In our industrial and social system, the interests of all men are so closely intertwined that in the immense majority of cases a straight dealing man who by his efficiency, by his ingenuity and industry, benefits himself, must also benefit others. Theodore Roosevelt
There continues to be a great deal of muttering from the left and alarmism in the media about a trend towards growing 'income inequality' between the rich and poor in America. Most of this originates in a series of studies by Isaac Shapiro at a left-wing think tank, the Center for Budget Policy Priorities, which has as its main objective fighting any tax reductions and redistributing income from the rich to the government. Shapiro's work is mainly analysis of figures on household income from the Congressional Budget Office, which show a historic trend of income increasing in all income groups, but by a larger percentage in the higher income groups than the lower ones.
Income is normally broken down into quintiles, and between 1979 and 2002, Shapiro shows a 5% rate of income increase for the bottom quintile compared to a 48% growth in income for the top quintile. Basically his figures show that the more you earn, the more your earnings increased during that period. Shapiro's conclusions seem alarming. Though everyone gained in income, the gains for the rich are so dramatically higher than for the poor that one has to be concerned. Of course, this analysis of income for huge income groups rather than individuals, and over a period of 23 years, is ridiculously simplistic and overlooks key, obvious factors which definitively invalidate it, especially as an argument against tax cuts.
First off, it's a gross analysis over a long period of time, and it's also based on data which is several years old. It doesn't include the most recent data, and by taking so many years together it overlooks year-to-year trends in income growth which are very significant. If you examine the trends on a yearly basis what immediately leaps out is that the greatest growth in income disparity happened not in recent years as Shapiro implies and as the media has made an issue of, but in the very beginning of the period, in the 1980s, when taxes were at a historically very high level and economic growth was slow.
In the 15-year period from 1979 to 1994 the bottom quintile gained only 2% while the top quintile gained 28%. The next six years — the time of the high-tech boom — showed the greatest economic growth and saw the poor gain 8.1% and the top quintile gain 12.7%, much closer together. The most recent era — the Bush era of recession and tax cuts — also shows slowing growth in disparity than the 80s and early 90s, with both rich and poor losing income. The bottom quintile is down 8.5% in the last five years, and the top quintile is down 3.3% in the last five years, again a relatively close ratio. Overall during the 23-year span the ratio of income growth between the rich and poor is 9.6:1, but in the first 2/3 of the period, from 1979 to 1994, that ratio was 14:1 and, in the last five years, it was only 2.6:1. So the trend that everyone is alarmed about is actually a trend which has been declining in recent years and is only looks like a dramatic trend because of the rate of growth in wealth disparity in the beginning of the period studied.
Article comments
— go to most recent comments1 - JP
First off, I want to point out that you are critical of the liberal groups you cite in the beginning of the article, but then provide a link to the conservative Heritage Foundation. I'll try to find a moderate one for you--after all, what's good for the goose...
Secondly, it's not all muttering. The comparison I often hear is the CEO-to-average-worker ratio, which jumped from 301:1 in 2003 all the way to 431:1 in 2004. It actually peaked in 2001, at the end of the Internet bubble, at 525:1. In 1982 it was approx. 42:1. This includes stock options, incentives, etc. In 1984, Peter Drucker recommended CEO pay be capped around 20 times the average worker's pay. In 2004, pay for the CEOs of the Fortune 500 was $5.1 billion, compared to $3.3 billion in 2003.
I'll grant you that Reagan's and Clinton's economies made significant changes in the interim, but the trend line isn't declining. Our culture is currently rewarding greed, and even business people and investors are getting sick of paying these people ridiculously well for mediocre performance. CEO pay is a symptom of how we treat the wealthy in general. Tax policy that favors the wealthy--estate tax cuts, for example--isn't needed when things are this out of whack.
2 - Dave Nalle
JP, my links to Heritage and Heartland are accompanied by this statement "Those last two are right-wing think tanks as suspect as the CPPB in their own way, so look at the original data for yourself and draw your own conclusions", so I made it just as clear that they're in the same boat of partisanship as the CBPP.
The problem with your CEO-worker comparison is that it's kind of anecdotal and it's a comparison of unequal parts of the population. The quintile comparisons are more fair, because they deal with comparable portions of the population. Your comparison is of one of the wealthiest groups which makes up less than 1% of the population and a very large middle income group. It's apples and oranges.
As far as capping CEO pay, that's a reasonable idea, so long as it's implemented by individual companies with the approval of their boards and stockpayers. If you impose something like that through government fiat it makes a joke of free enterprise in America.
Dave
3 - JP
Good call, my apology--looked right over that sentence apparently.
As for CEO pay--Granted the CEO population is very small, but it's a good example of how wealth is overly glorified and emphasized in this culture.
4 - Dave Nalle
I'm not sure there's anything wrong with glorifying wealth. What troubles me is when people receive wealth out of proportion to their actual worth or value. As a stockholder I don't want to invest in a company which pays the CEO a ridiculous amount of money unless he somehow earns it.
As an Apple stockholder I have no problem with whatever they pay Steve Jobs because he earns every penny of it. But I suspect he takes far less than he could in actual salary, because he profits from investment in his various companies far more than in the salary he gets. That's what I want to see - CEOs who benefit based on the success of their company. Giant severence packages just to get rid of an incompetent CEO are the definition of what I don't want to see.
Dave
5 - Christopher Rose
Dave, the joke is that you think that free enterprise exists in America!
Surely it can't have slipped your attention that the USA is a very heavily regulated and controlled society. The line about freedom is just marketing speak to fool you all. Sadly, after all this time it still works!
6 - Dave Nalle
Christopher, I submit that you're pretty unfamiliar with America if you think free enterprise doesn't exist here more than anywhere else in the world. The regulations we do have are very focused and generally well designed to worked around by those who wanto do business with minimal restriction. Show me a country where there is more freedom for business and entrepreneurs.
Dave
7 - gonzo marx
one word...
China...who, incidentally is now affecting the market value of our dollars by not buying up as much of our Debt as possible any longer (they hold the second most, just after Japan)..they no longer are pegging their currency to the dollar alone....and are muttering about beginning to sell off their bond holdings....the mere rumor of which is already causing the dollar to fall (yesterday's Marketwatch report on NPR, for those keeping score)
nuff said?
Excelsior!
8 - Arch Conservative
Dave it is no use arguing with these people who insist that there is class warfare in America.
It is so painfully obvious that they resent anyone who has done better than them. To people like Gonzo , Natalie, and Christopher anyone who has more money than them must be aggregiously ammoral and corrupt. It's never that these people are smarter than them or worked harder for what they have.
You are absolutely right when you claim that no other nation has the business and entrepreneur opportunites that America has Dave.
I am so sick of the socialist bullshit propaganda regarding taxes, class, and the American economy. Guess what Gonzo and Natalie and C Rose.....there is always going to be some rich people who are corrupt and there will always be people who are poor and no amount of social engineering or economic tinkering that the left can do will ever change this. So get over it!
America still the greatest oppurtunity for upward social and economic mobility in the world. The only catch is you can't spend 90% of your time bitching like some on BC do and expect to attain anything. You actually have to get off your ass and do something for yourself. Imagine that.
9 - Dave Nalle
Ah Gonzo, you do make me laugh with your bizarre version of reality. There's so much free enterprise in China. Indeed, so long as you're a red army general or a highly placed party member you've got all the entrepreneurial activity you like.
It's just like when I lived in Russia. I've never met anyone more free than the 1/100000th of the population who were members of the Central Committee. They were free to murder hookers in their hotel suites, drive the wrong way on one-way streets and pocket all the cash they saw lying around in the party offices on election days. They were the freest people in the world. It was just the other 99.9999% of the population who lived in constant terror and crushing poverty to pay for their freedom.
As for any Chinese mutterings you may have heard, they're laughable. The dollar has rebounded well from where it was vs. the Euro, back to 2002 levels, and as I've said a thousand times before, if China sells our bonds then there has to be someone else who wants to buy them, and it makes no difference to us whose vault they are sitting in. We pay the same interest on them.
Dave
10 - gonzo marx
Bing...you are sadly mistaken if you think that i am of the Opinion that some folks do not earn their wealth nor deserve it
quite the contrary..i am all for ethical business that promotes the generation of capital and improves the local economy as well as the status of those working for such corporations
what i rail against are the unEthical corporate entities....Enron, Anderson Accounting...on and on
those that think short sightedly about this quarters bottom line at the expense of their own employees, even of their Nation...much less their communities
so, to you..it might appear one way...but to others it appears that some folks defend greed at all costs
and that is what i tend to rant about...
there IS definately class warfare going on....the megacorps who dump 10 million dollars worth of toxic waste offshore with a federal official on board, and hand them the $25,000 check for their fine as they dump into the ocean, those that offshore american jobs...including highly sensitive tech and defense jobs...just to satisfy the bottom lines (check where many of our fighter jet components are being made, China..does this make good strategic sense?)...unscrupulous CEO's who artificially inflate their stock prices at just the right moment so they can sell their options and bail with their Golden Parachutes leaving behind an empty husk of a once thriving business...
on and on
if this seems ok to you, then there is not much for us to discuss
me...i want thriving, growing, ethical businesses to grow here in America
and i want to see the unEthical greedheads get punished for their misdeeds
silly of me, i know
but i can Dream, can't i?
Excelsior!
11 - troll
No class warfare goin' on here...only quintile warfare
troll
12 - Dave Nalle
Corrupt corporate management is certainly a bad thing, and such cases need to be dealt with as criminal prosecutions under the law. What troubles me is that you think that attacking corporations and the wealthy as a whole is an effective way to deal with the small minority who are criminal in their abuse of wealth and position. Throwing out the baby with the bath water is never a good idea.
Dave
13 - Christopher Rose
Dave, deeply fascinating as your remarks in #6 are, they have absolutely nothing to do with my preceding comment. Thanks for the kneejerk response though.
Myu comment addressed the fact that the majority of US citizens live in an illusion that they are in fact in a free society. The amount of state and federal legislation in the USA is massive and in no way equates to free enterprise as you originally stated in comment #2.
How you manage to interpret that as a relative comparison with other countries baffles me somewhat, until I remember who I'm dealing with of course...
;-)
14 - Dave Nalle
I don't disagree with you that the US is massively overtaxed and overregulated. Even so, it's still the best place to live if you want to have at least an illusion of freedom.
Dave
15 - Christopher Rose
Archie, you seem to have an even more extreme case of warped vision than Mr Nalle.
Please find me a mere syllable in my comment which implied anything at all related to your impromptu and poorly thought out remarks.
Alternatively, try pulling your head out and seeing the landscape for what it is, not what you fear or imagine it to be...
16 - Christopher Rose
Dave: #14 - I'll grant you the illusion part.
17 - gonzo marx
comment #9 sez...
*Ah Gonzo, you do make me laugh with your bizarre version of reality.*
i see, my vision of Reality as a working person as opposed to the silver spoon, expensive and exclusive prep-school, geted compound living, elitist pig version that you perceive?
i'll leave whose Vision is more bizzarre up to the gentle Readers to decide
Excelsior!
18 - RedTard
"I don't disagree with you that the US is massively overtaxed and overregulated."
We must be taxed to pay for the regulations. The illusion of freedom is created because our system makes it easy to get in a cubicle and work for someone else with few inconveniences. You don't really understand the tangle of regulations until you're an entrepeneur or run a business. It's not for the feint of heart.
I honestly believe that big business likes the red tape. It hurts small competitors who don't have the lawyers or manpower to jump as high as the regulators (who probably used to work for the big companies) want them to. If you follow the trail of most industry regulation back to it's source you'll find that it often originates from the big players themselves. In essence they set their own rules, and those rules are often more anti-competitive than anything else.
19 - Nancy
Oh, absolutely, Arch & Dave: Ken Lay has earned his billions by working harder & being smarter than all the rest of us; ditto other great leaders of corporate history like Dennis Kozlowski (Tyco), Bernie Ebbers (Worldcom), the entire Rigas family (Adelphia), and most of the top brass of Arthur Anderson which encouraged their subordinates to go massive shredding sprees... should I list more? How's about Leona Helmsley? And of course if we're getting historical historical, there's always John Rockefeller, the original towering monument to corporate ethics, morals, & responsibility. Lessee, now: in terms of general scandals, too many hard-working execs with more intelligence than the rest of us, there's always the good folks at Bristol-Meyers, Halliburton, Quest, AOL/Time Warner, Global, Merck, Nicor, KMart, Fannie Mae, most recently the top execs at the Red Cross, and of couse, the ever-community-minded Scott Lee of Walmart. Yessir, these good folks all just work a lot harder & are a lot smarter than the rest of us, that's why we're jealous.
What tripe! Resentment against the rich is for a reason, and all those people & corporations listed above - and I could have gone on & on for a loooooooooooooooooong while, these are just the top of the barrel - are symptomatic of the lawless, greedy-gut, arrogance of the members of the plutocratcy, and that includes most of the members of the controlling class of congress & the upper echelons of the various political administrations. As pointed out on another website, they are all interlocked in such a way that the word "incestuous" becomes pallid describing them.
Yes there IS indeed class warfare; it just hasn't had a chance to get open & physical yet, the way it did in 1917 Russia & pre-Maoist China. Go try & blow sunshine up someone else's skirts convincing them how peachy & nice all those rich folks are.
20 - Andy Marsh
man, are you really that bitter?
21 - Nancy
When I look at how many good folks live in poverty, or hand to mouth, and then see how crime pays for so many ultra-rich - damned right I am.
22 - Arch Conservative
Good folks? The reality is that many of those so called "good folks" aren't as smart or motivated as those who have more than them.
You named four or five corrupt CEO's and based on this you want to indict the whole capitalist system Nancy.... get a grip.
According to Kiplinger's financial magazine there are currently 8.9 million households in the USA that have a net worth of over 1 million dollars. Are all of these people corrupt Nancy?
What about the millions more that make over 400K? Are they all corrupt?
No one would deny that there are certainly corrupt and ammoral individuals in corporate America today but your broadsweeping characterization of anyone with a little money as greedy, ammoral, corrupt and uncaring is horseshit.
Your resentment for the rich is irrational Nancy. You have consistently distorted the facts and offered outright lies with regard to taxes, wealth and class to support your tirades against all wealthy Americans.
You're the atithesis of the American dream Nancy. The American dream says you work hard and work smart to get ahead. You don't rely on government handouts and entitlements. The American dream says your care for your fellow citizens but are not responsible for thier welfare. You take pride in the things you have accomplished and gained for yourself and you do not feel guilty when people like Nancy call you evil. You don't blame people that have more than you for keeping you down.
Nancy and Gonzo like to whine about trust fund babies but what they seem to ignore is that there are millions of American citizens with poor or middle class backgrounds that have through thier own hard work and know how bettered themselevs financially to the point that the would be considered wealthy.
You're an anooying, deluded, whining, excuse making, propagandizing, loser Nancy and I find it hard to believe that anyone other than Gonzo can take you seriously.
23 - gonzo marx
Bing sez...
*The reality is that many of those so called "good folks" aren't as smart or motivated as those who have more than them.*
let me say right out front that this stated opinion is pure unadulterated horseshit...
there are plenty of smart, hard working poor/middle class folks and there are plenty of dumb, lazy rich folks...generalities such as those spewed in the quote are not worth the electrons spent transmitting them
that being said, and since Bing is so nice to call me out on this personally...let's Dance...shall we?
Bing sez...
*According to Kiplinger's financial magazine there are currently 8.9 million households in the USA that have a net worth of over 1 million dollars.*
those are nice, upper middle class folks...not even considered "rich" by today's standards...straw man number 1 exposed...
Bing sez...
*The American dream says you work hard and work smart to get ahead*
as opposed to inheriting, staling, or utilizing unethical practices to gain your wealth...correct?
Bing sez...
*You don't rely on government handouts and entitlements.*
as opposed to the multi-billions of dollars spent on corporate welfare or tax breaks for corps to offshore american jobs....correct?
Bing sez...
*Nancy and Gonzo like to whine about trust fund babies but what they seem to ignore is that there are millions of American citizens with poor or middle class backgrounds that have through thier own hard work and know how bettered themselevs financially to the point that the would be considered wealthy.*
you confuse "rich" with "wealthy"
rich is one of those athletes or actors who make tens of millions a year for a while...
wealthy are the folks that pay them and never notice the missing pocket change
example: Michael Jordan is rich....Bill Gates is wealthy
got it?...good
now, as for your tastelss personal attacks against Nancy for stating her Opinion in these matters, allow me a moment to speak out...
if it is needed for someone to launder the greasy stain of your hateful, opinionated spewings from the soiled underwear of BC, then refer to me as Maytag...
nuff said?
Excelsior!
24 - Nancy
Thank you, Gonzo; you have a lot better grip on figures & where to get them than I have. I just go to Forbes.com, but of course, they wouldn't have a clue as to how shiftless, evil, or corrupt rich people are, would they?
25 - Arch Conservative
Nothing like 2 whining, socialist, dolts patting themselves on the back.