Intuitively, on a personal level, it makes a lot of sense to me that high inequality (or over-time increases in inequality) should lead to weaker democratic institutions in practice and on paper.
Such different political/economic systems can lead to similar gini coefficients that i wouldn't be surprised if it's very hard to generalize about the effects of having this or that gini coefficient. In particular, if there's a lot of inequality because a cabal got control of the levers of power and used that control to loot the country to enrich themselves, that might look similar--as far as inequality--to a situation where healthy economic institutions enable some people to create huge amounts of wealth, and to keep a substantial portion of what they create for themselves. But such situations might look very different from the standpoint of democracy!
I would question the way democracy is measured. I'm not convinced it's measured well in either of the indicators you used. To a lesser extent I'm not sure if inequality is measured well. If you take top shares, the question is how unequal the remaining distribution is. But I cannot offer better measures, alas
None of the measures of democracy are perfect or even close to perfect, but these 4 measures (from completely different organizations, using very different methods) are the best we have and they're what people have used in 1000s of peer-reviewed papers. That doesn't mean they're therefore correct, but I'd take them over anything else we have.
The results are the same if I use the Gini coefficient. Also, the top shares are more indicative of what's happening at the extremes (i.e., the top), which is where the critical energy has been concentrated over the past decades as concern with inequality has grown. But, yeah, as I said, Gini is just as mixed.
Agree. Another thing about the democracy measures that came to mind is that none of them is measured by a non-democracy, and I wonder would, say, China, have a different assessment of democracy if they were to provide a measure... just thinking
Economic inequality is regarded as a major problem by many on the left. There have been increasing calls to “ban billionaires” from politicians like Barney Sanders and other Socialist extremists. Underlying this view is a feeling on the left that that the affluent are by definition immoral or crooked and could not have accumulated their wealth legally. This is nonsense. Over 10% of Americans are millionaires and more tha $900,00 have a net worth greater than $10 million. America is the world’s wealthiest large country and the poor in America are generally much better off with higher income levels than in most every other country. Income inequality is much higher in third world resource rich countries that tend to be autocracies where resources are funneled to corrupt rulers and where the only way to acquire wealth is by currying favor with autocrats who have diverted the countries’ wealth to their own purposes. This is true in kleptocracies like Russia, North Korea, Myanmar, South Sudan, Syria under Assad, Venezuela, Nigeria and numerous other African countries where natural resources and foreign aid are stolen by autocratic political leaders. What is wrong in those countries is not the fact of inequality but the fact that resources are stolen in a lawless and corrupt environment.
But in the West, Billionaires tend to be entrepreneurs and corporations that build wealth through successful businesses. They are not diverting resources from the poor. In fact most provide thousands of jobs that power the economy for everyone. Amazon, Meta, Oracle, NVIDIA, Microsoft, Apple, Tesla etc. were all started by brilliant and wildly successful entrepreneurs who built these businesses from nothing or from much smaller companies. The wealth accumulated by those entrepreneurs has not harmed our economy or deprived the poor of any money they would otherwise have had. Corrupt kleptocracies like Russia are a completely different stories. There people are deprived of wealth and living standards are lowered by the diversion of the entire nation’s resources to serve a criminal elite of cronies who enrich themselves and are desperate to stay in power as they know they will be imprisoned or executed as soon as a new government takes over.
But in the US ,income inequality is not so much a problem as it is a feature of an entrepreneurial economic system. The silly moralism on the left that classifies the rich as an evil cabal when most rich people are just out for themselves, their families and their social groups. The one thing that is clear about the wealthy is that they are not a cabal or conspiracy and disagree amongst themselves on policy issues as much the middle classes. The US needs to focus on its real problems like foreign policy threats, inflation, affordable housing, budget deficits, a paralyzed congress that can’t pass legislation because of tribal ideological splits and a corrupt administration. The left needs to wake up to the fact that Inequality of income is not the problem here.
Very interesting article. A question I would have…isn’t the rate of inequality increasing at a pretty rapid rate? So wouldn’t you expect this result to be different going forward? Or is this just me wanting to hold on to my existing belief?
Thanks for thorough and insightful analysis Tibor. Very interesting to see the steps in how you systematically analyze the data using the best tools available. I wonder how people like Piketty and others would respond to the apparent lack of empirical evidence for inequality. Maybe they would say in light of limited data and tough econometric challenges we have to rely primarily on theoretical arguments for evaluating policy choices??
Thanks! Yes, perhaps they would. My response would be that, sure, the data might be limited and there are always econometric challenges, but we cannot espouse a theory if it's not empirically grounded. If we switch solely (or primarily) to theory, each "side" can make its arguments for and against, and then it's just as mixed as before. Theoretically, anything goes.
So I wouldn't be persuaded by that argumentative strategy. I guess we have to be humble and admit that we simply don't now what's the case, right now. And we definitely shouldn't be making big policy choices when we don't know what the effect is.
I think it’s great that you are trying to illuminate these big issues at the intersection of economics, politics, sociology, history, etc with state of the art data analysis
I agree with you. We can also try to do more empirical analysis on the specific potential mechanisms by which inequality might be influencing democratic institutions/processes/outcomes.
Apologies if this is addressed elsewhere, but I wonder why there's no mention of Piketty and/or Branko Milanovic, who I think have wrote a lot about inequality.
Cool topic. I'm not too familiar with these standard measures of democracy but it seems like one dimension that is missing is democratic "responsiveness", as measured by the degree to which popular will causally influences policy. (I'm thinking about the work of Martin Gilens, for example: https://luskin.ucla.edu/mgilens#research.) To be sure, procedural and institutional features of democracy are important, but they are unconvincing on their own if they don't say much about how often elite opinion disproportionately effects change.
Yeah I'm not saying Gilens's methodology is sound, and I'll need to spend more time with the criticisms. Responsiveness does seem generally understudied/undertheorized though.
You should challenge Prof. Susan Stokes of the U of Chicago, re that PNAS paper. Gemini AI points to it as substantiating that Inequality is the second greatest contributor to the erosion of democracy after "Executive Aggrandizement" (aka corruption, a la Orban, Erdogan, Trump, etc...). As a non-expert, I for one would be interested in hearing a good scholarly exchange, rather than just internet slop.
You should challenge Prof. Susan Stokes of the U of Chicago, re that PNAS paper. Gemini AI points to it as substantiating that Inequality is the second greatest contributor to the erosion of democracy after "Executive Aggrandizement" (aka corruption, a la Orban, Erdogan, Trump, etc...). As a non-expert, I for one would be interested in hearing a good scholarly exchange, rather than just internet slop.
I guess I'd give two sets of reasons if I had to (like I said, my intuition actually points in the opposite direction). First, in modern democratic capitalist societies, the rich people's assets are usually safe enough from expropriation that the rich aren't afraid they'll get taken away from them. They can use tax havens and engage in capital flight, so even a government elected by poorer voters cannot easily expropriate them. Knowing this, they're less likely to engage in democratic backsliding and could just leave the current level democracy as it is. In other words, my first theoretical argument in the piece could just as well be false.
Second, modern capitalist societies are the geese that lay the golden eggs. Both the rich and the poor typically know (or feel) that upsetting the status quo would likely be bad for everyone. So, on this account, the rich might in principle be able to engage in democratic backsliding under high inequality, but perhaps they nevertheless decide against it because it's too big a gamble (unless you're Trump, apparently). The poor likewise would in principle want to vote in radicals that engage in expropriation and redistribution, but perhaps they realize that'll just make everyone (including the poor) worse off in a few years time after the initial act. So they hold back.
Why not simply public choice reasons? People don't vote for their interests because they cannot coordinate, and individually their vote have no effect. For the super rich, they could manipulate, finance, lobby, or use their wealth to influence politics in some other way. If there are few super rich, that could work. But if there are many, then the same coordination problem arises. They cannot all conspire to sabotage democracy. People tend to engage in politics in a ideological way, not in a self interest way, and while inequality can plausibly change people's ideologies, it's not clear why it would change in a anti democratic way.
Such different political/economic systems can lead to similar gini coefficients that i wouldn't be surprised if it's very hard to generalize about the effects of having this or that gini coefficient. In particular, if there's a lot of inequality because a cabal got control of the levers of power and used that control to loot the country to enrich themselves, that might look similar--as far as inequality--to a situation where healthy economic institutions enable some people to create huge amounts of wealth, and to keep a substantial portion of what they create for themselves. But such situations might look very different from the standpoint of democracy!
Good point!
Interesting results, thanks for the effort.
I would question the way democracy is measured. I'm not convinced it's measured well in either of the indicators you used. To a lesser extent I'm not sure if inequality is measured well. If you take top shares, the question is how unequal the remaining distribution is. But I cannot offer better measures, alas
None of the measures of democracy are perfect or even close to perfect, but these 4 measures (from completely different organizations, using very different methods) are the best we have and they're what people have used in 1000s of peer-reviewed papers. That doesn't mean they're therefore correct, but I'd take them over anything else we have.
The results are the same if I use the Gini coefficient. Also, the top shares are more indicative of what's happening at the extremes (i.e., the top), which is where the critical energy has been concentrated over the past decades as concern with inequality has grown. But, yeah, as I said, Gini is just as mixed.
Agree. Another thing about the democracy measures that came to mind is that none of them is measured by a non-democracy, and I wonder would, say, China, have a different assessment of democracy if they were to provide a measure... just thinking
Economic inequality is regarded as a major problem by many on the left. There have been increasing calls to “ban billionaires” from politicians like Barney Sanders and other Socialist extremists. Underlying this view is a feeling on the left that that the affluent are by definition immoral or crooked and could not have accumulated their wealth legally. This is nonsense. Over 10% of Americans are millionaires and more tha $900,00 have a net worth greater than $10 million. America is the world’s wealthiest large country and the poor in America are generally much better off with higher income levels than in most every other country. Income inequality is much higher in third world resource rich countries that tend to be autocracies where resources are funneled to corrupt rulers and where the only way to acquire wealth is by currying favor with autocrats who have diverted the countries’ wealth to their own purposes. This is true in kleptocracies like Russia, North Korea, Myanmar, South Sudan, Syria under Assad, Venezuela, Nigeria and numerous other African countries where natural resources and foreign aid are stolen by autocratic political leaders. What is wrong in those countries is not the fact of inequality but the fact that resources are stolen in a lawless and corrupt environment.
But in the West, Billionaires tend to be entrepreneurs and corporations that build wealth through successful businesses. They are not diverting resources from the poor. In fact most provide thousands of jobs that power the economy for everyone. Amazon, Meta, Oracle, NVIDIA, Microsoft, Apple, Tesla etc. were all started by brilliant and wildly successful entrepreneurs who built these businesses from nothing or from much smaller companies. The wealth accumulated by those entrepreneurs has not harmed our economy or deprived the poor of any money they would otherwise have had. Corrupt kleptocracies like Russia are a completely different stories. There people are deprived of wealth and living standards are lowered by the diversion of the entire nation’s resources to serve a criminal elite of cronies who enrich themselves and are desperate to stay in power as they know they will be imprisoned or executed as soon as a new government takes over.
But in the US ,income inequality is not so much a problem as it is a feature of an entrepreneurial economic system. The silly moralism on the left that classifies the rich as an evil cabal when most rich people are just out for themselves, their families and their social groups. The one thing that is clear about the wealthy is that they are not a cabal or conspiracy and disagree amongst themselves on policy issues as much the middle classes. The US needs to focus on its real problems like foreign policy threats, inflation, affordable housing, budget deficits, a paralyzed congress that can’t pass legislation because of tribal ideological splits and a corrupt administration. The left needs to wake up to the fact that Inequality of income is not the problem here.
What does any of this have to do with the effect of wealth/income inequality on democracy?
Very interesting article. A question I would have…isn’t the rate of inequality increasing at a pretty rapid rate? So wouldn’t you expect this result to be different going forward? Or is this just me wanting to hold on to my existing belief?
Thanks. Actually, no, not only is inequality not increasing at a rapid rate, it’s not increasing at all. See the data here: https://statsandsociety.substack.com/p/the-myth-of-persistently-rising-inequality
Thanks for thorough and insightful analysis Tibor. Very interesting to see the steps in how you systematically analyze the data using the best tools available. I wonder how people like Piketty and others would respond to the apparent lack of empirical evidence for inequality. Maybe they would say in light of limited data and tough econometric challenges we have to rely primarily on theoretical arguments for evaluating policy choices??
Thanks! Yes, perhaps they would. My response would be that, sure, the data might be limited and there are always econometric challenges, but we cannot espouse a theory if it's not empirically grounded. If we switch solely (or primarily) to theory, each "side" can make its arguments for and against, and then it's just as mixed as before. Theoretically, anything goes.
So I wouldn't be persuaded by that argumentative strategy. I guess we have to be humble and admit that we simply don't now what's the case, right now. And we definitely shouldn't be making big policy choices when we don't know what the effect is.
I think it’s great that you are trying to illuminate these big issues at the intersection of economics, politics, sociology, history, etc with state of the art data analysis
My pleasure! :)
I agree with you. We can also try to do more empirical analysis on the specific potential mechanisms by which inequality might be influencing democratic institutions/processes/outcomes.
Apologies if this is addressed elsewhere, but I wonder why there's no mention of Piketty and/or Branko Milanovic, who I think have wrote a lot about inequality.
Cool topic. I'm not too familiar with these standard measures of democracy but it seems like one dimension that is missing is democratic "responsiveness", as measured by the degree to which popular will causally influences policy. (I'm thinking about the work of Martin Gilens, for example: https://luskin.ucla.edu/mgilens#research.) To be sure, procedural and institutional features of democracy are important, but they are unconvincing on their own if they don't say much about how often elite opinion disproportionately effects change.
Yeah, that's fair. I'm skeptical of Gilens' work, though: https://www.vox.com/2016/5/9/11502464/gilens-page-oligarchy-study
Yeah I'm not saying Gilens's methodology is sound, and I'll need to spend more time with the criticisms. Responsiveness does seem generally understudied/undertheorized though.
You should challenge Prof. Susan Stokes of the U of Chicago, re that PNAS paper. Gemini AI points to it as substantiating that Inequality is the second greatest contributor to the erosion of democracy after "Executive Aggrandizement" (aka corruption, a la Orban, Erdogan, Trump, etc...). As a non-expert, I for one would be interested in hearing a good scholarly exchange, rather than just internet slop.
Good article. Thanks.
You should challenge Prof. Susan Stokes of the U of Chicago, re that PNAS paper. Gemini AI points to it as substantiating that Inequality is the second greatest contributor to the erosion of democracy after "Executive Aggrandizement" (aka corruption, a la Orban, Erdogan, Trump, etc...). As a non-expert, I for one would be interested in hearing a good scholarly exchange, rather than just internet slop.
Good article. Thanks.
I guess I'd give two sets of reasons if I had to (like I said, my intuition actually points in the opposite direction). First, in modern democratic capitalist societies, the rich people's assets are usually safe enough from expropriation that the rich aren't afraid they'll get taken away from them. They can use tax havens and engage in capital flight, so even a government elected by poorer voters cannot easily expropriate them. Knowing this, they're less likely to engage in democratic backsliding and could just leave the current level democracy as it is. In other words, my first theoretical argument in the piece could just as well be false.
Second, modern capitalist societies are the geese that lay the golden eggs. Both the rich and the poor typically know (or feel) that upsetting the status quo would likely be bad for everyone. So, on this account, the rich might in principle be able to engage in democratic backsliding under high inequality, but perhaps they nevertheless decide against it because it's too big a gamble (unless you're Trump, apparently). The poor likewise would in principle want to vote in radicals that engage in expropriation and redistribution, but perhaps they realize that'll just make everyone (including the poor) worse off in a few years time after the initial act. So they hold back.
I don't know, I'm grasping at straws here. :D
Why not simply public choice reasons? People don't vote for their interests because they cannot coordinate, and individually their vote have no effect. For the super rich, they could manipulate, finance, lobby, or use their wealth to influence politics in some other way. If there are few super rich, that could work. But if there are many, then the same coordination problem arises. They cannot all conspire to sabotage democracy. People tend to engage in politics in a ideological way, not in a self interest way, and while inequality can plausibly change people's ideologies, it's not clear why it would change in a anti democratic way.
Of course! I don't know why I didn't think to mention that. Thanks.