Saturday, May 07, 2011

CEO pay tops pre-recession levels

The Associated Press is reporting that in 2010, the CEO's of 334 of the corporations listed on the Standard & Poor 500 raked in 24% more than the previous year and more than in 2007, before the Great Recession began.  According to the article, the highest paid executive was Philippe Dauman of Viacom, with $84 million.  The average pay, including all forms of compensation was about $9 million.  Aren't we *still* in a recession?

Why yes, we are, if you're an employee.  Average employee pay increased by only 3%, and topped out at $40,500.  Employees are apparently being told that due the weak job market, they can expect lower pay.  So the board of directors at the largest corporations have no qualm about paying CEOs more money during a very deep recession while at the same time holding the line on wages for employees.  How...consistent.

Top management will be the first to insist that if we just lowered the tax rates, they could create more jobs.  But economists have documented in detail how tax rates are lower than they have ever been in 80 years.  Despite these low tax rates, particularly during the Bush years, we have seen fewer jobs created than when tax rates were much higher.  In fact, we're experiencing an essentially jobless recovery and have been for two years.  We have decades of empirical evidence to show that lower taxes do not lead to more jobs, simply because they are as low as they are ever going to go.

I have a theory about why the economy is growing so slowly.  Currently, the top 10% own more than 85% of all the wealth, you know, like in a Banana Republic. Most of that wealth is socked away in securities like government bonds, stocks and real estate.  The same top 10% have all the money they want and don't really need any more for survival - this is especially true for the top 1%.  At that point, their choices for entertainment become limited.  They may find that competition is too tough, so they sit on their money taking dividends and interest.  With enough money socked away into investments, it becomes a full time job just to manage the funds.  

Are they working?  Are they creating wealth?  Are they asking for tax cuts?  Maybe, probably not, and yes.  They're working if they're managing their funds, but are they helping other people or maximizing their profits?  They're creating wealth if they're actually creating something other people can use.  But given the current conditions, with so much wealth cornered in the top 10%, the name of the game is wealth extraction because there is simply too much competition for wealth creation.  That's because most of the wealth is locked up somewhere, and that's why when the Federal Reserve Bank tries to inject "liquidity" in the market, it does little good, remember, interest rates at the discount window are near historic lows.  When the Fed makes more money available to loosen up the economy, the top 10% is right there at the spigot, capturing as much as they can before it can even get to the middle class.

Members of the top 1% club hate inflation.  That works against their investments and their dividends. If inflation is what we get when there is too much money floating free in the economy, then the opposite is when the money is locked up in long-term investments where it won't create jobs.  Get my drift?  Creating jobs would fuel inflation by putting money into circulation, and that is adverse to the interests of those who would prefer to sit on their money - that top 1% again.

Now about those tax cuts.  We see Private Ryan asking for tax cuts in the House, with a request to lop 10% off the top marginal tax rate of 35%.  His justification is that cutting taxes will create jobs.  But, as mentioned before, cutting taxes for people who already have money is like offering a drink to a man who already owns a bar.  Giving tax cuts to the to the top 10% doesn't mean they will spend more money.  As Robert Reich is so fond of saying, "they've already spent all the money they want to spend." It is worth noting that American became the greatest economic power on Earth when the top marginal income tax rate was at 90%.  

I'm not exactly sure what the solution is, but I know for sure it isn't tax cuts as the Republicans propose.  Democrats and Republicans worked together to give us budget surpluses by 1992.  We can do it again without having to gut the government or send the middle class packing.  The extreme concentration of wealth has set all of us against each other.  With fairer taxation we could put more money into circulation to rebuild the economy, and help us all to cooperate together, again.

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