Tom Smith Thiks “All this talk of wealth inequality is stupid”

November 8, 2010 · Posted in The Capitol · Comment 

Tom writes:

I am finding the spate of recent articles about the huge and growing inequality of wealth in the US pretty tedious.  I suspect they are making some basic mistakes.  They usually take the form of saying the wealthiest X percent of the US population owns Y percent of the wealth, where Y is a much bigger number than X.  What I don’t get is, why should I care about the relationship of X and Y?

He then explores and rejects various reasons he ought to care.

A couple of interesting points:

  • Tom notes that “as much as I find it annoying that some other people are so much richer than I am, it is not as if I would pay very much to see them brought down a notch or two.  If they suffer some bad fortune, I might enjoy that, but I certainly would not pay one thousand dollars of my own hard earned money so some fund manager in La Jolla would lose a million.” But would you pay $ 10 to see Paris Hilton made penniless? In other words, how much do you value economic schadenfreude?
  • “Finally, why should anyone think that say twenty percent of the population owning twenty percent of the wealth has anything to recommend it morally at all?” Tom and I are both Catholics, so I would be interested to see him engage Pope Benedict’s encyclical Caritas in veritate, with its admittedly ambiguous teaching on inequality. Serious scholars steeped in economics like Tom would do yeoman work by engaging constructively with Catholic social thought.

Inequality Statistics and Poverty Facts

October 29, 2010 · Posted in The Capitol · Comment 
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“Facts are stubborn things,” wrote Mark Twain, “but statistics are more pliable.” Jonathan Alter amply demonstrates this truism in last weekend’s New York Times Book Review. In regard to income inequality—a perennial favorite among the media and liberals—he href="">opines:

Over the last three decades, the top 1 percent of the country has received 36 percent of all the gains in household incomes; 1 percent got more than a third of the upside. And the top one-tenth of 1 percent acquired much more of the nation’s increased wealth during those years than the bottom 60 percent did. That’s roughly 300,000 super-rich people with a bigger slice of the pie than 180 million Americans. The collapse of the American middle class and the huge transfer of wealth to the already wealthy is the biggest domestic story of our time and a proper focus of liberal energy.

id="more-45820">This interpretation of income inequality statistics grossly misrepresents the true data. As The Heritage Foundation’s href="">research on the subject reveals, income inequality in the United States is frequently overstated. Conventional measurements of income inequality do not include the impact of taxes on the wealthy and the middle class; the value of realized capital gains; the value of welfare benefits such as food stamps, public housing, the school lunch program, and the earned income tax credit; the value of employee health benefits; and insurance values of Medicaid and Medicare benefits.

Alter goes on to claim that income inequalities are “the result of politics and policies” that can “be tilted back over time.” It is true that government policies can increase poverty, but this is probably not what Alter has in mind. Government has contributed to inequality through its social welfare policies rather than its economic deregulation.

In America, a primary cause of child poverty is family breakdown. Today, href="">one in four children is born outside of marriage. Sadly, children of single-parent families are seven times more likely to be exposed to poverty than peers in intact families. If unwed mothers married the fathers of their children, their likelihood of living poverty would be reduced by href="">two-thirds.

In this regard, government policies have only worsened problems, penalizing marriage and incentivizing perverse behavior. The Heritage Foundation has set forth the href="">foundations of a new policy to restore the institution of marriage. Hopefully, the nation’s leaders will take note, because poverty growth resulting from out-of-wedlock births is not just a statistic; it is a fact that becomes less href="../../../../kiddj/Local%20Settings/Temporary%20Internet%20Files/OLK7/tractable">tractable every year.

James Banks is currently a member of the Young Leaders Program at the Heritage Foundation. For more information on interning at Heritage, please visit: href="">

The Foundry: Conservative Policy News.

One Reason We Don’t Hear about Income Inequality: Media Execs Among the Richest

October 26, 2010 · Posted in The Capitol · Comment 

David Cay Johnston has a must-read piece on what the most recent payroll tax data shows about growing income inequality.  He shows that total wages have fallen 5% since 2007, largely because so many fewer people are making any income.

Every 34th wage earner in America in 2008 went all of 2009 without earning a single dollar, new data from the Social Security Administration show. Total wages, median wages, and average wages all declined, but at the very top, salaries grew more than fivefold.


Measured in 2009 dollars, total wages fell to just above $ 5.9 trillion, down $ 215 billion from the previous year. Compared with 2007, when the economy peaked, total wages were down $ 313 billion or 5 percent in real terms.

The number of Americans with any wages in 2009 fell by more than 4.5 million compared with the previous year. Because the population grew by about 1 percent, the number of idle hands and minds grew by 6 million.

He also notes how the very rich are getting very richer.

The number of Americans making $ 50 million or more, the top income category in the data, fell from 131 in 2008 to 74 last year. But that’s only part of the story.

The average wage in this top category increased from $ 91.2 million in 2008 to an astonishing $ 518.8 million in 2009. That’s nearly $ 10 million in weekly pay!


In the Great Recession year of 2009 (officially just the first half of the year), the average pay of the very highest-income Americans was more than five times their average wages and bonuses in 2008. And even though their numbers shrank by 43 percent, this group’s total compensation was 3.2 times larger in 2009 than in 2008, accounting for 0.6 percent of all pay. These 74 people made as much as the 19 million lowest-paid people in America, who constitute one in every eight workers.

At the same time, he notes that this story-which should have been told after the numbers were released on October 15-went unmentioned.

Not a single news organization reported this data when it was released October 15, searches of Google and the Nexis databases show. Nor did any blog, so the citizen journalists and professional economists did no better than the newsroom pros in reporting this basic information about our economy.

Now, Johnston doesn’t provide a list of who those 74 people are that make as much as the 19 million lowest paid Americans. But for shits and giggles, I wanted to see who Fortune-which loves to idolize these people-lists. Mind you, they’re clearly measuring different things, because Fortune’s numbers are smaller than the payroll tax numbers (presumably, this excludes a bunch of executives of privately held companies). But take a look at what industries are dominating Fortune’s best-paid men, plus the two women whose salaries match those of the men in the top 25.

  1. Greg Maffei, Liberty Media, $ 87.5 million
  2. Lawrence Ellison, Oracle, $ 70.1 million
  3. Fred Hassan, Merck, $ 49.7 million
  4. Carol Bartz, Yahoo, $ 47.2 million
  5. Mario Gabelli, GAMCO Investors, 43.6 million
  6. Mel Karmazin, Sirius, $ 43.5 million
  7. Leslie Moonves, CBS, $ 43 million
  8. Safra Catz, Oracle, $ 36.4 million
  9. Michael Jeffries, Abercrombie & Fitch, $ 36.3 million
  10. Robert Bertolini, Merck, $ 35.1, million
  11. Marc Casper, Thermo Fisher Scientific, 34.1 million
  12. Philippe Dauman, Viacom, $ 34.0 million
  13. John Hammergren, McKesson, $ 33.9 million
  14. J. Raymond Elliott, Boston Scientific, $ 33.4 million
  15. Ray Irani, Occidental Petroleum, $ 31.4 million
  16. Stephen Burke, Comcast, $ 31 million
  17. Charles Phillip Jr., Oracle, $ 30.1 million
  18. Glen Senk, Urban Outfitters, $ 29.9 million
  19. Thomas Montag, Bank of America, $ 29.9 million
  20. Dennis Strigl, Verizon, $ 29.0
  21. Thomas Kurian, Oracle, $ 28.5 million
  22. Ralph Lauren, Polo Ralph Lauren, $ 27.7 million
  23. Thomas E. Dooley, Viacom, $ 27.0 million
  24. Thomas M. Rutledge, Cablevision, $ 26.0 million
  25. Raymond Plank, Apache, $ 25.8 million
  26. Daniel H. Mudd, Fortress Investment Group, $ 25.7 million
  27. Timothy Armstrong, AOL, $ 25.6 million

Now, obviously, this is not an apples to apples comparison to the 74 richest people Johnston is talking about. Indeed, it’s not even clear how many of these, calculated using payroll tax data, would be in Johnston’s group; perhaps only Maffei and Ellison would be (Fortune’s list of top CEO compensation is another list, though only 8 of them make more than Johnston’s $ 50 million threshold; that list is dominated much more by energy and medical companies). So these are really a snapshot of the paupers among the richest of the rich.

But it provides a list of who the top paid executives in public companies were in 2009.

And 10 of the 27 top paid executives, according to Fortune, were in media.

There’s a reason why no one is telling the story of America’s increasing income inequality. That’s because the people telling the story work for some of the people most benefiting from it.

Related posts:

  1. Top Culprits for Income Inequality? Exec Pay and Educational Failures
  2. We Can’t Restore Our Country If We Underpay the Folks Restoring Our Buildings
  3. Blackwater Served as Monsanto’s Intelligence Arm


The U.S. Republican Agenda: Pathway Toward Inequality – La Jornada, Mexico

October 7, 2010 · Posted in The Capitol · Comment 

As we continue to discover, almost everywhere, whether it be Europe, Latin America, Africa or Asia, the Republican Party and Tea Party movement are anything but popular at the moment. The only stand outs seem to be some of the British and Israeli press.

This article by columnist Arturo Balderas Rodriguez of Mexico’s La Jornada warns that a Republican victory would be a great defeat for social equality in American society. Why? Because a midterm defeat for Democrats would resurrect the image of America the world saw during Hurricane Katrina and pave the way to the kind of gap between rich and poor that exists in Mexico.

For La Jornada, Arturo Balderas Rodriguez writes in part:

U.S. Republican Congressional leaders last week unveiled their agenda for the November election campaign. In general, it’s a reiteration of their neoliberal credo: lower taxes, freezing government spending, deficit and cuts in social spending. And added to the - they propose to repeal health reform, which was approved earlier this year.

Freezing government spending would mean cutting off resources that Washington directs to the economy as a vehicle for providing employment to millions of people. An across-the-board tax in which taxpayers pay proportionally the same amount independently of income would be inequitable and unfair. It would also increase the deficit about which Republicans have being complaining - and without the benefit of borrowing for the purpose of backing social or investment programs.

Finally, to repeal reform of the health care system would mean, in plain terms, depriving 30 million people of care who just became eligible for medical services as a result of reform.

Soon we’ll know if the Democrats are capable of acting in time to prevent history from repeating itself. If that doesn’t happen and the conservative project wins, the social differences that already exist in the American Union, without the ignominy they have reached in Mexico, could deepen even further. Let us not forget the face of the United States that the world discovered with surprise after Hurricane Katrina.

READ ON AT WORLDMEETS.US, your most trusted translator and aggregator of foreign news and views about our nation.

The Moderate Voice

New Labour and Inequality

September 30, 2010 · Posted in The Capitol · Comment 

I’m always blown away by the level of righteous indignation that British lefties are able to muster about the economic record of the Blair/Brown “New Labour” governments. Here’s Christ Bertram:

Blair, Mandelson, Milburn and the rest of the gang not only failed to achieve Labour’s goals concerning inequality and social justice, they abandoned them, an abandonment summed up in Mandelson’s notorious statement that he was “intensely relaxed” about people at the top becoming “fithy rich”. New Labour, taking their cue from the Clinton Democrats, abandoned the distributive objectives of the left on the basis that the rising prosperity engendered by growth, markets and globalisation would benefit everyone. Well it hasn’t. Personally I think it was never going to, for “spirit-level” type reasons, among others. But anyway, that model ran into the wall of the banking crisis and we’ll shortly see the absolute standard of living of the poorest falling as the deficit gets clawed back at their expense.

By contrast, here’s Lane Kenworthy’s chart of income growth by decile under the Tories versus Labour:


You see here that New Labour had these (presumably finance-driven) gains at the tippy-top but also major progress for the bottom half of the income distribution. Meanwhile, it’s quite true that Cameron/Clegg austerity is likely to lead to bad outcomes for the poor, but it’s odd to say that New Labour cardinal sin was that it could “only” stay in power for 12 years. If anything that point strengthens the case that voting Labour—even New Labour—is crucial to the interests of the British working class. It looks to me like if anyone has just cause to complain about the New Labour record it’s educated professionals up there in the 70th to 90th percentiles who did better under Thatcher even as they’ve had to watch their classmates move on to riches in finance.

Loosely relatedly, I’d recommend my colleagues Matt Brown, John Halpin, and Ruy Teixeira’s FP op-ed about the future of the European left though again with the caveat that I think they’re a bit too dismissive of the “Third Way” project across the board.

Matthew Yglesias

More on The Decline in K-12 Education, Superman, Unions & Inequality

September 29, 2010 · Posted in The Capitol · Comment 

Keeping up with the spate of education coverage fostered by the release of Waiting for Superman is an impossible task. But the story is not a new one….

This from Timothy Noah’s 10 part series on The United States of Inequality:

Throughout the first three-quarters of the 20th century a growing supply of better-educated workers met the demand created by new technologies. The 1944 G.I. Bill, which paid tuition for returning servicemen, played an important role; so did the Sputnik-inspired National Defense Education Act, which increased federal spending on schools at all levels and created (at the suggestion of Milton Friedman!) a student-loan program for colleges. With the passing of each decade, the average 24-year-old had close to one additional year of schooling. These gains virtually halted starting with 1976’s cohort of 24-year-olds. …

The abrupt halt and subsequent slowdown of gains in educational attainment began at about the same time as the Great Divergence. Before the Great Divergence, the country enjoyed at least three decades of growing income equality, an epoch that Goldin and Boston University economist Robert Margo have termed “The Great Compression.” Between 1900 and the mid-1970s, U.S. incomes became dramatically more equal while educational attainment climbed. But starting in the mid-1970s and continuing to today, incomes became dramatically less equal while educational attainment stagnated. Katz and Goldin believe this is not a coincidence.

With Waiting for Superman placing the blame for the deterioration of our schools on the teachers unions, I’m wondering if that will reverse the reaction to An Inconvenient Truth with liberals picking out errors and conservatives generally praising the film (though I’m not finding a quick and easy example of the latter). The tricky thing about that formulation for this particular filmmaker? He’s a self-described liberal:

In the Waiting for Superman companion book, Guggenheim writes about his struggle, as a lifelong liberal, over how to present teachers unions in the film. “Their role in education is not a black-and-white one,” he admits. “I’ve gotten to know union leaders who I think understand that the reforms we need will mean some serious adjustments on the part of their members, and that we need to rethink the rigid systems we’ve gotten locked into since the New Deal era. At the same time, these progressive union leaders can’t get too far ahead of their members. And they understandably don’t want to give aid and comfort to some politicians who are in fact anti-worker and are at least as interested in undermining the power of labor as they are in improving our schools.”

That from The Nation — admittedly from the left — grading Waiting for Superman:

The film presents teachers unions as the villains in the struggle to close the achievement gap, despite their long history of advocating for more school funding, smaller class sizes and better school resources and facilities. [The film's director, Davis] Guggenheim represents the unions through Randi Weingarten, president of the 1.5 million–member American Federation of Teachers (AFT). Ominous music plays during some of her interviews, which are presented alongside footage of Harlem Children’s Zone founder Geoffrey Canada and former Milwaukee superintendent and school-voucher proponent Howard Fuller complaining that union contracts protect bad teachers.

But in real life, Weingarten is the union leader most credited by even free-market education reformers with being committed to retooling the teaching profession to better emphasize professional excellence and student achievement. …

In the Waiting for Superman companion book, Guggenheim writes about his struggle, as a lifelong liberal, over how to present teachers unions in the film. “Their role in education is not a black-and-white one,” he admits. “I’ve gotten to know union leaders who I think understand that the reforms we need will mean some serious adjustments on the part of their members, and that we need to rethink the rigid systems we’ve gotten locked into since the New Deal era. At the same time, these progressive union leaders can’t get too far ahead of their members. And they understandably don’t want to give aid and comfort to some politicians who are in fact anti-worker and are at least as interested in undermining the power of labor as they are in improving our schools.”

The movie, though, does not attempt any such balancing act. It presents [Washington, D.C. schools chancellor Michelle] Rhee as a heroine whose hands are tied by the union. Yet in April, after Rhee’s administration finally collaborated with education experts and the union to create a new, detailed teacher evaluation system tied to the district’s curriculum, the Washington Teachers Union and AFT agreed to a contract that includes many of Rhee’s priorities, including her merit-pay plan and an unprecedented weakening of tenure protections.

Read on for all the unions have done. Demonizing unions is good sport these days. Has been so for decades. Timothy Noah tells that tale, too, in his look it income inequality in the Unites States. One of his ten parts is dedicated to the question of whether the decline of the union contributed to income inequality. The answer is yes (and not easily summarized: read the full post!). Inequality can also fairly be blamed largely on Republicans. In this excerpt he quotes Paul Krugman quoting Larry Bartels from his book Unequal Democracy:

[T]he narrowly economic focus of most previous studies of inequality has caused them to miss what may be the most important single influence on the changing U.S. income distribution over the past half-century—the contrasting policy choices of Democratic and Republican presidents. Under Republican administrations, real income growth for the lower- and middle-classes has consistently lagged well behind the income growth rate for the rich—and well behind the income growth rate for the lower and middle classes themselves under Democratic administrations.

In fairness, Noah points out that Democrats have gotten just as bad in what he categorizes as The Recent Divergence. He also addresses those Republicans who dismiss the importance of income inequality.

The Moderate Voice

Monday NBER papers: Workplace inequality, the power of kindergarten, and poor health makes you poor

September 27, 2010 · Posted in The Capitol · Comment 

Inequality at Work: The Effect of Peer Salaries on Job Satisfaction,” by David Card, Alexandre Mas, Enrico Moretti and Emmanuel Saez:

Economists have long speculated that individuals care about both their absolute income and their income relative to others. … A randomly chosen subset of employees of the University of California was informed about a new web site listing the pay of all University employees. All employees were then surveyed about their job satisfaction and job search intentions. … We find an asymmetric response to the information treatment: workers with salaries below the median for their pay unit and occupation report lower pay and job satisfaction, while those earning above the median report no higher satisfaction. Likewise, below-median earners report a significant increase in the likelihood of looking for a new job, while above-median earners are unaffected.

How Does Your Kindergarten Classroom Affect Your Earnings? Evidence From Project STAR,” by Raj Chetty, John N. Friedman, Nathaniel Hilger, Emmanuel Saez, Diane Whitmore Schanzenbach and Danny Yagan:

In Project STAR, 11,571 students in Tennessee and their teachers were randomly assigned to different classrooms within their schools from kindergarten to third grade. This paper evaluates the long-term impacts of STAR using administrative records. We obtain five results. First, kindergarten test scores are highly correlated with outcomes such as earnings at age 27, college attendance, home ownership, and retirement savings. Second, students in small classes are significantly more likely to attend college, attend a higher-ranked college, and perform better on a variety of other outcomes. Class size does not have a significant effect on earnings at age 27, but this effect is imprecisely estimated. Third, students who had a more experienced teacher in kindergarten have higher earnings. Fourth, an analysis of variance reveals significant kindergarten class effects on earnings. Higher kindergarten class quality – as measured by classmates’ end-of-class test scores – increases earnings, college attendance rates, and other outcomes. Finally, the effects of kindergarten class quality fade out on test scores in later grades but gains in non-cognitive measures persist. We conclude that early childhood education has substantial long-term impacts, potentially through non-cognitive channels. Our analysis suggests that improving the quality of schools in disadvantaged areas may reduce poverty and raise earnings and tax revenue in the long run.

The Asset Cost of Poor Health,” by James M. Poterba, Steven F. Venti and David A. Wise:

This paper examines the correlation between poor health and asset accumulation for households in the first nine waves of the Health and Retirement Survey. Rather than enumerating the specific costs of poor health, such as out of pocket medical expenses or lost earnings, we estimate how the evolution of household assets is related to poor health … Our estimates suggest large and substantively important correlations between poor health and asset accumulation. We compare persons in each 1992 asset quintile who were in the top third of the 1992 distribution of latent health with those in the same 1992 asset quintile who were in the bottom third of the latent health distribution. By 2008, those in the top third of the health distribution had accumulated, on average, more than 50 percent more assets than those in the bottom third of the health distribution. This “asset cost of poor health” appears to be larger for persons with substantial 1992 asset balances than for those with lower balances.

Education - Economic - National Bureau of Economic Research - K through 12 - Educators
Ezra Klein

Very High End Inequality

September 24, 2010 · Posted in The Capitol · Comment 

As perhaps a coda to all the inequality talk later, it’s interesting to look at the new Forbes 400 list and contemplate the extreme disparity between the very richest people in the country:


The Gates/Buffett gap is big and the Buffett/Ellison gap positively enormous. It’s a reminder that I should go read Dayo Olopade’s article on the Gates Foundation. I wonder what would happen if Gates & Buffett decided to intervene in U.S. domestic politics in a really heavy-handed way.

Matthew Yglesias

Wall Street and Inequality

September 22, 2010 · Posted in The Capitol · Comment 

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I want to thank everyone who sent me a copy of Steven N. Kaplan and Joshua Rauh “Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?” overnight. They make an effort to really bore down into the question of who, exactly, the superrich are. The answer turns out to be—largely finance types:

We look at hedge fund, venture capital (VC) fund, and PE or buyout fund investors. The data here are very coarse, and we make a number of assumptions to obtain estimates of income. A large number of professionals in these areas are highly compensated We estimate that the professionals in hedge, VC, and PE funds include roughly the same number of individuals in the top 0.1% of the AGI income distribution as the top nonfinancial executives. While we do not estimate precise distributional changes over time for this sector, we show that these industries are significantly larger today than ten and twenty years ago and, therefore, that their employees must represent a larger fraction of the top brackets than before.

We also find that hedge fund investors and other “Wall Street” type individuals comprise a larger fraction of the very highest end of the AGI distribution (the top 0.0001%) than CEOs and top executives. In 2004, nine times as many Wall Street investors earned in excess of $ 100 million as public company CEOs. In fact, the top twenty-five hedge fund managers combined appear to have earned more than all five hundred S&P 500 CEOs combined (both realized and ex ante). This trend accelerated after 2004. In 2007, it is likely that the top five hedge fund managers earned more than all five hundred S&P 500 CEOs combined.

They show that star athletes “represent a similar percentage of the top 0.1% AGI bracket in 2004 as in 1995 (0.8% for both years), but a larger percentage of the top 0.01% AGI bracket” and also that non-sports celebrities “comprise a substantially smaller share of the top brackets” yet another reminder of the under-acknowledged declining real wages of movie stars. They further show “that the fraction of lawyers in the 0.1% (and top 0.5%) AGI brackets rose substantially from 1994 to 2004.”

I think some of the interpretive conclusions they draw from this are a bit funny, but the clearest conclusion they offer is that this undermines accounts of inequality that focus on corporate governance, the decline of unions, or other labor market institutions. After all, increases in executive compensation at publicly traded firms have been matched or exceeded by increases in the realm of finance where these issues aren’t in play.

So what’s left? They say “theories of skill-biased technological change, greater scale, and their interaction.” Scale is easy to understand—the heads of bigger firms get paid more, as do asset managers who manage more assets, and scale has increased in both financial and non-financial sectors. But this is a pretty special kind of skill-biased technological change. In particular, it’s not the kind that would be ameliorated by boosting the high school graduation rate or improving the quality of community colleges. Instead they say technological improvements “provide part of the explanation for the increase in pay of professional athletes (technology increases their marginal product by allowing them to reach more consumers) and Wall Street investors (technology allows them to acquire information and trade large amounts more easily).”

If it were my paper, I would have discussed this under the heading of “globalization” which they instead dismiss with the odd remark that “it seems difficult for globalization to explain the increase in the top end of VC investors, PE investors, hedge fund investors, and professional athletes.” In part this becomes a question of semantics, but I think it’s quite obvious that globalization helped Tracy McGrady earn more money by becoming a celebrity in China. Similarly, globalization helped American financiers get richer by managing the money of rich people from the developing world.

Either way, I think the more granular view of what’s driving inequality helps refocus the policy conversation on questions of what it is we’re trying to do with progressive policy. If reducing high-end inequality means implementing regulations that make the very richest hedge fund managers less rich to the benefit of lesser managers of financial assets then that doesn’t seem like a particularly important goal. By contrast, if what’s happening is that finance types are getting rich off a badly flawed regulatory scheme that leaves the world economy vulnerable to catastrophic crashes and panics then that’s a problem all on its own completely apart from the impact on inequality. Last, taxes. These hedge fund and private equity guys are paying a lower marginal tax rate on their income than you or me or a teacher—that’s outrageous.

But beyond income taxes, I’m not sure that whether Stephen Schwartzman earns $ 400 million or “only” $ 100 million next year is something I really care that much about. But I do care a great deal about whether the bulk of his $ 4.7 billion fortune ends up going to charity or whether it sets his heirs up as a new aristocratic elite. Whether or not we have a meaningful estate tax in this country will make a big difference there.

Matthew Yglesias

Top Culprits for Income Inequality? Exec Pay and Educational Failures

September 20, 2010 · Posted in The Capitol · Comment 

Tim Noah’s great series on the causes of income inequality got a lot less attention during its second week than its first week. So I thought it worthwhile to focus on what he concluded was causing the dangerous new income inequality in America.

Here’s how he described the relative importance of each of the causes of income inequality he looked at:

Here is a back-of-the-envelope calculation, an admittedly crude composite of my discussions with and reading of the various economists and political scientists cited thus far:

  • Race and gender are responsible for none of it, and single parenthood is responsible for virtually none of it.
  • Immigration is responsible for 5 percent.
  • The imagined uniqueness of computers as a transformative technology is responsible for none of it.
  • Tax policy is responsible for 5 percent.
  • The decline of labor is responsible for 20 percent.
  • Trade is responsible for 10 percent.
  • Wall Street and corporate boards’ pampering of the Stinking Rich is responsible for 30 percent.
  • Various failures in our education system are responsible for 30 percent.

Most of these factors reflect at least in part things the federal government did or failed to do. Immigration is regulated, at least in theory, by the federal government. Tax policy is determined by the federal government. The decline of labor is in large part the doing of the federal government. Trade levels are regulated by the federal government. Government rules concerning finance and executive compensation help determine the quantity of cash that the Stinking Rich take home. Education is affected by government at the local, state, and (increasingly) federal levels. In a broad sense, then, we all created the Great Divergence, because in a democracy, the government is us.

Here’s Noah’s installment on executive pay, in which he argues that things like technology make it easier for entertainers and top execs to maximize their pay, while deregulation allowed the banksters to command huge salaries.

And here’s the one on educational problems. Largely, Noah describes, the problem is that K-12 education isn’t preparing students as well for today’s job market as it used to. In addition, between college costs and the removal of incentives (like the draft) to stay in school, educational attainment stalled for a number of years. As a result, the value of a college education is much greater, so those without a degree do worse by comparison.

Related posts:

  1. Our Banana Republic
  2. We Are All South America Now
  3. America’s Dilemma: Teachers or Food


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