This post is part of my Age of Abundance series. As I remarked in the outline for the series, changes in the income distribution are likely to be an important aspect of the transition. The following lays out my hypothesis is and I am hoping to work with someone to find the numbers to either support this hypothesis or revise it.
Part 1 should be fairly uncontroversial (and there should be a lot of data available): past transitions were also associated with big shifts in the wealth distribution. For instance, the period of industrialization clearly created a period where the income distribution became incredibly spread out with the “barons of industry” accumulating huge fortunes while many who moved from the country to the cities in search of work lived in abject poverty. On the other hand, once the shift to industrialization had fully occurred is when we entered a (relatively short) period during which the income distribution became more less lopsided. This was the post World War II time period which saw the rise of the middle class and a much smaller fraction of the population living below the poverty line. It would be interesting to see if there was a similar extend and contract effect on the income distribution during an even earlier cycle such as the initial rise of cities (getting data for that seems like a stretch though).
Part 2 is that the current change is of similar magnitude to the change associated with industrialization. In the US at least, I believe we are again seeing massive incomes concentrated among a small portion of the population, the middle class thinning out rapidly and many more people living below the poverty line. In Europe the forces at work are likely to be similar to the US, but with the bottom of the income distribution held up by a much more extensive safety net. Again finding data on this should be straightforward.
Part 3 of my hypothesis is that when viewed on a global level, looking past the G8, we are already seeing more people better off than worse off. Meaning, I believe that data (if it can be dug up) will show that while many people in the US and Europe are worse off, there are even more people around the world who are better off. I would take that as an important sign that the current change is at least consistent with the Age of Abundance view. Here I am not so sure on the availability of data.
What would this all mean from a normative perspective? For starters it should be cause for optimism. If the previous pattern is any indication, we can eventually all wind up better. But there are two important caveats:
Eventually could be a long time (in the case of the industrial revolution it would seem to have been 60-70 years
It might get a lot worse (especially in the US) before it gets better (the data between part 1 and part 2 above should provide some indication)
And two corresponding questions:
How do we deal with the immense individual (and potential social) cost of the current widening in the US?
And most importantly: what will be the way to get to a more even distribution in the future?
It’s the last question that is the most intriguing one and will be the subject of several subsequent posts.
In the meantime, I would love any and all feedback on the hypothesis plus any links to data sources.
