Money  /  Q&A

The Problematic Past, Present, and Future of Inequality Studies

An intellectual history of inequality in economic theory reveals the ideological reasons behind the field’s resurgence in the last few decades.

DS: Does your notion of “Cold War economics” suggest a convergence between the two superpowers regarding their economists’ turning away from class analysis during the Cold War? In both, the lack of interest in examining economic inequality based on class difference was inseparable from the elites of these regimes being engaged in a propaganda war over the superiority of their opposing ideologies. To admit class difference would have been to reveal a problem with the ruling elite, and therefore they downplayed real issues of economic inequality.

BM: Yes, that’s absolutely one of the key theses of the book. I became very aware while writing this book that the key definitional relation in both systems—the power of bureaucracy in one and the power of capitalists in the other—was not studied, or was hardly studied at all, empirically. Under Cold War economics, both systems wanted to avoid the real discussion of what makes them unequal, in economic and political terms. Under socialism, political inequality tended to translate into economic inequality; under capitalism, economic inequality enabled political inequality.

The “discouragement” of studies of inequality began in the Soviet Union within a decade after the Bolshevik Revolution. Up to approximately 1927–28, inequalities between town and countryside, between manual and nonmanual labor, etc., were empirically documented and much discussed in the Soviet Union. This gradually waned and then ended with Stalinism.

The situation in Western economics was more confused or chaotic in the interwar period; then Simon Kuznets wrote on inequality during the period of “high optimism” in the United States, when the US enjoyed unchallenged economic superiority, the highest per capita income in the world, and decreasing inequality. It is only later, from the mid-1960s, and most obviously with the ascendance of Reaganomics, that the study of income inequality all but disappeared in the United States.

Of course, there were many individual empirical studies of the skill premium, the effect of trade on labor incomes, and the like, but my point is that what was absent were integrative studies of inequality that combine a clear narrative, theory, and empirics. Such integrative studies by necessity involve politics, because inequality is always a political phenomenon: It deals with the distribution of the “pie” (national income). We did not have such work. Economists either produced largely meaningless theoretical papers that treated everybody as an “agent” (often an “infinitely lived agent with perfect foresight”) despite the obvious differences between capital and labor, or they did über-empirical studies that never came close to nesting income distribution within politics. I criticize myself for doing the latter.