Cycles of Wealth

Preface:  Sometimes breakthrough insights come from smart, accomplished people in one expertise who look at a different field with fresh eyes … unencumbered by the dogmas and politics of that field.

Peter Turchin is a professor in the Department of Ecology and Evolutionary Biology, and an adjunct professor in the departments of Anthropology and Mathematics at the University of Connecticut.

Turchin’s new research interest is inequality.  Specifically, Turchin is now applying the mathematical rigor used in population biology to inequality.

We currently have what is arguably the worst inequality in history.   Most Democrats and most Republicans think we have too much inequality (conservatives are opposed to redistribution of wealth to the little guy … but they are also opposed to bailouts and going easy on white collar fraud: two things that create inequality by redistributing wealth upwards to the fatcats). And while they fought the concept  for decades, mainstream economists now finally admit that runaway inequality destroys any economy.

But we can’t take the current situation in a vacuum …

Peter Turchin notes that inequality is cyclical:

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.

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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.

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Our historical research on Rome, England, France, Russia and now the US shows that these complex interactions add up to a general rhythm.

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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.

So what accounts for the periods of rising equality?  Turchin gives a number of factors.

One is revolution, when inequality became too extreme.  Turchin writes:

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.

Continue at WASHINGTON’S BLOG

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