Note on 'Battlers & Billionaires', by Andrew Leigh

My notes on: Leigh, Andrew. (2024). Battlers & Billionaires.

[This note may contain errors and inaccuracies. It was mostly written just for myself, in preparation for my live podcast conversation with Andrew Leigh.]

This was my second reading of the book. I read the original edition years ago—maybe in 2014. This second reading was of the updated 2024 edition.*

These were four things I learned on my second reading that stood out as especially important:

(1) If I read him correctly, Andrew seems to think that top income and wealth shares get at inequality better than Ginis, or at least are the more intuitive metrics.

He uses these metrics to trace two distinct periods: the falling inequality from Federation to the 1970s (the "Great Compression") and the rising inequality from the 1980s to today ("the Great Divergence").

The Great Compression in Australia:

• From the 1910s to 1980, the income share of the top 1 per cent fell from 12% of household income to below 5%—it more than halved.
• From the 1910s to 1980, the income share of the top 0.1 per cent fell from about 4% to 1% — only a quarter of what it had been.

The Gini in male incomes in Australia fell from the early 1940s to the late 1970s by an amount that is the same as the difference between Australia and Scandinavian countries today.

Interestingly, there were no all-time rich listers (defined as wealth exceeding 0.17% of GDP) between 1940 and 1980. One reason for this is noted on page 43:

"In this era, corporate Australia was shifting from a period of asset-owning proprietors to professional managers, but managerial salaries were yet to take off."

The Great Divergence in Australia:

• Over the past thirty years, the income share of the top 1 per cent doubled (to 8% of household income excluding capital gains).
• Over the past thirty years, the the income share of the top 0.1 per cent tripled (to 3 per cent of all household income excluding capital gains).

As Andrew puts it on page 56:

"Overall, inequality is not yet at the levels that prevailed in the 1910s, but it’s close."

Notably:

• The share of household wealth held by the top 0.001% of Australian adults (about 200 people) has increased by 5x between 1983 and 2024.
• The share of household wealth held by the top 0.0001% of Australian adults (about 20 people) has increased by 9x between 1983 and 2024.

(To see how this can cash out as political influence, note that Clive Palmer, for example, has donated $200 million to Palmer's United Australia Party.)

To recap, here is the broad story of inequality in Australia, as presented on page 148:

"After becoming more unequal in the late nineteenth and early twentieth centuries, Australia reached a turning point. From the 1920s to the 1970s, we steadily became a more equal society. But since then, Australia has become more unequal, with the income share of the top 1 per cent doubling and that of the top 0.1 per cent tripling."

(2) The computer revolution didn't increase Australian inequality by as much as it increased American inequality, because our education boom was delayed.

Andrew finds Claudia Goldin and Lawrence Katz's model of inequality as a race between technology and education useful.

While it isn't specified in Battlers and Billionaires, the mechanism (as I understand it) is as follows:

• Technology tends to replace routine tasks and makes low-skilled workers redundant, whereas it complements non-routine tasks and makes high-skilled workers more productive.
• If educational attainment outpaces technological advancement, then the supply of high-skilled workers will meet the technologically-driven demand for them.
• If technological advancement outpaces educational attainment, then demand for high-skilled workers will exceed their supply, driving up their wages and increasing inequality.

One thing I hadn't appreciated until reading Battlers and Billionaires was that the technological shock of the computer revolution didn't increase Australian inequality by as much as it increased American inequality—and this was due precisely to the Goldin/Katz race dynamic.

The empirical difference was one of timing. Australia's education boom arrived at least a generation after America's and carried over into the 21st century, which meant that it coincided with and could thus offset the increase in inequality caused by the computer revolution.

(3) Andrew's summary of what has been driving the measured increase in Australian inequality.

Andrew's overall estimation of the empirical drivers of increases in Australian equality over recent decades is found on page 88:

"Putting the effects in this chapter together, I estimate that the rise in Australian inequality over the past generation can be attributed approximately one-third to technology and globalisation, one-third to de-unionisation, and one-third to tax cuts. Increases in the quantity of education have helped offset inequality a bit, but not as much as if quality had risen too."

(4) A hallmark of Australia's welfare system is that it's highly progressive, redistributing from the rich to the poor.

I sort of already knew this but it stood out to me as important and worth noting.

Australia's welfare system acts as a mechanism for redistributing income from the rich to the poor. This is thanks to a tradition of means-testing social payments, especially for example the age pension (which has been means-tested since the 1930s).

In contrast, other countries emphasise the "piggy bank" function of their welfare states—that is, they're designed to help people across the board smooth their consumption across their lives.

Andrew quantifies this on page 153:

"The average advanced country gives twice as much welfare to the bottom fifth of the population as to the top fifth, while Australia gives twelve times as much to the poor as to the rich."

While Australia's welfare system is the most progressive in the OECD, it is not the most redistributive. Andrew explains in Note 14 (Chapter 8):

"The Australian welfare system is the most progressive in the OECD because each dollar spent through it does more to reduce inequality than in any other OECD nation. But because the size of the welfare system (as a share of GDP) is smaller than in many other OECD countries, it is not the most redistributive. For example, while each dollar of Scandinavian welfare does less to reduce inequality than each dollar of Australian welfare, the Scandinavian welfare systems are so much larger than ours that they end up having a bigger overall impact on reducing inequality."

There were at least six big questions I was left wondering, or things I disagreed with:

(1) Which way does the causation flow between economic equality and cultural egalitarianism?

Distinguish economic equality (as measured by, for example, Gini coefficients) from cultural egalitarianism (in the sense of John Hirst's "equality of manners").

What is the causal relationship between these two variables?

In Battlers & Billionaires, the answer remains unclear.

On the one hand, the egalitarian strand has survived periods of rising inequality. Andrew notes this on page 148:

"Egalitarianism has characterised the Australian national identity for well over 150 years – dating back to an era when the country was quite unequal."

For a similar view, we can read John Hirst. Australia's egalitarian culture started to crystallise by around the 1880s—which according to Andrew's data was a period of relatively high inequality. Here's Hirst:

"My impression is that [the egalitarianism of manners] made its greatest advances, not in the 1850s, but in the 1880s and 1890s. Certainly, it was then that it first had firm ideological support, in the general sense that the worth of working people was being proclaimed and the pretensions of others were being derided, and issued in specific injunctions." (Sense and Nonsense in Australian History, p172)

As Hirst puts it in another of his books, "The democracy of manners was established when differences in income were much greater than they are now." (Australia's Democracy, p303)

Consistent with this, inequality has risen from the 1980s to today, and yet Australian egalitarianism seems more or less preserved.

On the other hand, it seems like more egalitarianism isn't necessary for reducing inequality (at least at some margins). For example, Australia exhibited a renewed egalitarian ethos after WWII (which manifested, in part, as a romanticisation of the bush). But it probably wasn't the main cause of our post-war decline in inequality, because other, less-egalitarian countries experienced similar declines. Here's Andrew on pages 45-46:

"It is invariably difficult to know whether the egalitarian spirit shapes a more equal society or the other way around. In this instance, my guess is that the man from Snowy River deserves only some of the credit. True, ours was a very equal nation in the 1950s and 1960s, but the post-war fall in inequality was not unique to Australia."

Andrew notes on page 4: "an egalitarian spirit is no guarantee of true equality...just because we call each other mate doesn't mean we have an equal distribution of incomes."

Perhaps there's some equilibrium between egalitarianism and inequality, and nations with egalitarian cultures will be more likely to want to reduce inequality. As Andrew notes on page 156: "With a strong egalitarian spirit, there is more chance that Australia will reduce economic inequality."

(2) Andrew's research on growth vs inequality.

Given what I thought I remembered of his 2019 book Innovation + Equality with Josh Gans, I was surprised to (re)discover Andrew's claim in Battlers & Billionaires that inequality has modestly positive effects on economic growth.

He cites a 2011 paper he coauthored with Dan Andrews and Chris Jencks which
found that from 1960 to 2000 a rise in top income shares was associated with a fairly small rise in developed nations’ growth rates during the following year.

They also found that ‘trickle-down’ works slowly. It took over a decade for the bottom 90 per cent to get enough economic growth to make up for having a smaller income share.

I'm curious whether Andrew has thought through the consequences of these findings when combined with his utilitarian perspective and his apparent view (which I agree with) that the social discount rate should be very low or zero (see, for example, pages 7-8 of his book What's the Worst That Could Happen?).

Economic growth compounds impressively over time. In Stubborn Attachments, Tyler Cowen offers a thought experiment: if the US economy had grown 1% (instead of its actual historical rate of about 2%) each year between 1870 and 1990, the United States of 1990 would be no richer than the Mexico of 1990. (p40)

If most of humanity lives in the far future, if the lives of our distant descendants are morally significant, and if a higher economic growth rate will massively increase their wellbeing, then isn't reducing inequality today at the expense of raising economic growth just a form of "presentism"?

In this view, anti-egalitarian policies can become egalitarian when viewed on a larger timescale. The point is just that utilitarians need to work hard to maintain the intellectual foundations of their egalitarianism.

(3) So far, have rising home values been reducing wealth inequality or increasing it?

Andrew notes the deterioration in housing affordability. Pages 59-60:

"Homes cost around four times average earnings in the 1980s, and around five times average earnings in the 1990s. But in the early 2000s, house prices began to skyrocket away from wages. By the early 2010s, the typical house was worth seven years’ wages. By the early 2020s, the typical house was worth eleven years’ wages, a ratio almost three time as high as it was in the 1980s. Measured in terms of housing affordability, Australian inequality is worse than at any time in recorded history."

But it wasn't clear to me how rising home values have affected the distribution of wealth. Given housing has been the "democratic asset" (Australia's home ownership rate sits at around 65%), and most middle class wealth is comprised of housing, wouldn't rising house prices have (at least so far) increased the wealth of the middle class relative to the top?

(4) How will AI advancements affect inequality?

In light of the "routinisation hypothesis", Andrew is unsure which way AI's impacts on inequality will sway. Page 76:

"It remains unclear whether new artificial-intelligence tools will change this pattern or simply serve to make professionals and managers more productive."

(5) Trends in Australia's PISA and other test scores are really bad. Why?

On page 86, Andrew outlines falling Australian test scores:

"Yet while the quantity of Australian education has risen significantly, test scores have failed to improve. University of Melbourne researcher Chris Ryan and I found that the results of Australian secondary students on an international maths test had fallen from 1964 to 2003, and test scores on a separate literacy test had worsened from 1975 to 1998.

Recent evidence tells a mostly troubling tale. The OECD’s international PISA exam – which tests how well students can apply what they’ve learned in school to real-world situations – has been testing Australian fifteen-year-olds since the early 2000s. Over that time, average reading, maths and science scores have fallen. By 2022, the decline in reading and maths was equivalent to a full year of learning, meaning that fifteen-year-olds were scoring at the same level as fourteen-year-olds two decades earlier. Australia’s own NAPLAN tests, which test students in five different subjects at four different year levels, mostly showed no improvement from 2008 to 2022. The only hint of optimism comes from an international maths and science test (TIMSS), which showed improvements in performance from 1995 to 2019."

But no explanations are given for this deterioration.

For explanations, you have to go to Andrew's 2011 paper with Chris Ryan.

But I wonder whether he's updated his thinking on the explanations since then?

(6) Don't public opinion surveys just show that people want redistribution only if it benefits them?

In Chapter 7 of Battlers & Billionaires, Andrew cites two different types of public opinion surveys which, when taken together, produce a conclusion that I don't think he intends to produce:

1. Surveys where respondents select their ideal (e.g., wealth) distribution. These surveys tend to show that the majority of respondents want a more egalitarian society and support redistribution.
2. Surveys which show that most respondents think they're in the middle of the distribution. For example, over half the population say that they're in the middle 20% of society. (p 135)

In combination, don't these two sets of results simply show that most Australians favour redistribution towards themselves, not in general?

*It was humbling to realise, during the second reading, that I'd retained only the faintest outline from my original reading—a problem I'm confident I won't have this time, thanks to a more rigorous approach to learning.