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Don't Fool Yourself, the Economic Game is Rigged

By Kevin Osborne · September 29th, 2010 · Porkopolis
If you're a typical Republican or a Tea Partier, then you must think the average CEO in the United States works 344 times harder than the average worker. Or, at the least, that the average CEO is worth 344 times more than the worker.

The latest findings of the U.S. Census show the gap between the richest and poorest Americans is at its widest since records tracking household income have been kept, and is the highest among all industrialized Western nations.

As reported by the Associated Press and others, the top 20 percent of Americans (those earning above $100,000 annually) received almost 50 percent of total income, while those living below the poverty line earned just 3.4 percent. That's a ratio of 14.5-to-1, almost double the low of 7.69 percent in 1968.

And the wealthiest 5 percent of Americans (those earning more than $180,000 annually) actually saw their incomes increase, while the nation was in the throes of the worst recession since the Great Depression.

The latest data was tabulated in 2009 but reflects figures from 2007, when the recession began. That means the picture probably will turn bleaker once more current numbers are crunched.

Also, the number of Americans living below the poverty line increased from 5.7 percent in 2008 to 6.3 percent last year.

All of which brings us back around to those CEO figures.

Comparing the pay of the average worker to the average CEO has been used as an economic indicator for decades, by everyone from economists to Business Week magazine to the AP.

In 2007, again the latest year with available data, the ratio between the two was 344-to-1. That's right, the average CEO made more than 300 times the salary paid to the average worker.

Here are some numbers to provide perspective: The ratio was 42:1 in 1960, didn't exceed the 100:1 point until the late 1980s and topped out at 531:1 in 2000, during the stock market bubble.

By comparison, the current ratio in Europe is about 25:1.

Ask most Republicans and Tea Partiers if CEOs are overpaid, though, and you will get some variation on the reply, “let the free market determine compensation.”

Most Republicans subscribe to the discredited theory of “trickle down economics,” which is hokum contrived out of whole cloth that states the more money made and kept by the wealthy elite, the more it will invest in the economy as a whole and ultimately will benefit lower-tier workers. But this has been (more or less) the modus operandi of the U.S. economy since 1986, which just happens to be around the same time the huge income disparity began.

Most Tea Partiers have a Libertarian bent and believe in the so-called “Austrian school of economics.” It states that a purely free market economy is preferable to a centrally planned one, and the “sovereignty of the consumer” should guide all economic decisions.

(It should be noted that the Austrian school is considered out of the mainstream by most economists.)

The Austrian school was created by the late economist Ludwig von Mises, the darling of the Tea Party movement. But von Mises hardly was a fan of the common man or Average Joe. Here is von Mises' praise for Atlas Shrugged, the novel by his disciple, that other great rationalizer of greed, Ayn Rand: “You have the courage to tell the masses what no politician told them — you are inferior and all the improvements in your conditions which you simply take for granted you owe to the efforts of men who are better than you.”

In other words, stick to wearing your little Revolutionary War hats festooned with tea bags and be happy with your lot in life, you dolt. (And they have the nerve to call liberals elitist?)

Neither philosophy is equipped to deal with radical income disparity, which isn't some natural function of the economy but rather an example of greedy men and women stacking the deck to favor themselves.

G. William Domhoff, a sociology professor at the University of California Santa Cruz, aptly describes the situation in his paper Who Rules America?

Domhoff wrote, “If you wonder how such a large gap could develop, the proximate, or most immediate, factor involves the way in which CEOs now are able to rig things so that the board of directors, which they help select — and which includes some fellow CEOs on whose boards they sit — gives them the pay they want. The trick is in hiring outside experts, called 'compensation consultants,' who give the process a thin veneer of economic respectability.”

He adds, “The process has been explained in detail by a retired CEO of DuPont, Edgar S. Woolard, Jr., who is now chair of the New York Stock Exchange's executive compensation committee. His experience suggests that he knows whereof he speaks, and he speaks because he's concerned that corporate leaders are losing respect in the public mind.

“He says that the business page chatter about CEO salaries being set by the competition for their services in the executive labor market is 'bull.' As to the claim that CEOs deserve ever higher salaries because they 'create wealth,' he describes that rationale as a 'joke,' says The New York Times.”

Democrats aren't entirely blameless for this sad state of affairs.

President Clinton led the push for globalization in the 1990s, which gutted whatever remained of the U.S. manufacturing sector without a comprehensive policy to deal with the unemployment it caused. So now we have folks like Clinton and President Obama saying much of the current jobless crisis is due to structural unemployment, or a mismatch between what skills workers have and the ones needed by the free market.

But no great cache of unfilled jobs exist, just waiting for the right workers; it's simply that demand is down because overall wealth has decreased. In an economy based on consumerism and a model of unlimited growth, that's bad news.

A quick aside: Whenever I've written anything critical about the U.S. economic system in the past, my more unimaginative critics have called me a “Marxist.” Those are the people who still think it's 1952 and, for that matter, still think the United States has a capitalist economy.

In reality, no nation has an ideologically pure economy. It's more like ordering a meal from a Chinese restaurant: You take a few items from Column A, a couple from Column B and — if you know the chef — ask for a specialty that's not listed to top things off.

I'm under no illusion that economics is inherently moral, but it's the abuses caused by the extremes of any system — whether it be capitalism or communism — that should be avoided.

As economist Paul Krugman recently wrote, “The market economy is a system for organizing activity — a pretty good system most of the time, though not always — with no special moral significance. The rich don’t necessarily deserve their wealth, and the poor certainly don’t deserve their poverty; nonetheless, we accept a system with considerable inequality because systems without any inequality don’t work. And before the trolls jump in to say, 'a-ha, Krugman concedes the truth of supply-side economics,' that’s not an argument against progressive taxation and the welfare state; it’s just an argument that says that there are limits.”

Wall Street CEOs and their Congressional enablers need to recognize these limits. Otherwise, their unmitigated greed will lead to instability.

As Supreme Court Justice Louis D. Brandeis once said, “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.”


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10.05.2010 at 09:11 Reply
someone want YOU to work till you DROP or 70 what ever comes first. http://www.youtube.com/watch?v=mN03ODQjHGM

 

10.07.2010 at 03:17 Reply
That multiple between CEO pay and front=liner pay is troubling and shouldn't be casually dismissed. But again Kevin in your unending attempts to incite class war and portray politics as a cut-and-dry battle between the with-it good (the left) and thout-of-hetouch amoral, you conveniently disregard key data points. First

 

10.07.2010 at 03:22 Reply
Screw it. My computer is f'ing up and publlishing before I'm done so I'll keep it short and sweet. You go

 

10.07.2010 at 03:23 Reply
One more try: you got some serious commie, pinko tendancies, Mr. Osborne. You should have that looked into.

 

 
 
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