a whole new spin on the Phillips coad.
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  Speaker 1: It really, it really would. And and actually one interesting
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  Speaker 1: thing was that you wrote was that people in the
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  Speaker 1: um you know, during that time in England, for example,
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  Speaker 1: they were so flush with opportunities for wage games that
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  Speaker 1: they could actually demand meat pies and ailes from their
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  Speaker 1: bosses at that time. Now, black humor aside, what was
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  Speaker 1: it about plagues that was you know, that was so
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  Speaker 1: key to changing the equation on inequality. It's really a
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  Speaker 1: Malthusian effect. It usually worked only in pre modern in
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  Speaker 1: a Grayian societies. But there was a lot of pressure
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  Speaker 1: on the land. There was a lot of under employment.
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  Speaker 1: And when i really severe plague came in, like the
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  Speaker 1: Black Death in the fourteenth century, it would kill a
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  Speaker 1: third or maybe half of all people in a place
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  Speaker 1: like England. That really drove up the price of labor.
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  Speaker 1: At the same time, it reduced the value of land
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  Speaker 1: and other forms of capital, so simultaneously the poor will
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  Speaker 1: suddenly less poor and the rich were less rich, and
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  Speaker 1: so that gap between rich and poor narrowed very considerably
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  Speaker 1: because employers had to find labor in order to bring
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  Speaker 1: in the harvest to manufacture and so on, and the
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  Speaker 1: only way of doing this was by raising wages, as
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  Speaker 1: you said, about a hundred two in some cases. But
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  Speaker 1: did that really alter the structure of the economy. Sure,
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  Speaker 1: it made the labor market tighter, but were the fundamental
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  Speaker 1: parameters of the organizing of economic life were they really
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  Speaker 1: rocked by the plague? They were not totally transformed. And
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  Speaker 1: that's a very important aspect of my thesis in that
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  Speaker 1: every time one of those violent dislocations occurs and that
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  Speaker 1: brings about the compression in inequality. While these effects tend
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  Speaker 1: to fade over time. So if you look at the plague,
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  Speaker 1: the epidemic will eventually recede, the population will recover, it
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  Speaker 1: will go back to where it came from in terms
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  Speaker 1: of overall size, and because the underlying economy hasn't really
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  Speaker 1: changed all that much in the meantime, you're going to
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  Speaker 1: go back eventually up to square one, and you're going
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  Speaker 1: to end up with levels of inequality like the ones
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  Speaker 1: that used to be in place before the plague struck.
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  Speaker 1: So we go through these cycles where inequality increases and
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  Speaker 1: increases and increases, and then kaboom. Then we kind of
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  Speaker 1: start again for another hundred or two hundred years. Then
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  Speaker 1: it's kaboom again and we start again. Yeah, you can
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  Speaker 1: think in terms of periodic resets, and the only question
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  Speaker 1: is how long are the intervals in between those violent shocks.
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  Speaker 1: They used to be quite long in the past because
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  Speaker 1: things simply moved at a slower pace than they do today. Uh,
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  Speaker 1: in the more recent past there seems to have accelerated
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  Speaker 1: quite a bit, which accounts with effect. But in a
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  Speaker 1: quality has been rising in much of the developed world
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  Speaker 1: for the last generation. So because the shocks of the
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  Speaker 1: world wars have receded much more rapidly than they would
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  Speaker 1: have done in the past. So let's get to those
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  Speaker 1: world wars now. It's fair to say the past hundred
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  Speaker 1: years has had more than its share of major shocks
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  Speaker 1: to the system. If I read you correctly and your
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  Speaker 1: case study on Japan, you're saying it's not so much
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  Speaker 1: the war itself that that certainly wipes out factories and population.
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  Speaker 1: It's the policies that are put in place during the
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  Speaker 1: war and in some instances cemented after the war that
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  Speaker 1: really addressed the issue. That is correct, in order to
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  Speaker 1: fight something like World War two, governments had to mobilize
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  Speaker 1: the population in its entirety. They had to draft millions
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  Speaker 1: of men into the military, but they also had to
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  Speaker 1: mobilize the civilian population to produce goods and services for
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  Speaker 1: the war effort. And it was only possible if you
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  Speaker 1: raised taxes on income and wealth to levels that were
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  Speaker 1: truly unprecedented in history. It was only the war that
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  Speaker 1: gave governments the power to do so, and people had
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  Speaker 1: to go along with this. There was massive government intervention
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  Speaker 1: in the private sector in the economy, wage controls, rent controls,
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  Speaker 1: any number of redistributive measures to mobilize workers, to mobilize soldiers,
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  Speaker 1: and of course these funds had to be taken from
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  Speaker 1: those people who were wealthy, and their overall result within
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  Speaker 1: just a few years in many of these cases was
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  Speaker 1: massive redistribution of incombent wealth. Now, if Japan had won
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  Speaker 1: the war with the results had been different with respect
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  Speaker 1: to the leveling of inequality in Japan. Apparently not, because
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  Speaker 1: by the time of the say of Hiroshima Nagasaki and
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  Speaker 1: forty five, Virtually all the leveling that we can observe
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  Speaker 1: in the Japanese record had already occurred. And uh World
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  Speaker 1: War two is really very interesting case in that it
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  Speaker 1: didn't matter whether a country lost or one if you
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  Speaker 1: look at the winners, so to speak, if there were
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  Speaker 1: any winners in a meaningful sense, United States, a Great Britain,
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  Speaker 1: they underwent massive leveling, just as the defeated excess powers
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  Speaker 1: did in Germany and Japan and Italy, and even what
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  Speaker 1: we would classify as bystanders, say Sweden, which was technically
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  Speaker 1: neutral in this conflict, shows very much the same pattern.
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  Speaker 1: So very few countries in the world at the time
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  Speaker 1: remained unaffected by this effect. Now, Germany and Japan are
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  Speaker 1: kind of synonymous with their safety net, with a well
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  Speaker 1: developed infrastructure and you know, an intolerance for instability. Can
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  Speaker 1: that be traced to the economic programs that developed and
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  Speaker 1: then were extended in the aftermath of the war, So
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  Speaker 1: you sure it didn't matter who won or lost. Well,
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  Speaker 1: if you just look at the overall outcomes, you see
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  Speaker 1: they're quite similar. Now if you look at what has
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  Speaker 1: happened since, that well be a different story. It may
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  Speaker 1: well be the countries that were particularly heavily affected by
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  Speaker 1: the war because of occupation and destruction, like Germany, like Japan,
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  Speaker 1: like France, for instance. Uh. In those places, the institutions
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  Speaker 1: may have been transformed in a more dramatic fashion than
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  Speaker 1: let's say, in in the US and Canada and Australia
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  Speaker 1: countries to a less by comparison, less heavily affected, and
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  Speaker 1: that in turn may explain part of the divergence we
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  Speaker 1: have seen in the last few decades where in equality
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  Speaker 1: has gone up quite dramatically in English speaking countries and
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  Speaker 1: not so much in continental Europe or parts of East Asia. So, welter,
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  Speaker 1: let's move to the present day. You have rising inequality,
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  Speaker 1: uh in developed nations. It's gotten a lot of press
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  Speaker 1: in the United States, you yourself referred to, uh, you know,
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  Speaker 1: the recent seminal book by Thomas Picketty, you know, as
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  Speaker 1: a baseline for what the kinds of things that people
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  Speaker 1: are studying. Now. Is there a cure for inequality now
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  Speaker 1: besides total war? Or is it just going to continue
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  Speaker 1: rising until we get to that point? Well, more importantly,
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  Speaker 1: I think Scott's beating around the bush a bit too much.
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  Speaker 1: When is the next horrific bust up. If inequality is
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  Speaker 1: rising as much as people like paquetting in yourself note,
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  Speaker 1: then where'd you for total war? Are we not? So
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  Speaker 1: these are really two different questions, so let me address
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  Speaker 1: them in turn. One is that it's certainly possible to
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  Speaker 1: do something about income and wealth inequality and an incremental fashion.
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  Speaker 1: The one thing that's unlikely to happen anytime soon is
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  Speaker 1: a return to the low levels of inequality that the
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  Speaker 1: post war generation enjoyed for exactly the reasons that are outlined,
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  Speaker 1: because there hasn't been a major violent shock recently to
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  Speaker 1: bring about really dramatic change. Now, another question is whether
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  Speaker 1: rising inequality by itself might usher in another violent shock. Right,
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  Speaker 1: the idea would be if inequality gets too high, maybe
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  Speaker 1: there would be a revolution, or there would be more
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  Speaker 1: incentive for warfare or the destabilization of states. That's really
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  Speaker 1: something that hasn't been particularly well studied, which may sound
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  Speaker 1: quite surprising, but it's true. As far as I can tell,
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  Speaker 1: there hasn't been any systematic relationship in history between high
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  Speaker 1: inequality and these violent shocks. The violent shocks always drive
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  Speaker 1: down inequality, but in equality doesn't necessarily lead to those
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  Speaker 1: violent shocks. So in that sense, it's actually very difficult
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  Speaker 1: to project what the future holds in that respect, So
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  Speaker 1: you disagree with the widely studied notion this came from
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  Speaker 1: a United Nations report a few years ago, that the
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  Speaker 1: higher the Genny coefficient, the greater the chance of unresting countries.
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  Speaker 1: Or do you see that? Is that consistent with what
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  Speaker 1: you're saying? This has been empirically established for developing countries.
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  Speaker 1: People have looked at civil war at states break um
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  Speaker 1: in developing countries over the last fifty or sixty years,
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  Speaker 1: and if you do that, you do indeed find a
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  Speaker 1: correlation between inequality on the one hand, and the likelihood
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  Speaker 1: of state breakdown. But more recently people have taken a
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  Speaker 1: closer look at this, and what they found is it's
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  Speaker 1: not necessarily the kind of inequality that we have, say
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  Speaker 1: in our society, where you can simply distinguish between the
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  Speaker 1: top one percent or ten percent or fift and measure
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  Speaker 1: inequality in this way. It's really inequality between groups ethnic
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  Speaker 1: groups in these post colonial countries that seems to trigger
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  Speaker 1: civil unrest. So if one group is favored over another,
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  Speaker 1: which often happens in those regimes, that can trigger civil war.
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  Speaker 1: But it doesn't seem to be overall inequality that has
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  Speaker 1: a very strong effect on this outcome. And there is
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  Speaker 1: really no comparable research that I'm aware of for advanced economies.
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  Speaker 1: They are far too stable to be susceptible to this
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  Speaker 1: particular effect. There's simply no civil wars or revolutions in
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  Speaker 1: countries that have a per capita income of more than
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  Speaker 1: a few thousand dollars a year in nineteen fourteen. Did
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  Speaker 1: they think their economy was stable and advanced. They thought
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  Speaker 1: exactly as we do today, that their economy was stable
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  Speaker 1: and advanced, and that the massive war conflagration was very unlikely,
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  Speaker 1: and they were proven wrong. So in that sense, as
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  Speaker 1: I said, it's very difficult to predict what history has
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  Speaker 1: in store for us. It's just that if you look
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  Speaker 1: at the four factors that I have identified, it's very
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  Speaker 1: unlikely that any of them are going to return anytime soon.
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  Speaker 1: If there is going to be another war, it would
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  Speaker 1: have to involve major countries the US, China, Russia. It's
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  Speaker 1: going it's not going to be like World War One
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  Speaker 1: and World War Two. It's not going to be a
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  Speaker 1: mass mobilization war with millions of people fighting in the trenches.
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  Speaker 1: It's going to be a very different kind of conflict
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  Speaker 1: because of technological change that has occurred in the meantime,
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  Speaker 1: some kind of cyber war. Um, there's currently no credible
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  Speaker 1: intellectual infrastructure for a transformative evolution. There are no Bolsheviks
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  Speaker 1: lurking in the wings waiting to overthrow governments, and if
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  Speaker 1: they try, they wouldn't really stand a chance. States are
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  Speaker 1: more much more stable than they used to be. And
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  Speaker 1: even though there could in principle be a new plague,
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  Speaker 1: we have now very well equipped and increasingly well equipped
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  Speaker 1: to deal with this kind of challenge because of advances
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  Speaker 1: in genetics and monitoring, so that traditionally powerful mechanisms are
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  Speaker 1: not no longer available right now, and they unlikely to
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  Speaker 1: return in the foreseeable future. And you forgot to say
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  Speaker 1: it will be over by Christmas, you know. Um. I'd
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  Speaker 1: love to say Walter that I look forward to more
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  Speaker 1: of your work and a sequel, but I'm kind of
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  Speaker 1: afraid what the sequel might show. Well, I'm now thinking
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  Speaker 1: of of studying more systematically what I mentioned earlier, whether
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  Speaker 1: inequality does in fact lead to violent breakdowns, And well,
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  Speaker 1: again we'll see what happens. I know one thing for sure.
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  Speaker 1: The subject will give us coverage, ideas and topics for
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  Speaker 1: years and years to come. And we're grateful that you
• 16:05
  Speaker 1: were able to come on the show and discuss your book.
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  Speaker 1: It's a really fascinating a fascinating tone. Thank you very much, Walter,
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  Speaker 1: Thank you very much. I enjoyed its. Benchmark will be
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  Speaker 1: back next week and until then, you can find us
• 16:16
  Speaker 1: on the Bloomberg Terminal and Bloomberg dot Com are newly
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• 16:23
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  Speaker 1: and review the show so more listeners can find us
• 16:28
  Speaker 1: and let us know what you thought of the show.
• 16:30
  Speaker 1: You can follow me on Twitter at Scott Landman Dan.
• 16:33
  Speaker 1: You are at moss under School Echo, and our guest
• 16:37
  Speaker 1: is at at Walter Shitel. Benchmark is produced by Sarah Patterson.
• 16:42
  Speaker 1: The head of Bloomberg Podcast is Alec McCabe. Thanks for listening,
• 16:46
  Speaker 1: See you next time, you boy,