The Coronavirus Pandemic and the Future of Economic Inequality

Abstract

The Coronavirus Pandemic and the Future of Economic Inequality Walter Scheidel (bio) how will the current pandemic affect the development of income and wealth inequality in the United States? Throughout recorded history, such disparities were particularly sensitive to massive shocks to the established order. (I discuss the historical record in The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century, Princeton University Press, 2017.) In the first half of the twentieth century, industrialized mass mobilization warfare and communist revolution reduced inequality on a large scale. The world wars did so by reducing returns on capital, precipitating aggressive government intervention in the private sector, supporting bargaining by workers, and raising taxes on large incomes and fortunes. Communist regimes pursued greater equality as one of their principal goals, which they achieved through a combination of expropriation, redistribution, collectivization, and economic planning. Two different leveling forces operated in premodern societies. The more common of the two, state collapse that brought down established wealth and power elites, is no longer relevant for modern highincome societies. On occasion, catastrophic pandemics also greatly lowered inequality. In the late Middle Ages, the Black Death killed so many people in Europe that labor became scarce and surviving workers were able to earn higher real wages while demand for elite assets such as land fell, narrowing the gap between rich and poor. [End Page 293] The experience of past plagues raises the question of whether the current pandemic might have the potential to reverse disequalizing trends that have been active for several decades. We can already rule out any traditional Malthusian consequences: fatality rates will be far too low to raise workers' wages. If anything, lingering unemployment is likely to have the opposite effect. Policy responses will therefore be of crucial importance. Judging from history, we may expect diversity in outcomes. During the late medieval plague, elite groups that sought to resist worker demands were sometimes unable to do so and had to accept higher labor costs and revocation of established privileges. England is a classic example. In other cases, elites maintained a united front against workers and compelled them to abide by the status quo or even less favorable arrangements. This was the case in Central and Eastern Europe and in Egypt. While modern societies and political systems are obviously very different, the underlying logic still applies. Policy responses will be critically shaped by prevailing power structures in the political, financial, and corporate domains. This in turn will determine to what extent elites' desire to return to business as usual—which since the 1980s has involved growing economic inequality—will succeed. Regarding the United States, current conditions leave little room for optimism. While the dislocations associated with the pandemic have led to renewed calls for overtly redistributive measures such as universal basic income and wealth taxes, it is doubtful that the highly polarized two-party system could implement such ideas. In the end, much depends on the overall scale and duration of the crisis. If science and the pharmaceutical industry deliver effective treatments and vaccines, and if quantitative easing combined with temporary emergency patches for workers and businesses prevent a more prolonged economic meltdown, a return to some version of the status quo is a plausible outcome. This in turn suggests that the current heightening of existing inequalities by mass unemployment, underemployment, precariousness, and debt is unlikely to fade during the recovery, resulting in persistent and possibly even increased inequality down the line. [End Page 294] History suggests that the most disruptive crises led to transformative and equalizing change. In the present context, this might require prolonged failure to contain the virus and/or a global depression. Such developments might raise levels of immiseration and popular discontent enough to shift the general discourse toward more radical solutions, such as socialized healthcare, nationalizations, more invasive regulation, basic job or income guarantees, and higher and more progressive taxation. The indicators available at the time of writing do not seem to favor such a trajectory. For now, it seems more likely that the coming years will bear greater similarities to the unequal recovery from the Great Recession than to the changes brought about...