After reading this article in Forbes, I now appreciate the fact that those executives, trustafarians, and other one percenters really deserve the financial breaks they get. I am also gratefully enlightened that that's the way we planned it out to be.


Of Course U.S. Inequality Is Rising, It Was Meant To

That income inequality in the United States has risen in recent years and decades is true, even if not quite as true as many try to tell us it is. However, the point that needs to be grasped is that income inequality was meant to rise, it was deliberately planned that it should rise. This is not to succumb to the blithering from the more indignant on the left who insist that these past few decades have been all about the capitalists being able to shaft the workers with ever greater vigour. Quite the opposite in fact, there has been a deliberate and specific attempt to increase the taxation of high incomes and thereby reduce inequality of lifestyle.

Entirely agreed, this isn’t the story you are usually told but it is actually true, something that is always useful in a description of the real world around us. It’s also something that makes the latest EPI report very much less important than some seem to think it is:

But forces of rising inequality are operating throughout the United States, as a new study by researchers at the Economic Policy Institute makes clear.

The study, which measures income inequality by state, metro area and county, shows that inequality has risen in every state since the 1970s.

This is not an unusual finding and in this the US is rather different from my native UK. Inequality there is more about regional inequality of incomes. In the US each area is unequal within itself. There is one thing contributing to this rise in inequality. Which is that the measures used are about incomes. And in almost all US statistics income measures do not include the value of the goods and services in kind (nor those delivered through the tax system like the EITC) which the welfare system offers to reduce the effects of inequality. And yes, this move from cash welfare (included in income) to goods and services in kind really got underway in the 1970s. This is not the whole story nor is it even the majority of it, but it is some of it. Just the way we’ve been counting this does make a difference.

However, this probably is the major part of the story:

The mid-20th century was characterized by public policies and societal norms that fostered broad prosperity, including a rising minimum wage, firm rules for time-and-a-half for overtime, strong private-sector unions and cultural and political taboos against high pay and bonuses for executives in the face of layoffs of workers.

In contrast, the decades since 1979 have been characterized by erosion of the minimum wage and overtime-pay standards, a decline in unionization and cultural and political acceptance of excessive executive pay.

That executive pay thing I mean. The EPI report is here:

This earlier era was
characterized by a rising minimum wage, low levels of
unemployment after the 1930s, widespread collective
bargaining in private industries (manufacturing,
transportation [trucking, airlines, and railroads],
telecommunications, and construction), and a cultural and
political environment in which it was outrageous for
executives to receive outsized bonuses while laying off
workers. We need policies that return the economy to full
employment, return bargaining power to U.S. workers, and
reinstate the cultural taboo on allowing CEOs and financialsector
executives at the commanding heights of the private
economy to appropriate more than their fair share of the
nation’s expanding economic pie.

Yep, CEO pay. So, let us think about CEO pay for a bit. Sure, the dollar numbers today are high, but are they higher in real terms than they were a generation or two ago? In terms of what turns up in the wage packet sure they are. But in terms of what a CEO gets as a result of being a CEO perhaps not. My example here is anecdotal, or at least is used to be, drawn from the book Barbarians at the Gate. We hear about the CEO who has the company provide him with a small fleet of aircraft, the company buys him 16 (? I think?) country club memberships around the nation. The bills for those flights to those clubs being picked up by the shareholders.

Today exactly the same things would be counted as taxable income to that CEO: this was not true up until the mid-1980s. And now that such things are taxable income those CEOs are electing to take those perks and privileges as actual cash instead of spending upon their lifestyles. You might think that I’m making a little too much of this but James Galbraith (fils) was in contact a few weeks back making exactly this point. In fact, his work leading up to the 1986 changes in tax law were based on forcing exactly this change. To make those perks that senior executives were getting become part of adjusted gross income and thus taxable. To the point that there’s a jump in those AGIs of executives in the couple of years following that act. This is not regarded as a failure – this was the point and purpose of the legislative change. Instead of their getting the lifestyle one way, as a result of untaxed corporate spending upon them, insist that all such perks are taxable. And their electing to take the same lifestyle as pay, rather than perks, is proof that it actually worked.

Which brings us to the basic story about rising inequality in the US over these decades. There’s been very little movement in inequality among the 99% of us. The upper middle class is about as far away from Joe Sixpack as it’s always been. It’s the 1% that have moved ahead – and within the 1% it’s the 0.1 and even more the 0.001% that have soared. And yes, absolutely, a goodly portion of that has come from the manner in which we have forced CEO and other executive compensation to become transparent. Instead of their getting flights and chauffeured cars they now get cash, which is taxed, with which they can buy their own flights and chauffeured cars. Inequality hasn’t increased from this, it has just become more obvious.

This is not the entire and whole story but it is a goodly part of it. And that part of rising inequality is something which we actually planned to happen, something we changed the rules to bring about. At which point it does seem rather more than just a little bit strange to be complaining about it, doesn’t it?


http://www.forbes.com/sites/timworstall/2016/06/22/of-course-us-inequality-is-rising-it-was-meant-to-we-planned-it-this-way/?ref=yfp#138febec6796


YIKES !

Last edited by Rongone (6/22/2016 1:44 pm)