Posts Tagged ‘chart’

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According to the Institute on Taxation and Economic Policy, in 2018, 60 of America’s largest corporations zeroed out their federal income taxes on $79 billion in U.S. pretax income. Instead of paying $16.4 billion in taxes at the 21 percent statutory corporate tax rate, these companies enjoyed a net corporate tax rebate of $4.3 billion and effective tax rate of -0.5 percent.

The biggest was Amazon, which reported $11 billion of U.S. income, paid no federal income taxes, and actually managed to claim a tax rebate of $129 million.

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Emmanuel Saez and Gabriel Zucman begin their new book, The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay, with the moment in 2016 during the first presidential election debate between Donald Trump and Hillary Clinton when the former Secretary of State challenged the reality-show celebrity about how little he had paid in federal income taxes over the years. Trump proudly admitted it: “That makes me smart.” And Clinton, for all her carefully crafted technocratic proposals to fix the tax code, failed to effectively respond to Trump.

Jump ahead three years, and the issue of wealth inequality in America has risen to the top of the political agenda. Clinton lost the election, Trump is probably not worth what he has claimed, but the nation’s wealth is even more unequally distributed today—much worse even than the obscene inequalities in the distribution of income.

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In fact, according to the Federal Reserve’s Distributional Financial Accounts, the share of total net worth of the top 1 percent of American households (32.4 percent) now exceeds that of the so-called middle-class, households in the 50-90-percent bracket (28.7 percent).

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Moreover, we know that the lion’s share of the assets owned by the top 1 percent ($35.4 trillion) stems from business ($20.8 trillion)—as against the real estate holdings, consumer durables, pensions, and other assets that make up the bulk of the wealth owned by others, especially those in the bottom 90 percent.**

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It should come as no surprise then that major presidential candidates in the Democratic Party, especially Bernie Sanders and Elizabeth Warren, have proposed taxing the large concentrations of wealth at the top. Nor should we be astonished that billionaires have shed public tears over the proposed taxes or that the New York Times highlighted a fundamentally flawed Wharton School study showing that taxes on wealth would reduce economic growth by nearly 0.2 percent a year, over the course of a decade.**

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Just to illustrate the severe concentration at the top of the wealth pyramid in the United States, as well as the enormous benefit to the rest of society of using that wealth for other purposes, consider the following two-tier tax formula: a 10-percent tax on wealth over $50 million and 100 percent on wealth over $500 million. Utilizing the Wealth Tax Explorer devised by Emmanuel Saez and Gabriel Zucman, such a tax scheme would affect only 0.05 percentage of U.S. households (a total of 62,598 taxpayers) and yet it would generate in any given year a flow of revenues equal to total federal tax revenues in the United States! (And, yes, as a side benefit, it would also represent a wealth cap of $500 million.)

But that’s only one side of the story, which has been the sole focus of billionaires, mainstream economists, and political pundits. The other, perhaps even more important, side is the enormous gap between the wealth owned by the tiny group at the top and that of households who find themselves at the bottom.

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Since 1990, the net wealth of the top 1 percent has soared to $35 trillion while the bottom 50 percent of Americans have been left with only $2 trillion. For those in the top 1 percent, what this means is they’ve managed to capture a large share of the surplus, which they’ve used to accumulate enormous assets (with relatively few liabilities), which in turn can be used to continue to get a cut of the surplus generated by workers in the United States and around the world (in addition to financing politicians and setting the rules of the game). And the bottom 50 percent? They get wages and salaries that allow them to continue to work but prevent them from accumulating much wealth (which consists, as we can see in the second chart above, mostly of real estate, and even then is largely offset by mortgages and other liabilities). Without wealth of their own, workers in the bottom 50 percent are thus forced to have the freedom to continue to sell their ability to work to employers in order to subsist.

So, yes, the small group of owners of American wealth might in fact be smart—because they sit on top of a system that generates enormous wealth, most of which they own, and which does not trickle down to those at the bottom, who continue to have to work for a living and aren’t even allowed to benefit from programs financed by taxes on the concentrated wealth at the top.

But all the smarts in the world can’t hide the essential injustice and unfairness of the grotesquely unequal distribution of wealth in the United States. The discussion to change the system may begin with taxes but it won’t end there. It has to be aimed at both the economic institutions that are the root cause of that inequality and the ideas that serve to justify the obscene degree of inequality in the United States and to undermine any and all attempts to reform it.

Any candidate who makes that clear will be one worth voting for.

 

*In fact, as I showed back in 2018, specifically business-related wealth is even more unequally divided than total assets. For example, in 2014, the top 1 percent owned almost two thirds of the financial or business wealth, while the bottom 90 percent had only six percent.

**The article failed to note two flaws in the analysis: (1) that wealthy Americans would invest less in order to avoid accumulating wealth that would be subject to the tax (as if all their savings were directed into growth-inducing investments as against equity shares, art, and other forms of conspicuous consumption) and (2) that all the revenue raised by a wealth tax will go toward reducing the federal debt (and not, as Sanders and Warren have proposed, to providing universal childcare, tuition-free college, and other social programs).

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Obscene levels of economics inequality in the United States are now so obvious they’ve become one of the main topics of public and political discourse (alongside and intertwined with two others, the climate crisis and the impeachment of Donald Trump).*

Most Americans, it seems, are aware of and increasingly incensed by the grotesque and still-growing gap between a tiny group at the top—wealthy individuals and large corporations—and everyone else. And this sense of unfairness and injustice is reflected in both the media and political campaigns. For example, Capital & Main, an award-winning nonprofit publication that reports from California, has launched a twelve-month long series on economic inequality in America, “United States of Inequality: 2020 and the Great Divide,” leading up to next year’s presidential election. And two of the leading presidential candidates in the Democratic Party, Bernie Sanders and Elizabeth Warren, have responded by making economic inequality one of the signature issues of their primary campaigns, regularly describing the devastating consequences of the enormous gap between the haves and have-nots and proposing policies (such as a wealth tax) to begin to close the gap and mitigate at least some of its effects.**

As if on cue, we’re also seeing a pushback. It should come as no surprise that America’s billionaires—from Starbucks CEO Howard Schultz to multi-billionaire hedge-fund manager Leon Cooperman—have gone on the offensive, complaining about how the various tax proposals, if enacted, would reduce what they consider to be the fortunes they’ve earned and undermine two areas they alone control: private philanthropy and corporate innovation.*** And ironically, as Paul Waldman has claimed,

the more billionaires keep talking about how their taxes shouldn’t be raised, the more likely it is that their taxes will in fact be raised, one way or another.

Similarly predictable is the attempt to rejigger the numbers so that inequality in the United States appears to be much less than official sources report. For example, according to the Census Bureau [pdf], in 2018, the top quintile of households (with an average income of $233.9 thousand) had 17 times more than the bottom quintile (whose average income was only $13.8 thousand).**** Phil Gramm and John F. Early argue that “this picture is false” because it focuses only on money income and excludes both taxes and transfer payments.***** Their conclusion?

America already redistributes enough income to compress the income difference between the top and bottom quintiles. . .down to 3.8 to 1 in income received.

There is one kernel of truth in Gramm and Early’s analysis: while the rich pay more in taxes, government transfers make up a much larger share of income of those at the bottom.****** But their calculations dramatically overstate the extent to which taxes and transfers decrease the degree of economic inequality in the United States. That’s because they fail to include unreported capital income, including dividends and interest paid to tax-exempt pension accounts and corporate retained earnings (which are included in other data sets, such as G. Zucman, T. Piketty, and E. Saez, “Distributional National Accounts: Methods and Estimates for the United States” [http://gabriel-zucman.eu/usdina/]).

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As is clear in the table above, in 2014 (the last year for which data are available), the system of taxes and transfers only reduces the degree of inequality (measured as the ratio of top 10 percent average incomes to bottom 50 percent average incomes) from 18.7 to 1 to 10.1 to 1. And if we focus on post-tax cash incomes (thus excluding non-cash transfers, essentially Medicaid and Medicare), the resulting correction is even less: to 11.8 to 1. In both cases, the decrease in inequality is much less than in the Gramm and Early calculations.

The fact is, there are severe limits on what taxes and transfers can achieve in the face of the massive changes in the pre-tax distribution of income that have occurred in the United States since 1979. 

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As readers can see in the table above, while the average pre-tax incomes of the bottom 50 percent of Americans stagnated from 1979 to 2014, those of the top 10 percent increased by 100 percent and the incomes of the top 1 percent soared by even more, 183 percent.

If we compare the real incomes of the same groups after taxes and transfers, it’s clear that while the incomes of the bottom 50 percent of Americans did in fact inch upward from 1979 to 2014 (by a total of 18 percent, or only 0.5 percent a year), progressive taxes and transfers did not hamper the upsurge of income at the top: the average post-tax incomes of the top 10 percent doubled (by 2.86 percent a year) and those of the top 1 percent grew by more than 160 percent (by 4.8 percent a year).*******

The small group at the top continues to pull away from everyone else, both before and after taxes and transfers.

In my view, the degree of economic inequality in the United States is so severe that it can’t be sidetracked by billionaire complaints or swept away by the calculations of conservative economists. And, for that matter, it can’t be solved by enacting more taxes on the ultra-rich and more transfer payments for the rest of Americans. The problem is simply too large and systemic.

Only by understanding and attacking the roots of the inequality that has characterized the U.S. economy for decades now will we be able to close the enormous gap that has undermined the American Dream and shredded the fabric of political and social life in the United States.

 

*But, contra New York University historian Timothy Naftali, this is not the first time “we are having a national political conversation about billionaires in American life.” In fact, I’d argue, it’s a recurring debate in American history, stretching back at least to the rise of populism in the late-nineteenth century (and perhaps earlier, for example, to Shays’ Rebellion) and including the strike wave after the Panic of 1873, the anti-trust movement of the early-twentieth century, the crash of 1929 and the First Great Depression, and most recently the attacks on finance and the Occupy Wall Street movement during the Second Great Depression. In all those cases, Americans engaged in an intense national discussion of inequality and the role of the economic elite in political and social life.

**Even centrist Democrats have taken up, if only timidly, the banner of the anti-inequality campaign. For example, Rep. Brendan Boyle (D-PA), who has endorsed Joe Biden for the Democratic nomination, told The Washington Post he is crafting a new wealth tax proposal to introduce in the House of Representatives. And Rep. Don Beyer (D-VA), who last month endorsed South Bend Mayor Pete Buttigieg, has released a plan (with Sen. Chris Van Hollen of Maryland) for a new surtax on incomes over $2 million.

***The one area they don’t mention, which they also seek to control, is American politics—through lobbying, campaign donations, and the like. Wealthy individuals and large corporations attempt to exert such control although, as we just saw in Seattle—with Amazon’s $1.5 million campaign to unseat a socialist member of Seattle’s city council, Kshama Sawant—they’re not always successful.

****Money income includes the following categories: earnings; unemployment compensation; workers’ compensation; Social Security; supplemental security income; public assistance; veterans’ payments; survivor benefits; disability benefits; pension or retirement income; interest; dividends; rents, royalties, and estates and trusts; educational assistance; alimony; child support; financial assistance from outside of the household; and other income. The ratio of top to bottom rises to an astounding 60 to 1 in terms of only earnings. 

*****The Wall Street Journal column doesn’t explain how the alternative calculations were conducted. But Early, in a Cato Institute report [pdf], does explain their methodology.

******According to my calculations from the most comprehensive source (from G. Zucman, T. Piketty, and E. Saez, “Distributional National Accounts: Methods and Estimates for the United States” [http://gabriel-zucman.eu/usdina/]), in 2014, the bottom 50 percent of Americans received 74 percent of their post-tax income from transfers while, for the top percent, it was 19.5 percent.

*******What of the billionaires? Between 1979 and 2014, the average real post-tax incomes of the top .001 percent grew by 387 percent (or 11.1 percent a year), almost as much as their pre-tax incomes.

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On behalf of millions of young people striking on behalf of climate justice, 15-year-old Greta Thunberg excoriated world leaders for “moving forward with the same bad ideas that got us into this mess.”

Our civilization is being sacrificed for the opportunity of a very small number of people to continue making enormous amounts of money. . .

Until you start focusing on what needs to be done rather than what is politically possible, there is no hope. We cannot solve a crisis without treating it as a crisis.

We need to keep the fossil fuels in the ground, and we need to focus on equity. And if solutions within the system are so impossible to find, maybe we should change the system itself.

Much the same applies, of course, to the economic system that generates such grotesque levels of inequality. At the same time that Thunberg was making headlines in the United States and around the world, the U.S. Census Bureau reported that inequality—as measured by the Gini index for income—hit its highest level since the Census Bureau started tracking it more than five decades ago.

I’ve compiled the numbers in the chart at the top of the post. In 1967, the Gini index stood at 0.397; as of last year, it had risen to 0.486. In other words, income inequality had grown by more than 22 percent during that period.

As I warned back in 2014, Gini coefficients should be used with more than a few grains of salt. First, they should never be used to compare degrees of inequality across countries. Second, because the Gini boils down the overall distribution of income to a single number, it loses some detail. For example, if the Gini coefficient has gone up, it doesn’t tell us whether this is because the share going to the bottom 90 percent went down or the top 1 percent (or, for that matter, the top 0.1 percent or the top 0.01 percent) went up.

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So, we need to look at the actual income shares for various percentiles of the U.S. population to find out why inequality has grown so spectacularly since the late 1960s.

As is clear from the chart above (which, given the availability of data, ends in 2014), while the share of income going to the middle 40 percent (the orange line) did in fact decline (from 0.44 to 0.40), those in the bottom 50 percent (dark blue) were the real losers (as their share declined from an already low 0.20 to just 0.13). And at the top? The shares of the surplus captured by all of them—the top 1 percent (green, from 0.12 to .20), the top 0.1 percent (yellow, from 0.04 to 0.09), and the top 0.01 percent (light blue, from 0.02 to 0.04)—increased in what can only be described as an obscene manner.

The conclusion is therefore obvious: the rise in the Gini coefficient in the United States does reveal a long-term shift in the distribution of income from those at the bottom to a tiny group at the top.

And, yes, as Thunberg has correctly noted, if solutions within the system are so impossible to find, it’s time to change the system itself.

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The American Dream is dead. Long live the American Dream!

Let me explain. The official American Dream, the one that has been produced and disseminated at least as far back as the transition from the farm to the factory (in other words, since the late-nineteenth century), lies in tatters. Americans have long been encouraged to believe that everyone gets what they deserve—and, with equal opportunity, those who start at the bottom have a real chance of working their way to the top. Within generations, all workers had a chance to “make it.” And, between generations, children would likely be better off than their parents.

That promise—let’s call it the capitalist American dream—is now in tatters. It is dead and (almost) buried.

It’s not the first time, of course, that the capitalist American Dream has been called into question. During the Great Depression of the 1930s, American capitalism was not able to deliver the goods, at least for the majority of the population. Widespread unemployment and poverty, as capitalists shuttered their factories were shuttered and banks foreclosed on farms, meant that most Americans were faced with an economic nightmare. And much the same happened after the crash of 2007-08 when, in the midst of the Second Great Depression, millions of Americans were unable to find a decent job or purchase (unless they went further into debt) the necessary goods and services, for themselves and their children.

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The one major difference, of course, is that, while economic inequality fell after the first Great Depression, it actually resumed its upward trajectory during the so-called recovery from the Second Great Depression.

We also have to remember that that American Dream was only ever partial and incomplete. It was a promise but it really only held during the immediate postwar period. And, even then, only for white working-class families; Blacks and hispanics were mostly excluded, at least until the Civil Rights movement took hold. It also depended on the hegemony of the American economy, Pax Americana, after the recovery from the economic collapse and the destruction elsewhere occasioned by World War II.

Those conditions ended in the 1970s and, with stagnant wages and growing inequality culminating in the crash of 2007-08, one American Dream has died. One response to that ignominious death was the election of Donald Trump, who arose from the carnage and stands over it with his enablers, who have no interest in doing anything but to enrich themselves.

But there’s another American Dream that has captured the imagination of farmers and workers, young and old, for at least as long as the official one. It’s a dream of democracy and equality, of collective solidarity, that has animated many political and social movements and become enshrined in myriad policies and programs. Let’s call this one the socialist American Dream.

That’s the dream Americans have invoked to organize labor unions and farmer- and worker-owned cooperatives. It’s what has inspired attempts to expand the political franchise—to women and ethnic and racial minorities—and to create government programs whereby citizens help one another and force those at the top to participate. As a result, Americans have created progressive income taxes, a minimum wage, food stamps (now supplemental nutrition assistance), health and safety regulations, Social Security, Medicaid and then Medicare, environmental regulations, and now Medicare for All and a Green New Deal.

The ultimate historical irony is that the socialist American Dream made the capitalist American Dream possible. Without unions and cooperatives, and in the absence of social welfare programs whereby a portion of the surplus has been captured and distributed so that citizen-workers collectively could help one another, the official American Dream would have remained a myth. That is was a reality, at least for many and for a certain period of time, was due at least in part because of the existence of a socialist dream of betraying and moving beyond a capitalist logic of organizing economic and social life in the United States.

Moreover, the capitalist American Dream of individual success and intergenerational mobility began to unravel precisely when the socialist American Dream came under attack. The concerted attempt to weaken labor unions—not to mention, first, to halt the expansion of social programs and, then, to actively restrict access to them, accompanied by new ways of highjacking the electoral process—undermined American workers’ ability for themselves and for their children to get ahead. Ultimately, it ended any attempt they had at the official American Dream.

Why does the intertwining of these two American Dreams matter? Right now, it has enormous consequences because of the movement to unseat Trump and the ongoing debate inside the Democratic Party. I’m thinking, in particular, of the left-wing of the Democratic Party, represented by the democratic socialist Bernie Sanders and the radical populist Elizabeth Warren. As I see it, Sanders has long championed the socialist American Dream while Warren has been positioned, by her campaign and by those who see her as the capitalist alternative to Sanders, as rescuing the official American Dream with more progressive policies.

In my view, both Sanders and Warren would be better served by understanding the history of the two American Dreams. As I argued back in 2015, needs to drop the references to Canada and the Scandinavian countries and make the case that socialism—democratic socialism—has long been an American Dream.* And Warren, if she wants to live up to the aspirations of the Working Families Party (which just endorsed her), has to highlight the ways her policies will transform the economy in a manner that “fights for workers over bosses and people over the powerful”—in other words, that extends the socialist American Dream.

The death knell of one American Dream, symbolized tragically and with vengeance by Trump’s presidency, creates even more space for another American Dream, a socialist one, with its own long, rich history.

 

*During the third Democratic debate, in response to an inane question about the main differences between his “kind of socialism and the one being imposed in Venezuela, Cuba and Nicaragua,” Sanders responded: “I’ll tell you what I believe in terms of democratic socialism. I agree with goes on in Canada and in Scandinavia, guaranteeing health care to all people as a human right.”

The same day I wrote that capitalism was coming apart at the seams, indicated by the shocking disparity between the compensation of corporate CEOs and workers, the Business Roundtable published its new statement of purpose of a corporation.*  The 180 or so corporate executives who signed the statement declared that all their stakeholders, not just owners of equity shares, were important to their mission.

Many business pundits, such as Andrew Ross Sorkin, greeted the new statement as a sign that the era of shareholder democracy (what he refers to as “shareholder primacy”) had finally come to an end and that a “significant shift” in corporate responsibility to society would be ushered in. Readers, however, had their doubts, most of them echoing JDK’s response to Sorkin’s piece: “Talk is cheap.”

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The fact is, over the past three decades, net dividend payments to shareholders have soared—from $178 billion in 1989 to $1.3 trillion in 2019 (that’s an increase of 630 percent, for those keeping track).** And much of the responsibility is laid at the feet of mainstream economists like Milton Friedman (pdf), who famously declared that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits” and the only responsibility of corporate executives is to their employers, the shareholders—and corporate raiders such as Carl Icahn.

As I see it, the idea of shareholder democracy has merely served as a cover for any and all corporate decisions and strategies. When pushed to take on other responsibilities, or to make other decisions, the corporate defense has long been that it ran counter to the mission of maximizing profits or shareholder value.

In reality, corporations have never attempted to achieve just one objective or to maximize one value. One issue is that the usual objectives or values ascribed to corporate managers are ill-defined. There is neither singular meaning of profits (since, as they’re reported, they’re largely the result of a particular set of accounting conventions, defined over the fuzzy boundaries of the inside and outside of a corporate entity) nor a unique time frame (over what period are profits or dividends maximized—a week, quarter, year?).*** But the defense of such a corporate mission has served as a convenient excuse to resist pressures to make different decisions or adopt alternative strategies—such as increasing worker pay, improving working conditions, implementing environmentally sustainable practices, and so on.

My view, as I argued back in 2013, is that corporations have never done just one thing or followed a single rule. They do make profits (at least sometimes, depending on the definition and timeframe). But they also seek to grow their enterprises and destroy the competition and maintain good public relations and buy government officials and reward their CEOs and squeeze workers and lower costs and reward shareholders and implement new forms of automation and build factories that collapse and. . .well, you get the idea. In other words, they appropriate and distribute surplus-value in all kinds of ways depending on the particular conditions and struggles that take place over the shape and direction of their enterprises.

The problem inherent both in the new Business Roundtable statement of purpose and in the attempts by corporate critics to argue that corporations should take on additional social responsibilities is that corporations are already too central to the U.S. economy and society. They’re the main institution where the surplus is appropriated and then distributed—with all the consequent effects on the wider society. The private decisions of corporate entities, as decided by the boards of directors and implemented by the chief executives, are responsible for the Second Great Depression, the grotesque levels of economic inequality that have been growing for decades now, the global-warming crisis, and so much more. Why would anyone want to give corporations even more power or scope to decide how to solve those problems when they’re the root of the problem in the first place?

No, the only viable strategy is make corporations less important, to decenter the American economy and society from the decisions made by corporate directors and executives. That begins with fostering the growth of other types of firms (such as worker-owned cooperatives) and making sure that the workers employed by corporations play a significant role in corporations (including how much surplus there will be and how it will be utilized). That’s the best way of moving beyond the era of shareholder democracy to a real economic democracy.

Anything else is just cheap talk.

 

*I certainly don’t want to imply that the Business Roundtable was responding to my blog post. No, the fact that they felt it necessary to issue such a new statement of purpose is an indication that American corporations—and, with them, U.S. capitalism—have lost a great deal of legitimacy in recent years. As Farhad Manjoo [ht: ja] recently wrote,

A recession looms, and the nation’s C.E.O.s are growing fearful.

It isn’t the potential of downturn itself that has them alarmed — downturns come and downturns go, but whatever happens, chief executives, like cats, tend to land on their comfortably padded feet.

Instead, the cause of their fear appears to be something more fundamental. . .They’re worried that when the next recession breaks, revolution might, too. This could be the hour that the ship comes in: The coming recession might finally prompt the masses to sharpen their pitchforks and demand a reckoning.

**During that same period, average hourly earnings (for production and nonsupervisory workers) increased by only 140 percent—but corporate profits (after tax) rose by 570 percent.

***As I have long explained to students, that’s the myth that serves as the foundation of the neoclassical theory of the profit-maximizing firm: what exactly are corporate profits and over what time frame are they supposed to be maximized? The assumption of a profit-maximizing firm is equivalent to what one hears from many so-called radical economists, that “capitalists accumulate capital.” Again, no. Accumulating capital (that is, purchasing new elements of constant and variable capital) is only one of the many possible forms in which capitalists distribute the surplus-value they appropriate from their workers. Sometimes they accumulate capital, and other times they don’t. The presumption that they always seek to accumulate capital is the heroic story proffered by classical economists (so that, in their view, capitalist growth would take place), much as neoclassical economists today presume that capitalists maximize profits (so that, in their view, an efficient allocation of resources will result). Marxists presume neither that capitalists maximize profits nor that they always and everywhere accumulate capital.

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American capitalism is coming apart at the seams.

Truth be told, it’s been coming apart for decades now—and that trend has only continued during the recovery from the worst crash since the 1930s.

A good indicator of the shredding of the U.S. economic and social fabric is the difference in the level of compensation of Chief Executive Officers of major American corporations compared to that of the average worker. While they labor, workers create value, some of which they receive back in the form of compensation; the rest of what they produce is the surplus, which is appropriated by the boards of directors of the enterprises that hire the workers. The boards also hire CEOs, to supervise the production of the surplus, who in turn get a cut of the surplus. In other words, the executives share in the booty created by the workers they supervise. Thus, both groups—CEOs and workers—perform labor and are compensated for their work but the source and level of their compensation couldn’t be more different.

According to the Economic Policy Institute, in 2018, average compensation (including realized capital gains) of CEOs at the top 350 American firms was $17.2 million. And for workers? It was only $56 thousand. As a result, the ratio of CEO compensation to that of workers was an astounding 278.1 to 1! In 1978, that ratio stood at 29.7 to 1. The spectacular growth in the CEO-to-average-worker-compensation ratio reflects the fact that, over that same period, CEO compensation has risen 940.3 percent while that of workers has grown only 11.9 percent.

Just in the past nine years of the so-called recovery, CEO compensation far outpaced that of workers: 52.6 percent compared to only 12.7 percent.

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It should come as no surprise, then, that over the 1978-2018 period, the labor share of national income has dropped precipitously, by 8.7 percent (falling 2.1 percent just since 2009). Corporate CEOs have thus done their job—extracting more surplus from workers—and been rewarded handsomely for their efforts.

And Americans are quite aware of how unfair the U.S. corporate economy has become.

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According to a 2016 survey conducted by David F. LarckerNicholas E. Donatiello, and Brian Tayan for the Stanford Rock Center for Corporate Governance, 74 percent of Americans believe that CEOs are not paid the correct amount relative to the average worker; only 16 percent believe that they are. And 70 percent believe that CEO compensation in the United States is a problem; only 18 percent think it’s not. 

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And that’s even when Americans grossly underestimate the amount of the surplus corporate CEOs manage to capture. The typical American believes a CEO earns $1 million in pay (with an average of $9.3 million), whereas median reported compensation for the CEOs of these companies was approximately $10.3 million (with an average of $12.2 million).

In other words, CEO compensation figures are much higher than the public is aware of, and for many Americans it is simply incomprehensible that anyone can earn that much money.

Moreover, Americans are not convinced corporate CEOs should be able to capture as much of the surplus as they do. For example, according to the same survey, when respondents are given a hypothetical situation in which a company’s value increases by $100 million over the course of a year, the median respondent believes that the CEO should receive only 0.5 percent ($500,000) as compensation. In other words, as Donatiello put it, “Either the public is not sold on the idea that CEOs should share in value creation to the extent that they do. Or they do not believe that CEOs play an important role in value creation.”

Clearly, the high level of exploitation—and the subsequent distribution of a large portion of the resulting surplus to CEOs—is the source of the rending of the U.S. economic and social fabric. Unless corporations are fundamentally transformed, so that workers and society as a whole have a say in the size and distribution of the surplus, American capitalism will continue to come apart at the seams.