There is also an interesting article at New Scientist, from which the graph above was sampled, on inequality:
The dislike of economic inequality supposedly runs deep in human psychology. The trait we call “inequality aversion†emerges early in development and is found across many cultures, from city dwellers in the US to villagers in Peru and Uganda.
Laboratory studies confirm that inequality aversion is a strong motivator of behaviour. For example, when people are asked to divide money among themselves and fellow subjects in experiments, they have a clear preference for equal distribution. This desire for equality is so powerful that people often choose to receive smaller but more equal rewards over larger but more unequal ones, and in other cases prefer surplus resources to be thrown away rather than distributed unequally.
There is, however, a paradox. A separate body of research finds something quite different. When people are asked about the ideal distribution of wealth in their country rather than among a small group of individuals in the lab, they are actually quite relaxed about inequality.
What I think people are forgetting is that the considerable inequality of today is something that hasn’t been seen within living memory. When I was a kid things were much more like those “what they’d like to see” bars than they are like what they thinks things are or what they really are.
Here’s a significant observation:
In 1960, a chief executive in the US typically earned 20 times as much as an average worker. Today it is more like 354 times.
I refuse to believe that is due to the workings of the market or justified by productivity. I have no problem with the boss making 20 times as much as I do but I refuse to believe that he’s 15 times as productive as the bosses of 60 years ago.
I think that competition, barriers to entry, and subsidies mark the difference not any great superiority of today’s managers compared to those of long ago.
“I think that competition, barriers to entry, and subsidies mark the difference not any great superiority of today’s managers compared to those of long ago.â€
I’m not sure what to infer from your inclusion of competition. If it’s competition for best talent then so be it. The same applies to Labron James. If it is that it’s wiser to bring in and pay top tick, given today’s global competition vs 60 years ago, so be it. If it’s due to a failure of board and investor oversight, that’s not right.
As far as barriers, subsidies, regulatory capture, allowance of monopoly etc etc………for the umpteenth time, it is largely government and its powers to grant/approve or turn their heads away that have caused this. But no one puts it that way to the people in surveys. It’s almost always recast in a Suttonesqe or Robin Hood vein.
And I will make a gentlemen’s bet. Any politically feasible solution will target that second 20% the most. The bottom will receive a handout to retain their status as a permanent underclass, and reliable vote. Cruel but effective. People in the middle need to wake up, shed the myth, and realize that government is not their friend.
Overseas competition Competition from immigrants, legal or illegal. Those are keeping wages down for many workers.
Offhand I suspect that very few of the Central American immigrants in the caravan are competition for Lebron James or David Goldman but they will compete with millions of Americans and recent immigrants earning the lowest wages.
In other words the increasing concentration of wealth isn’t simply due to CEOs earning more but to rank and file workers wages not rising at the same rate. That is a consequence of policy.
Wealth distribution has always intrigued me. My latest theory is that the behavior problem may not lie with the top, but with the comfortable bottom who work only as much as needed to keep the lights on. Who never husband their money. In my ideal world Steve Jobs would have had to sell the I Phone for $49.95 or not at all. Dietrich Mateschitz would have never been able to convince anyone to buy an ounce of Red Bull. In fact all drinks and colas would lose their market share to tap water. These and many other decisions would allow people to save 50% or more of their income, and getting fabulously wealthy would be a lot more unlikely.
I doubt that frivolous purchases pay as great a role in lack of savings as you seem to think, GS. Let’s look at a budget for a family of four in Chicago earning an income of $60,000/year with two wage-earners. They take public transportation to work.
You could scrimp on food, clothing, misc., and utilities but not enough to save 50%. Cramming everybody into an efficiency could save a few grand. That’s not living the high life. Those are ordinary, expected levels of expense here.
I remember an interview on TV from a number of years ago. The interviewer asked a Fortune 500 CEO how he could justify a salary of $11 million a year. He answered:
I am the final decision maker and thus responsible for a company that employs over 100,000 people in 14 countries and 4 continents. Our annual revenues exceed the GDP of a number of countries.
Katie Couric is cute and reads a teleprompter. She gets the same salary as I do.
“As far as barriers, subsidies, regulatory capture, allowance of monopoly etc etc………for the umpteenth time, it is largely government and its powers to grant/approve or turn their heads away that have caused this. ”
This is happening all over the anglo world in particular. Is it possible that all of the governments of the world colluded to make CEOs and finance people rich? Sure, but not likely. This is mostly these people making themselves rich because they can and no one has the power or willingness to stop them. They now control the media, the think tanks and the government. Heck, they even run for government offices now. This is not changing for a long time and we should expect it to get worse.
Steve
The Fortune 500 CEO of 50 years ago had the same level of responsibilities and had 1/15th the compensation that today’s Fortune 500 CEO does. The comparison should be with him and not Katie Couric. That’s misdirection.
Also, the Fortune 500 CEO of 50 years ago was expanding his business rather than just expanding its stock price. That’s what the enormous price to book ratios of today mean.
Two I phones and service— $1800.00/yr.
Cable TV phone And internet $1800.00/yr.
Foot transport $0
utilities $10,000? mine are $3,000/yea
Rent double up.
Misc not
If things are really that tough, act like it.
If the financial guys/gals do not get rich, nobody else does, and when they get poorer, everybody else gets poorer faster. This is what happens with a credit-backed currency, and since most central banks are managing a credit-backed fiat currency, it is happening globally.
Dave
Surely you know by now I agree with that. The point about James was snark as the focus in these debates seems to only focus on the upper echelons, for obvious propaganda reasons, and to point out that wages are paid for talent in multiple venues. I honestly don’t know why CEO pay has increased so much, other than the equity incentives. It’s probably all three issues I cited. As for equity, the worm has turned.
As for those at the bottom, yes, policy. It has created a semi-permanent underclass, encouraged wage competition for those least able to afford it and retarded robust, wage increase producing, growth. The Fed has also managed to screw the relatively low income saver. But it’s not as sexy to talk about that end of the scale, and it would force people to make inquiries of Sen Schumer – like right now. I don’t care if the Wall didn’t really work, the notion that there is not $5B to try is absurd. I think opponents have other agendas, and are afraid it will work.
Gray – I’d be careful to fly too close to the sun in entertaining dictating prices. However, you raise an issue that people don’t like to talk about. There was a time when luxury goods were just that. Today, everyone, including the poor, must have their cell phones and their attendant bills, cable TV (s) and their bills, dining out, marquee sneakers, movies and so on. In fact they don’t husband their money. And when they run short, they want their neighbor’s money.
I was relatively prosperous in the eighties after my engineering BS, but did not spend on luxuries at all. Very, very rarely. I saved for grad school. It paid off and now I’m in that 1 or whatever percent everyone talks about. I’m sounding like an old fart, but that ethic seems to have been abandoned. And advocating that as part of the solution to income inequality will get you no votes.
Dave – I think you misrepresent the issue when you cite a target 50% savings rate. Low income or early in life people need only save 5-10%. They don’t. I figured out a way. The truth is they can as well. They choose not to.
I also don’t believe Katie Couric is irrelevant. The fact is that entertainers in general – sports, popular music, movie and TV stars (including news readers) – college and high school administrators, public sector workers, surgeons, etc have all seen dramatic increases in compensation. It’s not just CEOs. . Then we can talk vacations on credit cards blah blah…… Pulling that whole puzzle apart is difficult. But the ultimate consumer paying for all that include a lot of the people pleading their relative middle class woes. In my 20s it was cheap eats, no vacations and entertainment was TV. When I was 30 I wasn’t forking over $200/seat to watch the Blackhawks. Probably not until 40. But I’d do it in a heartbeat now. Hell, I’ve paid $2000 for third row “Keith side†seats, and once took and paid top tick for my daughter just so she could see the Stones. (She wasn’t impressed). Look at the crowds at entertainment events. Look at airlines catering to the FL vacation crowd. Lots of middle class people. I think you dramatically underestimate the ability of people to choose their lifetime expenditure patterns. Relatively few plan well or are disciplined. That’s on them in a free society.
I’m waiting for the first congressman, college professor……or NYTimes editorialist to bitch and moan about how Jay-Z is the cause of income inequality. I’m also waiting for Godot.
https://www.zerohedge.com/news/2018-12-20/forbes-richest-celebrities-collectively-have-more-wealth-iceland
The problem I have with CEO compensation is not necessarily how comparatively high it is, the problem is that it’s not tied to performance. A CEO can run a company into the ground and get fired and will still get a sweet multi-million dollar exit package. Where’s the risk?
As far as savings go, yes it is possible at almost any income level (not for everyone’s particular circumstance), but it takes a lot of discipline which most people don’t have thanks to our highly consumer-oriented culture that preys on our monkey brain instincts, among other factors.
Everyone brings up CEO pay. They have professional agents negotiating with a board of directors consisting of CEO s of other firms who are also represented by that agent or his partners. It’s a circular daisy chain pushing all the members up the financial ladder.
So tell me again why it’s wrong for laborers to form unions to negotiate conditions and pay? Because it’s unethical to threaten to withhold my labor? Or is it because there are no workers rights in the “Peoples Republic of China” with whom we must compete, and using tariffs to level the playing field is just plain wrong.