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Friday, October 6, 2017

No, Death Doesn’t Solve Inequality

This is a classic example of the seen and the unseen.

A recent article from Quartz interviews historian Walter Scheidel, author of The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century. Scheidel argues that the most successful solutions to inequality are violent ones: war, revolution, state collapse, and lethal pandemic. But the Great Leveler Theory of equality plays a dangerous game of calculating the value of lives against the value of equality.

The Great Leveling

Scheidel speaks of some events, like state collapse and lethal pandemic, as patently bad. While they create equality, there’s no way those situations lead to improvements in anyone’s well-being. They send everyone back to the bottom. On the other hand, some wars and revolutions have, seemingly, led to real improvements for some, albeit at great expense to others.

Scheidel asks us to believe that culling 3% of the world’s population in the war was an economically positive event. As recent examples, he cites the World Wars as wars that reduce inequality. Combat claimed the lives of millions of workers, making the workers who were left more scarce and increasing their value to employers. Although he doesn’t mention how America’s factories were nearly the only ones in the developed world that weren’t in piles of rubble by 1945, this completes the other half of the puzzle: Following World War II, labor was scarce, and capital was scarce everywhere but here.

This special combination of a slim labor force and excess capital from wartime production played an important role in the rapid middle-class enrichment Scheidel points to. “Capital” is what economists call anything that makes labor more productive: tools, factories, even human know-how. So when an economy is “capital rich” relative to labor, as America was post-World War II, each laborer is going to be highly productive. Because labor productivity determines wages, post-war America saw a middle class of low- and medium-skilled laborers with wages rising faster than any other part of the economy.

Scheidel’s theory is good so far. But here’s where it gets weird. Scheidel asks us to believe that culling 3% of the world’s population in the war was an economically positive event. In Scheidel’s theory of equality through tragedy, the world would be a worse place had 60 million people not died and had most of the factories in Europe and Japan not been leveled by bombs.

What Does Death Buy?

Others have dissected the economics of war and its effect on the stuff in the economy in great depth. As ever, my interest is more in the people in the economy, and it is in this aspect that the Great Leveler Theory goes so horrifically wrong.

There’s a reason that suggestion rubs your conscience the wrong way. It means it’s working. The flaw in the theory that leads it to conclude that wiping out 60 million humans generated a net economic positive consists of its abstraction. Rather than considering its impact on the actual well-being of humans, it is tempting to consider World War II a victory for “the American working class.”

Say well-being for the median American nearly doubled between 1945 and 1955. Adding those other 60 million global workers would have an impact on U.S. wages. Europe and Japan’s indebtedness in 1945 also slowed capital deepening there that would have competed with American factories. True, the larger global productivity of a world without the atrocities of World War II might have increased wages, but the dominant effect in the short run and the effect the Great Leveler Theory counts on would have been a more competitive global labor market. The world without World War II would, as Scheidel predicts, have decreased the marginal returns to American labor and depressed American wages on net in the short term, compared to the world with World War II. The economy would still have grown, but the American middle class might not have grown at such an outsized pace.

By this analysis, World War II was good for the working class. It made them more productive for the decade following World War II relative to the rest of the world. So, the best thing that could happen to the American working class right now might be if 3% of global workers, or 225 million people, died spontaneously.

There’s a reason that suggestion rubs your conscience the wrong way. It means it’s working. But it should also abrade your economic senses because there’s something massive missing in this line of reasoning.

The Seen and the Unseen

Beyond static analysis lies the hidden costs of depopulating. First, let’s think about the scope of inequality. Given that the “benefits” of depopulation largely accrued to Americans, it’s hard to defend the value of World War II as a leveler, except in a narrow, nationalist sense. The lack of capital in the rest of the world meant that the United States was the only country to fully take advantage of World War II’s labor supply shock. Yet had the rest of the world been in on America’s high returns on labor, as they would be starting in the 1970s with the advent of globalization, the American middle class’s wages would not have pulled so far ahead, decreasing the equalizing effect. Following the Great Leveler Theory, falling inequality in one country, the United States, came at the price of about 400,000 American lives and 59.5 million foreign lives. The conclusions of this morbid calculation and the violent militarism it implies reveal a troubling amorality behind the Great Leveler Theory.

Second, consider what economists mean by well-being. In economics, we loosely define well-being as the value one gets out of life and roughly measure that value in dollars. By GDP per capita, the median human in 1945 enjoyed life at about $1,500. The value of 60 million lives in that year alone was about $9 billion. In a decade, the cost rapidly reaches the trillions. Beyond static analysis lies the hidden costs of depopulating. People generate wealth by trading with one another based on their natural strengths. By producing what we’re good at and trading, we produce more things, more cheaply. The costs of removing 60 million people from the economy in terms of trades that will never occur and mutual benefits that will never realize are innumerable and astronomically higher than the annual value of GDP per capita of 60 million lives alone.

Ironically, the poorest benefit the most from trade that brings about more and cheaper goods. By abstracting about the theoretical value of equality between “classes” in America, the Great Leveler Theory destroys real human happiness in pursuit of abstract “equality.” In this way, talking abstractly about equality can become harmful to the actual well-being of poor and middling people.

Today, the political left and right both obsess over America’s post-war boom and which economic levers they can pull to put America in that position again. But as Scheidel demonstrates, that position came at a high cost to the wellbeing of those it was supposed to have lifted. In general, attempting to recreate the economic situation of the century of “Pax Americana” is both impossible and undesirable. Likewise, political debate that romanticizes such attempts and calls for policies that radically reduce inequality stand in the way of viable reforms that could make people better off at the margin.

  • Albert Gustafson is a senior at Indiana Wesleyan University and a Policy Fellow at the Platte Institute in Omaha, Nebraska.