Welcome back to Pietronomics, the least consistent bi-weekly economics newsletter of all time!
Today, I’m taking some time to dive more in depth into a recent tiktok of mine discussing the historical trends of wealth inequality.
Please consider forwarding this newsletter to a friend who loves billionaires and seems allergic to even a mention of a wealth tax. And if you’re that friend who received this newsletter, please continue reading and let me have a chance to change your mind!
-Pietro
When Democracy Feels Like Monarchy
This week, in one of my daily scheduled doom scrolling sessions, I stumbled upon this viral tiktok video showing the opulent halls of what I imagine is Versailles or some other noble castle of a European royal family. Accompanied by the tune of “Money” from Cabaret viewers can read:
the wealth gap today is bigger than it was during this time btwThis statement tickled my spider-senses. I instantly realized that while it couldn’t or rather shouldn’t be true, it probably was. After all, how could it be that wealth is more concentrated in present day democracies than it was when kings with divine right ruled over everyone with “absolute” power?
Well, let’s find out together…
Measuring Inequality Across Centuries
As the palace in that video is likely Versailles, or at least it looks very frenchy to me I decided to use 1789, the last year of Louis XVI’s reign before he met his unfortunate fate in the French Revolution as our baseline measurement for inequality in the period.
Now, you might be asking youself: “How could we possibly measure the levels of wealth inequality from 263 years ago?”. And that would be a totally legitimate question, after all it’s not like we can just download a dataset from an 18-th century tax authority.
Fortunately, Prof. Guido Alfani published this incredible paper that not only measured the levels of wealth inequality in Italy, the UK, Germany, the US, and France for the period in question, but rather managed to extend the data all the way back to the 1300s in a few cases.
From the graph we see that right around the 1790 France had a Gini coefficient between 0.8 and 0.85.
What is a Gini coefficient?
Another great question! It seems like you’re on track for an active participation award.
Named after famed Italian statistician Corrado Gini (+1 point for us), this ratio is one of the most common ways Economists measure inequality. Its score ranges from 0 (everyone has exactly the same amount of wealth) to 1 (one person has everything and everyone else has zero).
In practical terms if everyone has the same amount of resources, we’d expect to see a straight 45 degree diagonal line. In reality though, this is never the case. The poorest 20% don’t own 20% of the wealth, and the richest 1% own disproportionately more.
The ratio between the area delimited the imaginary 45 degree line and the actual distribution and the bottom rest of the triangle is the Gini coefficient.
It’s often the case that wealth inequality is much more unequally distributed than income but how does the 0.8 to 0.85 score of 1790s France compare to today?
The Shocking Modern Comparison
Data from the World Inequality Database reveals that in recent years France’s Gini recorded a level of 0.73. That’s below the 1790s level, but honestly for me it’s still too close for comfort. In fact today the richest 1% in the European Union owns roughly 25% of all private wealth, while the bottom 50% of the population shares just 3%.
Ok well then, that settles it, the video was a lie. Well, that depends on which country the user was comparing with 1790s France. That’s because the figures cited so far are rooky numbers when compared to our great friends on the other side of the Atlantic.
The European Mind Can’t Comprehend This
That’s right, in 2023 the United State’s level of wealth inequality scored a Gini of 0.83, which is right in line with France in the last days of its monarchy. The top 1% of Americans, which are among the richest people in the world, own an incredible 35% of the country’s net private wealth while the bottom 50% share 0.9%.
I’d like to say I’m surprised, but honestly that would be a lie. After all, the US is the country of extremes, simultaneously home to 15 centi-billionaires and with 65% of the total population that lives paycheck-to-paycheck.
But Why Should We Care About Wealth Inequality?
It’s honestly insane when you consider that back then, France was literally governed by a king with absolute power, while the US today is supposedly a democracy where every person should count the same.
But unfortunately, this concentration of wealth in the hands of such a small group ends up directly undermining democracy.
Consider this: Elon Musk spent $17 million trying to elect a judge in Wisconsin—and that doesn’t even account for one-tenth of one percent of his net worth.
Wealth does not only beget more wealth. It begets more power.
- Robert ReichThe current system allows a small wealthy elite to buy enormous political power, influencing the rules of the economy in their favor, which in turn increases their wealth and once again their power in a never-ending cycle.
Perhaps most troubling of all: extreme wealth concentration is a spit in the face of the idea of meritocracy. When a select few are allowed to star the race miles ahead of the other competitors, what are the chances that anyone else is going to catch up?
What are the chances that anyone else would even want to compete?
As more people realize the game is fundamentally rigged they understandably become disenfranchised. This growing cynicism results in the idea that “playing by the rules” is for suckers and that the rest of us should do anything and everything to try and fit in that 1% and it damages our social fabric in ways we’re only beginning to understand. (Please ready kyla scanlon’s piece on this).
So... What Now?
I’m not saying we need a new French Revolution, but if we care about keeping our democracies intact, we need to act like it!
The graphs we’ve seen show that inequality is not new. But most importantly we need to understand that it is not inevitable, rather it is the product of explicit policy choices.
We can’t be surprised that wealth continues to accumulate in a sytem where:
Returns from investments are taxed at a lower rate than income
The number of countries that levy wealth taxes is shrinking
We promote dynastic wealth by excluding millions of dollars from extate taxes and have loopholes like the “step up basis” or “trusts” that allow complete shielding of assets from taxation in inheritance.
Nothing happens by accident, these are choices that compound wealth concentration generation after generation.
The question is: what are we willing to do about it?
📣Recent Favorites
A recap of my favorite things I’ve read/heard/watched in the past week
📹: This Explainer on the Turkish Economy. I recently came back from a trip in the country and was completely perplexed about how people manage to live with 30% annual inflation and this video answered a lot of questions.
📄: The Oxfam Report on Taxing the Super Rich: I got to see it being unveiled in the European Parliament and I think everyone should read it to understand the state of wealth inequality and some ideas on how we can address it.
🎧: Tame Impala’s New Album: Single handedly keeping the summer vibes alive as the days get shorter
📚 Pietro’s Phd Updates
A recurring check-in to let you know how my research is progressing, or isn’t
Paper #1: has been released as a Working Paper + submitted to a Journal!
Paper #3: has overtaken #2 and has been submitted to another Journal for peer review
Paper #2: is being drafted
It’s all starting to come together and I’ve really been enjoying the last few months of research.
That’s it for today! Hoped you enjoyed the third episode of “Pietronomics”.
If you found it interesting please consider leaving a like and sharing it with a friend!
Visiting Paris this week and went to the French Revolution museum, this was the exact question I had on my mind the whole time! Even though America is more unequal than the 1780-1790s, we may be less likely to take revolutionary political action because 1) instead of the Enlightenment that happened right before the French Revolution we are in the age of disinformation and AI usage that is degrading our agency and intelligence, and 2) we’ve been taught that billionaires are wealthy due to their merit vs by blood like monarchs, so we believe they deserve the power they’ve accumulated. The answer may not be revolution in the traditional sense but major reform within the government to show that it can functionally and effectively curb corporate capture and protect the people’s interests (like what Mamdani is doing in NYC).
Thank you for this great article, I was trying to understand the available data myself but I don't have a very math-prone mind and I was getting lost!