Friday, April 25, 2008

Et divitissimi divitiores fiunt...

And the rich are getting richer...

S.J Bastomsky's The Great Divide in Ancient Rome and Victorian England” (gated, JSTOR) works out approximations for the yearly wages of various income groups in Ancient Rome. His results and methodology are pretty interesting:

We are on much surer ground when we turn to the closing years of the Republic...Cicero mentions that the slave Panurgus...could only have earned 12 asses a day without any training. We assume that the cost of free labour is depressed just enough to keep it alive and reproducing...this means the labourer's wage would be 3 sesterces a day...Given that the concept of a five-day week and paid holidays were unknown to the Romans, we may reckon a free labourer working on just about every day of the year...If we suppose that he was able to find employment on 350 days of the year, his earnings would be 1,050 sesterces per annum...

Bastomsky goes on to calculate that Cicero and other moderately wealthy senators during the Late Republic earned about 750,000 sesterces per annum, and the super-rich like Crassus, possibly the wealthiest individual of his era, around 11,000,000 sesterces. Proceeding into the 1st century AD, his calculations show a minimum wage laborer earning only 1,400 sesterces, Pliny the Younger and similarly wealthy elite earning 1,000,000, and the ultra-rich, as Lentulus and Narcissus, nearly 24,000,000 sesterces.

These data show that there is a tremendous (and increasing) inequality gap between rich and poor Romans in both the Late Republic and during the tumultuous 1st century AD. The figures are plotted on the left.

The graph makes it very clear that the yearly earnings of a minimum wage laborer, even under optimal circumstances (no illness, full-employment) are miniscule. Indeed, as Bastomsky writes, they are straining and exerting themselves to "keep the wolf from the door." It is hard not to sympathize; we see a similar income gap in a country with which we are all intimately familiar- the United States. I attempted to find the closest modern parallels to the Roman income groups. For the minimum wage laborer, the figure $15, 900 represents the average yearly salary for the lowest 20% of wage earners in the US in 2005 according to the Congressional Budget Office. This figure is reasonably close to the amount earned by a full-time worker at a minimum wage of about $6.50 ($6.50 x 40hr week x 52 wks/yr=$13520). The wealthy elite 's $1,558, 500 per year is the mean income for the top 1% of wage earners, a category into which Cicero and other senators would likely fall. The third data point depicts one of the highest earners in the United States; it is the 2005 income ($1.5 billion) of the highest paid hedge fund manager in the country, James Simons of Renaissance Technologies, according to Institutional Investor's Alpha Magazine. Caveat lector: it is a logarithmic scale.

Depicted on the right is another way to look at it. This is a graph of the comparative income of the wealthy elite and super-rich to the minimum wage labrorer; each single unit represents one worker, and the height of the bar the number of workers, the sum of whose total income is equal to a single individual in each of these two groups.

Crassus thus earned about 10, 476x the minimum wage laborer's salary, and Lentulus approximately 17,142x. Even more striking, James Simon in 2005 made over 98,000x the annual income of a minimum wage employee.

A closer look at the data (down and left) from ancient Rome reveals another striking phenomenon; the biggest gains are far and away going to the very top of the income spectrum. This, quite significantly, is exactly the same pattern as we see in the United States---but accelerated exponentially. From 2002-2005, the United States has experienced huge gains in GDP, but these gains have been skewed very strongly to the top. While the difference between the $15,000 a minimum wage laborer made in 2002 and his earnings in 2003 is only $900, a factor of 1.06, the top 1% of earners netted $593,300 more on average than their $965,000 mean salary, a factor of about 1.61. And like their ancient counterparts, the very wealthiest made out like bandits. The highest paid hedge fund manager in 2002 made a mere $700 million, less than half of the $1.5 billion Simons earned in 2005. The factor of 2.14 measures up closely to the 2.18 figure for the wealthiest of the Romans.

What can we conclude from this array of facts and figures, all which point to a great deal of economic commonality across two millenia? Well, the age in which the Republic experienced such massive inequality fostered a great deal of woe for the common people. Chaos and civil war, revolts, and other violence prevailed. It did not, however, result in economic loss for the rich who survived the violence. Likewise, the generally unfortunate economic climate which grips our country has not clamped its stranglehold on their incomes; it is rather the stagnating wages of the poor and middle class which fuel their inflating profit margins. Robert Reich, professor at the University of California-Berkeley and author of Supercapitalism (highly recommended), lays out the situation best:

We're reaping the whirlwind of many years during which Americans have spent beyond their means and most of the benefits of an expanding economy have gone to a relatively small group at the very top. Adjusted for inflation, the median wage is below where it was in 1999. The nation's median hourly wage is barely higher than it was 35 thirty-five years ago. The income of a man in his 30s is now 12 percent below that of a man his age three decades ago. The rich, meanwhile, can't keep the economy going on their own because they devote a smaller percentage of their earnings to buying things than the rest of us: After all, they're rich, and they already have most of what they want. Instead of buying, they're more likely to invest their earnings wherever around the world they can get the highest return.
And like in Rome, if we do not begin to address this income inequality their will be serious consequences. Will the democratic government of the United States be overthrown? No. But if John McCain takes the helm and institutes a second round of Bush tax cuts, the gap will grow larger, and so too the shadow it casts on the lives of the average citize

If you are one of the ultra-rich, however, make sure to give your thanks to imperator Bush on his way out.

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