Posts Tagged ‘inequality’

CEOs

The typical American has no idea how much corporate CEOs make—but they still believe CEOs are making much too much.

That’s according to a new study from researchers at the Stanford Graduate School of Business (pdf):

Public frustration with CEO pay exists despite a public perception that CEOs earn only a fraction of their published compensation amounts. Disclosed CEO pay at Fortune 500 companies is 10 times what the average American believes those CEOs earn. The typical American believes a CEO earns $1 million in pay (average of $9.3 million), whereas median reported compensation for the CEOs of these companies is approximately $10.3 million (average of $12.2 million). . .

The vast majority (74 percent) of Americans believe that CEOs are not paid the correct amount relative to the average worker. Only 16 percent believe they are paid an appropriate amount.

Even more:

Nearly two-thirds (62 percent) of Americans believe that there is a maximum amount CEOs should be paid relative to the average worker, regardless of the company and its performance. . .

Those who believe in capping CEO pay relative to the average worker would do so at a very low multiple. The typical American would limit CEO pay to no more than 6 times (17.6 times, based on average numbers) that of the average worker. These figures are significantly below current pay multiples, which are approximately 210 times based on recent compensation figures.

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Contemporary capitalism has a big problem. And no one seems to be able to refute it.

The problem, as Robert J. Gordon sees it, is that economic growth is slowing down, it has been for decades, and there’s no prospect for a resumption of fast economic growth in the foreseeable fure. After fifty (from 1920 to 1970) years of relatively fast growth, and a single decade (the 1950s) of spectacular growth, the prospects for continued growth seem to have dimmed after 1970.

In the century after the end of the Civil War, life in the United States changed beyond recognition. There was a revolution—an economic, rather than a political one—which freed people from an unremitting daily grind of manual labour and household drudgery and a life of darkness, isolation and early death. By the 1970s, many manual, outdoor jobs had been replaced by work in air-conditioned environments, housework was increasingly performed by machines, darkness was replaced by electric light, and isolation was replaced not only by travel, but also by colour television, which brought the world into the living room. Most importantly, a newborn infant could expect to live not to the age of 45, but to 72. This economic revolution was unique—and unrepeatable, because so many of its achievements could happen only once. . .

Since 1970, economic growth has been dazzling and disappointing. This apparent paradox is resolved when we recognise that recent advances have mostly occurred in a narrow sphere of activity having to do with entertainment, communications and the collection and processing of information. For the rest of what humans care about—food, clothing, shelter, transportation, health and working conditions both inside and outside the home—progress has slowed since 1970, both qualitatively and quantitatively.

From what I have read, Gordon appears to privilege technical innovation over other factors (such as dispossessing noncapitalist producers and creating a large class of wage-laborers, concentrating them in factories and cities, and so on). He also seems to argue that the fruits of past economic growth were evenly distributed and that the drudgery of work itself has been eliminated.

Still, the idea that rapid economic growth took place during a relatively short period of time dispels one of the central myths of capitalism, much as the discovery that relative equality in the distribution of wealth and constant factor shares characterized an exceptional phase of capitalism.

And that’s a problem: the presume and promise of capitalism are that it “delivers the goods.” It did, for a while, and now it seems it can’t—which has mainstream commentators worried.

They’re worried that capitalism can no longer guarantee fast economic growth. And they’re worried, try as they might, that they can’t refute Gordon’s analysis. Not Paul Krugman or Larry Summers or, for that matter, Tyler Cowen.

All three applaud Gordon’s historical analysis. And all three desperately want to argue he’s wrong looking forward. But they can’t.

The best they can come up with is the idea that the future is uncertain. Thus, as Cowen writes, “many past advances came as complete surprises.”

Although the advents of automobiles, spaceships, and robots were widely anticipated, few foretold the arrival of x-rays, radio, lasers, superconductors, nuclear energy, quantum mechanics, or transistors. No one knows what the transistor of the future will be, but we should be careful not to infer too much from our own limited imaginations.

Indeed. We certainly don’t know what lies ahead. But, since the 1970s, we’ve witnessed growing inequality in the distribution of income and wealth, which resulted in and in turn was exacerbated by the most severe economic crisis since the 1930s. Capitalism’s legitimacy, based on “just deserts” and economic stability, was already being called into question. Decades of slow economic growth and the real possibility that that trend might continue for the foreseeable future mean that capitalism (not to mention those who spend their time celebrating capitalism’s successes and failing to imagine alternatives) has an even bigger problem.

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Chart of the day

Posted: 4 February 2016 in Uncategorized
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As Alvin Powell explains,

One measure of American inequality is the percentage of the nation’s overall wealth owned by different parts of the population. The graphic above shows that the richest 20 percent of the country owns 88.9 percent of the nation’s wealth, while the bottom 40 percent owes more than it owns.

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It’s impossible to defend the grotesque—and growing—levels of inequality that characterize U.S. capitalism.

But, as they have throughout American history, some people still try. Their most common argument is that there’s nothing wrong with unequal outcomes as long as there is equal opportunity.*

Hmmm, not so much.

A recent study by a team of researchers led by Stanford economist Raj Chetty (pdf)—summarized and analyzed by Ben Casselman and Andrew Flowers—confirms that “where you come from. . .plays a major role in determining where you will end up later in life.”

Your starting point determines, for example (as in the figure above), how likely you are to have a job at age 30. Children from poor families are much less likely to work in adulthood than children from middle-class and upper-class families. Only about 60 percent of children from the poorest families are working at age 30, compared with more than 80 percent of children from higher-income families.

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It also determines your income at the age of 30: there’s a steady increase in income until the top few percentiles of parental income, when it spikes.**

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And, finally, it determines where you end up in the distribution of income (as the chart above measures not dollar incomes, but household income by percentile). Children from the richest 1 percent of families end up being, on average, in about the top third of households at age 30, while children from the poorest 1 percent of families end up in the bottom third at age 30.

It’s clear the United States suffers from an obscenely unequal distribution of income and wealth. It’s also characterized by a profoundly unequal distribution of opportunities.

 

*That line of argument suffers from three main problems: First, it presumes inequality only affects individuals, not society as a whole. In other words, it overlooks the effects of the concentration of income and wealth in the hands of a small group of individuals in terms of their ability to decide what happens not only in their own lives, but in the rest of society. Second, even if perfect mobility existed, making it to the top would still mean there’s a an even larger group at the bottom; that is, the existence of equal opportunity doesn’t undo or overturn the existing class structure. Third, it overlooks the extent to which unequal outcomes actually contribute—via household and neighborhood effects, government policy, education, and so on—to making equal opportunity an even more distant fantasy.

**As Casselman and Flowers explain, “This measures only wage and salary earnings, so it doesn’t factor in any other advantages these young adults might have, such as trust funds, lower student debt, or parental help with housing or other expenses.”

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