Checking In On the Rich
| Mon Jul. 20, 2009 9:51 PM PDT
The communists at the Wall Street Journal present us with the latest executive pay data today:
Executives and other highly compensated employees now receive more than one-third of all pay in the U.S.....In the five years ending in 2007, earnings for American workers rose 24%, half the 48% gain for the top-paid. The result: The top-paid represent 33% of the total, up from 28% in 2002.
....The data suggest that the payroll tax ceiling hasn't kept up with the growth in executive pay. As executive pay has increased, the percentage of wages subject to payroll taxes has shrunk, to 83% from 90% in 1982. Compensation that isn't subject to the portion of payroll tax that funds old-age benefits now represents foregone revenue of $115 billion a year.
You probably thought that the big problem with skyrocketing executive pay was the fact that it left nothing for the rest of us. And you're right: that 24% increase for "American workers" includes the 48% increase for the top earners. In other words, the executives got a 48% increase, the rest of us got approximately nothing, and it all averaged out to 24%.
But that's not all! It also means that the average joes with stagnant wages couldn't keep up, so they went deeper and deeper in debt. And who loaned them the money to do that? Well, the rich can't really spend that ocean of extra dough they're getting — the technical reason is that they have a lower marginal propensity to consume than average joes; the nontechnical interpretation is that you can only buy just so many yachts — so they ended up loaning most of it back to the middle class. We all know how that turned out — but the rich got bailed out by the taxpayers so they ended up OK. The rest of us, not so much.
And now the Journal is pointing out yet another problem with running our economy solely for the benefit of the wealthy: you only owe payroll taxes on income up to $106,000. This number rises every year, but it doesn't rise nearly as fast as the earnings of the rich. Which means that more and more income every year is above the cutoff and doesn't get taxed. And that in turn means that Social Security is in considerably worse shape than it would be if increases in national income weren't being hoovered up almost exclusively by the executive class.
So there you have it. If we don't pass healthcare reform it will be because the rich don't want to help pay for it. Average wages are stagnant because that leaves a bigger pool of money for the rich to slosh around in. We're letting the planet fry because policies to stop it would inconvenience the rich. Regulatory reform of the financial system increasingly appears to be a dead letter because Congress is owned by the rich and they don't want it. Against all that, I suppose that crippling Social Security hardly even shows up in the ledger. But we might as well tot it up anyway.
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Comments
Pitchforks
Submitted by Tigershark on Mon Jul. 20, 2009 9:57 PM PDT.
Pitchforks at dawn? Wall St., NYC.
Kevin, IMHO your analysis is
Submitted by John Hansen (not verified) on Mon Jul. 20, 2009 10:40 PM PDT.
Kevin,
IMHO your analysis is bunk, and I am not afraid to say so. What is driving up the percentage that the super wealthy get? Is some government bureaucrat dictating that wealthy get more of a share? Is the person who is asleep at the switch allowing more money to be funneled to the "evil rich"?
No, technology has expanded the market that one person reaches. Consider the difference between someone who writes a hit song today, and someone who wrote a nice ditty in the 1600's. The real Renaissance man gets heard by how many? Maybe 40 lords and ladies of the king's court, is usually penniless, and no common people ever got to be entertained by him.
Today, a songwriter/singer sells the right to download his song for $.99 cents. Many, many more people get to hear him, and he gets rich as he entertains millions from all countries.
There is not an evil plot of the giant hand of Adam Smith to concentrate the wealth in the hands of the few. Rather, technology allows well created wealth to be shared amongst a greater and greater audience.
The lesson is that economics is not a zero sum game. I don't know why liberals can't get this simple concept. Its easy to understand. Technology allows the productivity to increase. The fact that created wealth can reach more people does allow the profits to be more concentrated, but the benefit of cheap goods accrues to all the people.
One of the greatest moral laws ever introduced into a society is "Thou shalt not covet." A society built upon this law will have a great shared prosperity. The society that is centered around "what belongs to your rich neighbor is really yours" will produce a poor society of shared misery.
There is a legitimate role for government, in helping the increased technology to benefit all. That is to correctly balance patent law to keep innovation growing, but at the same time allowing timely improvement - to keep monopolies from being formed ( which form mostly from bribing of government officials ) - and to protect the rights to private property. The worst role for government is to try and redistribute income. It does not work.
John Hansen: "Is some
Submitted by alex (not verified) on Tue Jul. 21, 2009 7:10 AM PDT.
John Hansen: "Is some government bureaucrat dictating that wealthy get more of a share?"
In many cases, yes. Example: the AIG bailout, for which the government had no legal or financial obligation, was a conduit that put $12B of my (and other taxpayers) money into G-S coffers.
John Hansen: "Consider the difference between someone who writes a hit song today, and someone who wrote a nice ditty in the 1600's."
Technology has an effect, but so does a government granted monopoly called copyright. It didn't exist in the 1600's, and yet we had musical geniuses like Bach.
John Hansen: "There is not an evil plot of the giant hand of Adam Smith to concentrate the wealth in the hands of the few."
And yet Mr. Smith was keenly aware of that problem, and recommended things like progressive taxation to ameliorate it. What we have now, when you look at all taxes (federal, state and local) is a system that's barely progressive. Absurdly, the truly wealthy pay lower rates than the upper middle class. That's largely due to the capital gains rates, and the fact that capital gains are not subject to Medicare or other payroll - as opposed to income - taxes.
Another thing Mr. Smith advocated was a well regulated financial sector, to reduce speculative bubbles. Seems like some of Mr. Smith's fans have forgotten that part.
John Hansen: "Technology allows the productivity to increase."
Of course, which explains why a construction worker driving a bulldozer can do so much more in an hour than someone with a shovel, and hence why that construction worker can be better compensated than his counterpart of centuries past.
John Hansen: "the benefit of cheap goods accrues to all the people"
Yet it seems to accrue so much more to some people than to others. Technology explains only the increase in aggregate productivity, not the distribution of the fruits of that productivity.
John Hansen: "One of the greatest moral laws ever introduced into a society is 'Thou shalt not covet.'"
Then please explain the coveting of my tax money by financial firms.
John Hansen: "The worst role for government is to try and redistribute income. It does not work."
Someone must have forgotten that during the 1940's through 1960's, when aggregate productivity increased dramatically yet inequality was reduced. I guess they didn't realize they were violating some sort of economic law. Should they have been arrested for that?
"I see in the near future a
Submitted by Anonymous (not verified) on Tue Jul. 21, 2009 9:13 AM PDT.
"I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. . . . corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed." Abe Lincoln
Abraham Lincoln, elected in 1860 as the first Republican president, knew at least 100 years before your time that you are an idiot.
John, That is an
Submitted by Anonymous (not verified) on Tue Jul. 21, 2009 4:48 PM PDT.
John,
That is an interesting point which perhaps deserves more attention. The rich are no more monolithic than "the media" or Muslims, and they play an important role in society which is often underappreciated by the less affluent.
However, I must say that while the less affluent may benefit from cheaper goods, this hardly excludes the few who reap the profits from investing a greater portion into the society which made their profits possible. There is something to be said for the greater good, and the idea that a society's greatness can be judged by its how it treats its poorest members. I believe liberals gripe as much as they do about the rich because it seems hard to justify millions in poverty in a country with so much wealth.
Redistributing wealth is an ugly term, and I do not suggest it is a prescription for a healthy economic system. But asking those with more to chip in a greater chunk to those who do not have the same resources is something altogether different. It is re-investing in the nation which made such priviledged status possible.
Rachel
Facts are stubborn things as
Submitted by mrprman on Tue Jul. 21, 2009 8:28 PM PDT.
Facts are stubborn things as John Adams was wont to state. Unfortunately, facts are treated by Republicans as an inconvenience that can easily be ignored. Here are the FACTS. In the United States, wealth is highly concentrated in a relatively few hands. As of 2004, the top 1% of households (the upper class) owned 34.3% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 50.3%, which means that just 20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80% (wage and salary workers). (Domhoff, 2005) These stubborn facts debunk John Hansen's thesis that: "technology allows well created wealth to be shared amongst a greater and greater audience." Here are the real facts. Of all the new financial wealth created by the American economy between 1984 and 2004, fully 42% of it went to the top 1%. A whopping 94% went to the top 20%, which of course means that the bottom 80% received only 6% of all the new financial wealth generated in the United States during the '80s, '90s, and early 2000s (Wolff, 2007). These disastrous results are the consequences of the tax cuts for the wealthiest Americans and the destruction of the unions. Another inconvenient fact is that payroll taxes are not deducted for those making over $106,000, no it's only the little people that pay payroll deductions. Yet Republicans have the audacity to become apoplectic when it is suggested that their taxes be increased to help defray the cost of health care. The irony in all of this is that these are the same people to claim to be Christian with a capital C. They wouldn't recognize a true christian even if their life depended on it.
One would think, by reading
Submitted by Anonymous (not verified) on Thu Jul. 23, 2009 1:07 PM PDT.
One would think, by reading your comments, that the small increases in taxes for the wealthy proposed by this article is somehow going to put these rich folks in the poor house. Your logic concerning the re-distribution of wealth is convoluted and twisted to fit your selfish view of society and government. Simple reasoning tells us that getting money from people that have it is going to be more successful than trying to get it from people who don't. The facts, as pointed out by this article, are that the rich have enjoyed a bias in the tax laws for many, many years. It is high time that this inequity be resolved and that previous advantages be recovered. Wealthy entities should be taxed to fill the budgetary gaps of all the government programs. I noticed in your comments how you expect the laws to protect private capital. Of course you don't find that using tax-payer funded laws and agencies to do so as a perversion of taxation. If I were rich I would be happy to be taxed to the hilt in order to support the society and government that allowed me to get there. Maybe the greedy, self-serving, attitude one needs to become filthy rich precludes them from seeing the bodies they stepped on to get there.
Wow! Way to go Kevin
Submitted by Anonymous (not verified) on Tue Jul. 21, 2009 1:33 AM PDT.
Now THAT's some MoJo prose! More like this.
Roberta T.
More Evidence
Submitted by bob h (not verified) on Tue Jul. 21, 2009 2:57 AM PDT.
that our corporations are not run for the rightful owners, the shareholders, who have had negative returns over the last ten years. They are run for the private benefit of a select group of employees. Think how much higher share prices would be if executive compensation were at reasonable levels.
"If we don't pass healthcare
Submitted by Anonymous (not verified) on Tue Jul. 21, 2009 3:44 AM PDT.
"If we don't pass healthcare reform it will be because the rich don't want to help pay for it."
That's rich Kevin, really it is. Why are you stereotyping and demonizing an entire class of people? Would it be fair to say that the country is being ruined by lazy, uneducated people who refuse to accept responsibility for their own welfare? Of course not! Why don't you get off the stereotypes and start presenting some logical arguments to support your thesis?
Much Of This Excess Executive Compensation
Submitted by bob h (not verified) on Tue Jul. 21, 2009 3:59 AM PDT.
is in the financial industry, which was saved from failure by the government. A quid pro quo?
No way. Putting a surtax on these people is class warfare.
SS threshold
Submitted by skeptonomist (not verified) on Tue Jul. 21, 2009 5:14 AM PDT.
The transferrence of more income above the SS threshold is not a threat to the bottom line of the program itself - payouts will remain in line with income. SS is not a program to transfer income from one income bracket to another, it transfers income from workers to aged and disabled within brackets - that is what you get on retirement is proportional to what you paid in. SS taxes are never directly used for other things (though of course the trust fund money is lent for general purposes).
What the lagging threshold means is that SS increasingly becomes a program for lower-income people. Fewer influential people come to depend on it for retirement income, and the easier it is to convert it to Wall-Street welfare or do away with it entirely.
Not Entirely True
Submitted by alex (not verified) on Tue Jul. 21, 2009 7:35 AM PDT.
skeptonomist: "SS is not a program to transfer income from one income bracket to another, it transfers income from workers to aged and disabled within brackets - that is what you get on retirement is proportional to what you paid in."
That's not entirely true, because of the Bend Points. The higher your income, the smaller the percentage of your income you'll receive in benefits. Hence there is an income transfer from higher paid to lower paid people.
Personally I'm ok with that. Nobody lives in luxury on Social Security, and it means that people who never earned much money can afford two bowls of cold oatmeal per day instead of just one. What does annoy me is that people who earn far more than I do are paying a much smaller percentage of their income towards this subsidy.
Once again John Hansen ignores the well-known fact that a marketplace, over time, tends to concentrate wealth. Having money makes it easier to make more money, so those with a lead tend to get farther and farther ahead.
John, you tie yourself in knots trying to find some other plausible sounding reason for this affect. Now you claim the revenue model for the executives is the same as the revenue model for entertainers?! That is absurd.
Our current system is so entrenched that there is only one thing that will change it - an external change coming from the physical world, something that gets so big that as hard as we try to ignore it, eventually it will crash through our denial.
I wonder what that will be, hmmm?
Tripp
"Now you claim the revenue
Submitted by Art Eclectic on Tue Jul. 21, 2009 7:06 AM PDT.
"Now you claim the revenue model for the executives is the same as the revenue model for entertainers?!"
Exactly. Entertainers are only as good as their last performance. Same holds true for sports stars (another form of entertainer.) Put out two bad movies/albums/shows and just watch your compensation tumble into the toilet. Executives manage to get bonuses and raises no matter how badly their companies perform. Let's look at Robert Nardelli as a perfect example of failing upward. Corporate execs are the only position where you can fail badly and do a lousy job and still get raises.
Shareholders are idiots and sheep for putting up with this garbage.
I don't understand why the
Submitted by Noumenon (not verified) on Tue Jul. 21, 2009 5:50 AM PDT.
I don't understand why the lede reads "Executives and other highly compensated employees now receive more than one-third of all pay in the U.S...." but the chart is labeled "Executive pay as a percentage of total wages."
PS: thanks a lot for
Submitted by Noumenon (not verified) on Tue Jul. 21, 2009 5:51 AM PDT.
PS: thanks a lot for stripping my bold tags and making my comment far less understandable, MoJo. You allow links, but not emphasis?
Allowed HTML Tags
Submitted by Anonymous (not verified) on Tue Jul. 21, 2009 6:51 AM PDT.
The list of allowed html tags is right below the comment box.
We're letting the planet fry
Submitted by karog on Tue Jul. 21, 2009 6:01 AM PDT.
We're letting the planet fry because policies to stop it would inconvenience the rich.
No matter how much money you have, you can't buy another livable planet.
Just another good reason to
Submitted by Anonymous (not verified) on Tue Jul. 21, 2009 7:01 AM PDT.
Just another good reason to keep on voting for the Money Party, America!
Nonsense Karog. Both the Material Girl and Cindy Lauper (Money Changes Everything) have educated these young execs during their formative years. They just know they'll be able to buy their way out of a total collapse of the planetary ecosystem. In their reality, that's all they need to know.
Breaking the backs....
Submitted by Anonymous (not verified) on Tue Jul. 21, 2009 7:12 AM PDT.
If everyone in the country does not use their credit card for a month, would that have any impact?
defining terms
Submitted by Anonymous (not verified) on Tue Jul. 21, 2009 7:15 AM PDT.
When a large group of not-rich people elect honest politicians who do the will of the electorate and reign in the rich and the super-rich, it is democracy at work. On a local level it could be zoning laws that prevent development except under certain restrictions.
When the rich and super-rich influence elected officials to ignore the wishes of the many in favor of what the rich desire (maybe it's just to easily make lots of money), often to the detriment of the not-rich, it is class warfare.
Plain and simple.
(If people die in the process, it's also fascism.)
Terrible Article
Submitted by alex (not verified) on Tue Jul. 21, 2009 7:22 AM PDT.
Terrible article, and a good example of a journalist putting his spin on data that doesn't justify it. People earning over $106K aren't poor, but they aren't necessarily rich either. Basically it lumps the successful middle class person earning $107k with a CEO earning tens of millions.
Maybe the WSJ publishes such badly written "class conflict" articles in a sad attempt to deflect serious discussion. Or maybe they just have bad writers.
Dude. What world do you
Submitted by Nate (not verified) on Fri Oct. 23, 2009 4:37 AM PDT.
Dude. What world do you live in where $106K is "middle class"? Median household income in the US is $50K. The median income quintile is between $36K and $57K. Incomes over $100K are like 15% of the country, FAR from the middle class.
Drum's math is all out of
Submitted by MacGruber on Tue Jul. 21, 2009 7:44 AM PDT.
Drum's math is all out of whack, partly due to a confusing article and partly due to poor math skills. Whether you blame Drum or the WSJ, the problem ultimately resolves to a journalist who can't handle numbers.
The WSJ and Drum never establish parameters for their analysis, so everything they write is meaningless. Imagine watching/playing a baseball game with no established strike zone or foul lines. Painful? Yes, but not as painful as this dalliance into the world of statistics and economics by two hapless journalists.
Baseball
Submitted by Anonymous (not verified) on Tue Jul. 21, 2009 9:44 AM PDT.
Imagine watching/playing a baseball game with no established strike zone or foul lines.
You mean like the all-star game? Terrible performance by the plate ump. At least he was pretty even-handed with his blindness
What's an executive? Any
Submitted by Luther on Tue Jul. 21, 2009 7:52 AM PDT.
What's an executive? Any supervisor? CEOs are grossly overpaid, but if they make 600 times a worker's pay, then CEO pay would only equal the pay of 600 of perhaps many thousands of workers.
Musicians and songwriters are worth little in a free market. They are in an artificial monopolistic copyright system designed to compensate them more fairly.
math
Submitted by Anonymous (not verified) on Tue Jul. 21, 2009 8:07 AM PDT.
I agree that the article is unclear on its categories, but c'mon, the basic math is pretty simple. Those who earn above 106,000 are approximately 6% of the labor force. They might not be "rich," but they are "richer" than 94% of the workforce (we're talking individual salary here, by the way, not household). That 6% is earning approximately 66% of all salary and that's w/o considering salary that exempt from standard payroll taxes.
math - oops
Submitted by Anonymous (not verified) on Tue Jul. 21, 2009 8:23 AM PDT.
That should read "earning 33% of all salary."
"the basic math is pretty
Submitted by alex (not verified) on Tue Jul. 21, 2009 9:02 AM PDT.
"the basic math is pretty simple"
Then the reporter should have done it. What part of that 33% is earned by people earning say $107k to $150k, and what part by people earning over a million? Lumping people who earn a bit over $100k with those earning $1M makes no sense.
Hypocrite
Submitted by james2 (not verified) on Tue Jul. 21, 2009 8:20 AM PDT.
So which is it Kevin? The evil rich are stealing all the money so they can buy fancy yachts, but they don't spend any of that money that they steal from you because there's only so many fancy yachts you can buy?
Jesus Christ. Is it really that hard? It's not the same three guys getting paid more and more each year. THERE'S MORE RICH PEOPLE NOW! That's why "executives" are taking home more of the total pie...there's more of them.
Love that false dichotomy
Submitted by Anonymous (not verified) on Tue Jul. 21, 2009 9:28 AM PDT.
The rich aren't stealing all the money so they can buy yachts, they are stealing it so they can swim in it ala scrooge mcduck. They use the money to lend at usurous rates. The tale is almost as old as time.
In regards to your statement that there are more rich people, that is the exact opposite of the truth. Look at the demographic data and you'll find the upper middle class is moving toward just middle class as white collar salaries are sacrificed to executive pay.
The freepers are really out in force today
If we don't pass healthcare
Submitted by Colin (not verified) on Wed Jul. 22, 2009 4:02 AM PDT.
If we don't pass healthcare reform it will be because the rich don't want to help pay for it.
So the rich don't want to fork over the money that they have so that you can indulge your vision of how society should be ordered? How impetuous of them. I realize that spending other people's money is fun and all but give me a break.
Average wages are stagnant because that leaves a bigger pool of money for the rich to slosh around in.
No, average wages are stagnant because health care costs are up, which leaves less money around for wages. Of course this wouldn't be the case if the government didn't use the tax code to promote an insane linkage between employment and health care, but no one accused the government of being the brightest bulbs around.
Or, who knows, maybe I am wrong and the rich just woke up on the wrong side of bed one day and decided to keep more money for themselves.
We're letting the planet fry because policies to stop it would inconvenience the rich.
No, to stop it -- and by "stop" I mean halt it by a fraction of one degree or so -- would have negative consequences for the economy that would impact all of us. Meanwhile we continue to experience a remarkably cool summer...
Regulatory reform of the financial system increasingly appears to be a dead letter because Congress is owned by the rich and they don't want it.
Take it up with Nancy Pelosi and Harry Reid. Meanwhile, did you notice how the financial sector that imploded so spectacularly is also one of the most heavily regulated elements of the economy? Funny, that.
Against all that, I suppose that crippling Social Security hardly even shows up in the ledger. But we might as well tot it up anyway.
Ah, social security, that Ponzi scheme cooked up by FDR that puts the shenanigans at Enron to shame. Another failed government program, what a surprise.
But you know whose fault it really is? Not the government of course -- THE RICH. The bastards won't just hand over their money, the nerve of them. I guess they haven't bought into the whole "from those according to their ability to those according to their need" thing.
But hey, they've got it and we want it right?
Entertainer pay is more directly deserved than executive pay
Submitted by Neil B ♪ (not verified) on Thu Jul. 23, 2009 6:36 AM PDT.
The pay of entertainers is far more directly related to actual market demand than is the pay of executives. The customers who pay to see concerts, games, movies etc., are paying to see those specific individuals in action. It is that persons direct "product" that is sought after, and payer basically "knows what he pays for" very directly. But considering the interlocking roles of various people in a company, it is harder to know how much objective "contribution" is from this person rather than that person (like, how valuable is your liver compared to your lungs? You need both.)
Furthermore, the compensation Boards etc. don't have to pay from their own scarce resources, so the pay isn't really a market product. The Board decides how much money will be paid, out of company money. OTOH, if I have to pay more for something myself, I have less for myself left over. That presses me to make a thrifty decision and consider how much value I'm actually getting. There is also mutual back-scratching involved (even plutocracy-symp George Will said these people are "each others' poodles"! This process should be reformed. Ironic, that conservatives who claim to support "property rights" don't really want shareholders to have more say about executive compensation! (Just like, true conservatives would support States rights about concealed carry laws and vote *against* the recent Federal bill demanding cross-state acceptance of concealed-carry permits.)
tyrannogenius
Nice post but a couple of
Submitted by progrowthliberal (not verified) on Thu Jul. 23, 2009 9:28 AM PDT.
Nice post but a couple of offsetting problems with your inference that the rest of us got nothing
econospeak.blogspot.com/2009/07/kevin-drum-on-compensation-of-those-not.html
points out that proper weighted averaging calculation would say we got a 12% nominal increase but then consumer prices rose by over 16% during this period. So in real terms, wages fell for the not highly compensated.
You are a dope
Submitted by Anonymous (not verified) on Fri Jul. 24, 2009 8:16 AM PDT.
you should try to interject your opinions into your articles a bit more. bbbbwwahahahahahahahah what a garbage article
Chikusaku detox foot pads
Submitted by Quella (not verified) on Tue Oct. 13, 2009 10:32 PM PDT.
How are you. I would be the most content if my children grew up to be the kind of people who think decorating consists mostly of building enough bookshelves.
I am from Zealand and learning to read in English, give please true I wrote the following sentence: "I put up the regular health much!"
Waiting for a reply :o, Quella.
The fact that created wealth
Submitted by high risk merchant accounts (not verified) on Mon Oct. 26, 2009 6:49 PM PDT.
The fact that created wealth can reach more people does allow the profits
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