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.
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.
Adapted from https://aeon.co/essays/history-tells-us-where-the-wealth-gap-leads