Chrystia Freeland

America used to be Sweden: According to new research, the America of the Founding Fathers was ‘‘more egalitarian than anywhere else in the measurable world.’’

That’s an important finding, and one that will surprise most Americans today. Both inequality and American exceptionalism are high on the national political agenda. One idea that brings those issues together is the belief that Americans have an exceptional cultural tolerance for income inequality. Unlike Europeans, the thinking goes, most Americans are confident that they are ‘‘soon to be rich.’’ As a result, the conventional wisdom has it, Americans in the middle look up to their 1 percent and are loath to tax them.

But historical research by the economists Peter H. Lindert and Jeffrey G. Williamson shows that when it comes to inequality, this American exceptionalism is an inversion of the conditions that prevailed at the time of American Revolution. In that era, which is so often invoked in today’s political and social battles, America was the world’s most egalitarian society – and proud to be so.

‘‘There has been an absolute reversal,’’ Lindert told me. ‘‘Compared to any other country from which we have data, America in that era was more equal. Today, the Americans are the outliers in the other direction.’’

Nowadays, we think of the postwar era as a halcyon time for the U.S. middle class. But it turns out that, in relative terms, colonial America, too, was a great country for the 99 percent, particularly when compared with the folks back in the old country.

‘‘Americans who were free were very well-off, and better off than their counterparts in the mother country,’’ Lindert said. ‘‘Every kind of person by occupation was better off than their counterpart by occupation. The carpenters, the shopkeepers and so forth all had a slightly better income than in the mother country.’’

Slavery is America’s original sin and was the great global injustice of that age. But on a purely economic basis, even when slaves are included in the calculation of inequality, America comes out as the most egalitarian.

‘‘If one includes slaves in the overall income distribution, the American colonies in 1774 were still the most equal in their distribution of income among households, though by a finer margin,’’ Lindert said.

Members of only one group fared better in Europe than their peers in the colonies – the people at the very top.

‘‘The Duke of Bedford had no counterpart in America,’’ Lindert said. ‘‘Even the richest Charleston slave owner could not match the wealth of the landed aristocracy.’’ Indeed, England’s 1 percent were so rich that the country’s average national income was nearly as high as that of the colonies, despite the markedly greater prosperity of what today we might call the American middle class.

Today, the opposite is true, Lindert said: ‘‘The rest of the world can’t come close to the 1 percent in America.’’

This portrait of colonial America as the world’s great egalitarian exception would probably come as a surprise to most Yanks today. But though Lindert and Williamson provide us with new data, the portrait they paint fits with contemporary accounts.

In a letter he wrote from Monticello in 1814, Thomas Jefferson applauded America’s economic equality. ‘‘We have no paupers,’’ he wrote to Thomas Cooper, an Anglo-American polymath and frequent Jefferson correspondent. ‘‘The great mass of our population is of laborers; our rich, who can live without labor, either manual or professional, being few, and of moderate wealth. Most of the laboring class possess property, cultivate their own lands, have families, and from the demand for their labor are enabled to exact from the rich and the competent such prices as enable them to be fed abundantly, clothed above mere decency, to labor moderately and raise their families.’’

By contrast, Jefferson believed, as the Lindert and Williamson research confirms, that members of America’s 1 percent were worse off than their European counterparts:

‘‘The wealthy, on the other hand, and those at their ease, know nothing of what the Europeans call luxury. They have only somewhat more of the comforts and decencies of life than those who furnish them.’’

Interestingly, particularly in view of today’s inequality wars, Jefferson didn’t pull his punches about which social order was preferable. ‘‘Can any condition of society be more desirable than this?’’ he opined about egalitarian America, and then did a little calculation showing that the overall happiness of Americans far outweighed that of the English, for whom ‘‘happiness is the lot of the aristocracy only.’’

It wasn’t just the Americans who perceived their society to be more economically equal than the Old World. Foreign visitors noticed, too. After his famous journey to America in the 19th century, Alexis de Tocqueville returned home to France to report that ‘‘nothing struck me more forcibly than the general equality of conditions among people.’’

But what was obvious just before the Revolution has been largely forgotten today. ‘‘It was known by them at the time,’’ Lindert said. ‘‘Now we as a society may have lost sight of that, because we didn’t have the numbers to remind us.’’

Thanks to Lindert and Williamson, we now do. Their historical work makes a particularly important contribution to the current debate because, as chance would have it, those who argue that inequality is as American as apple pie tend also to hold the views of the Founders in particularly high regard.

‘‘I see it as a puzzle,’’ Lindert said. ‘‘Those of us who insist that inequality is fine would also invoke a Founding Fathers’ society for which it was not true.’’

Equality, not just of opportunity but also of outcome, turns out to be one of the features that really did make the United States exceptional in the age when the country was born. That startling fact is worth bearing in mind as Americans struggle to figure out how to remain exceptional in an altogether more complicated era.

Behavioral economist Dan Ariely of Duke University came into Reuters today to talk to Chrystia about his new book and some of his recent research on income inequality.

Ariely, along with Michael Norton of Harvard Business School, conducted a survey to determine what level of inequality Americans tolerate if their incomes were randomly assigned, an equilibrium that philosopher John Rawls called the “just society.” The duo asked nearly 6,000 Americans to guess what percent of wealth they thought was owned by each of the five quintiles of income levels in the United States and what their ideal level of income distribution would be. Then, Ariely and Norton presented the respondents with three unlabeled charts showing–unbeknownst to them–the distribution of income in a perfectly equal society, the United States, and Sweden, respectively, and asked which society they would choose to live in.

The results were quite shocking:

First, respondents vastly underestimated the actual level of wealth inequality in the United States, believing that the wealthiest quintile held about 59% of the wealth when the actual number is closer to 84%. More interesting, respondents constructed ideal wealth distributions that were far more equitable than even their erroneously low estimates of the actual distribution, reporting a desire for the top quintile to own just 32% of the wealth

[...]

The (unlabeled) United States distribution was far less desirable than both the (unlabeled) Sweden distribution and the equal distribution, with some 92% of Americans preferring the Sweden distribution to the United States.

He summarized his research findings for Chrystia in the following way:

I think what politicians often do is cover things with layers of words that in many ways obscure the topics. ‘What about taxes?  And what’s your opinion about abortion and social mobility?’ But when you look deep down, it turns out Americans really believe in much more equality than we currently have. And this kind of gives me hope that as long as we can get a discourse to be more about the beliefs, we might get something better.

Posted by Peter Rudegeair.

They call economics the dismal science, but Larry Summers, one of its pre-eminent public practitioners, is anything but dull. That penchant for intellectual controversy means he hasn’t always won popularity contests, but he is unfailingly stimulating, as he proved in a speech in India last week, when he hit on one of the biggest issues in the world economy today, and coined a snappy catch-phrase to describe it: the “Mumbai Consensus”.

The Mumbai Consensus, Summers said, is “people-centric.” He contrasted it both with the Washington Consensus, the U.S.-led, free-markets-and-democracy formula that seemed to have conquered the world after 1989, and with the Beijing Consensus, China’s state capitalist approach that today is winning fans in emerging markets and in some developed ones.

Summers thinks the real model to watch is India’s, the world’s largest democracy. Partly because of its political system, India’s economic rise has been powered as much by the voracity of its domestic consumers as it has by the country’s push into foreign markets. That’s a sharp contrast with China, where the focus has been on working for the rest of the world, while the Chinese people, who are poorer on average than those of Albania or Jamaica, nonetheless save more than half of their GDP.

What makes the idea of the Mumbai consensus, and of people-centric economic growth, so powerful is that the smartest and most politically potent critique of global capitalism right now is that it isn’t delivering for the middle class.

We are living in an age of unprecedented economic prosperity: since the 1970s the world economy has been growing at a faster pace than at any other time in human history, and billions of people have been lifted out of poverty as a result. Yet a perversity of this global boom is that it has benefited the super-elite most of all.

That is apparent most starkly in America, where 23.5 per cent of total income in 2007 went to the top 1 per cent, but it is also the case in countries with a more generous social safety net, like Canada and the UK. It is happening as well in communist China, where the gap between the rich and poor is as great as it is in the U.S., and in other emerging market powerhouses, including Russia, and, yes, India. (Income inequality has been falling in the fourth BRIC, Brazil, but that may partly be because it has historically been so high. Today it remains far greater than in the U.S.)

This unequal return on globalization is a pretty good key to understanding domestic political battles in most countries around the world. That’s true in authoritarian China, where, according to the state-run China Daily, the key concern of the Communist Party as it debated its twelfth five-year plan this week was “the widening wealth gap”. That is also true in the United States, where the rage of the Tea Party, with its proudly anti-elite heroines, is largely animated by anger that the American middle class is losing out.

Income inequality is high in India, too – Raghuram Rajan, the Indian born and educated University of Chicago economist pointed out in a 2008 speech in Mumbai that India was second only to Russia in its number of billionaires per trillion dollars of GDP. But Summers is right to assert that India’s rise out of developing world poverty has been “people-centric”:  both an engine and a consequence of India’s ascent has been a surge in consumption that extends deep into the income distribution.

For America and the rest of the developed world, there’s still a catch: people-centric growth is easier to achieve in countries where the people are cheap relative to the rest of the world. Consider IBM, which highlighted 29 per cent growth in the BRICs when it reported third quarter earnings this week. IBM’s engagement with the emerging markets is not just about exports: in 2003 IBM employed 9,000 people in India; today, 75,000. By contrast, since 2003 IBM has laid off 30,000 workers in the US, where it now has 105,000 staffers, just a third more than in India.

Summers, who has been worrying aloud about the hard-hit US middle class since well before the credit bubble burst, is painfully familiar with this problem. Identifying the Mumbai Consensus is a first step towards a solution, but alone it won’t be enough.