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Are CEOs 300 Times More Valuable Than Their Lowest-paid Workers?

Sandy Smith by Sandy Smith
February 6, 2021
in News
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Are CEOs 300 Times More Valuable Than Their Lowest-paid Workers?
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Welcome back! Have you checked out the free webinar on how to establish credit for your small business?


This opinion article is by David R. Francis and was originally posted in the Christian Science Monitor. I thought that it was an interesting viewpoint and deserved to be shared.

There’s something missing in the Washington political scene – a genuine populist, a prominent politician persistently pointing out a decades-long drift of income and wealth to a tiny fringe at the top.

Top 5 on Forbes rich list? Bill, Warren … and Carlos!

Maybe this person should be organizing a peaceable march on the Washington Monument to draw attention to today’s extraordinary distortion in the American economy. After all, the concentration of wealth in the United States is more extreme than the much-observed build-up of wealth in Egypt that helped lead to the recent revolution.

Rich are richer, poor are poorer

Here are some facts:

  • The richest 1 percent of Americans took 23.5 percent of all the country’s income in 2007. In 1976 they got only 8.9 percent. Gross domestic income was $14 trillion in 2007.
  • The lowest fifth on the income ladder saw a decrease in income of 4.1 percent between 1979 and 2008. In the same period, the incomes of the top five percent increased 73 percent.
  • The richest 1 percent of US households in 2007 owned 33.8 percent of the nation’s private wealth, more than the combined wealth of the bottom 90 percent.
  • The Forbes 400 wealthiest Americans own about as much wealth as the poorest 50 percent of American households.

Many of these facts are from a “Working Group on Extreme Inequality,” formed in 2007, a coalition of groups concerned about poverty and unequal opportunity, and the “dangers” of concentrated wealth and power. It gives extensive resources online, but my impression is that niche websites and blogs are paying more attention to this trend to the top than conventional media, and certainly more than the politicians in Washington who are so dependent on campaign funds from the prosperous. Maybe there’s another economic similarity between the US and Egypt. Certainly the state-controlled media in Egypt paid little attention to the growing wealth of the elite there, though popular social websites did.

Not about envy, but fairness

Now a good populist should not be appealing to a human sense of envy. Rousing envy could be damaging. Even the poorest Americans are generally far better off than the poorest 20 percent of Egyptians with an individual income of less than $2 a day. And Americans are, thankfully, remarkably tolerant of income differences.

But an appeal to an innate sense of fairness might have some political clout, despite inevitable false charges of socialism or even communism. It is the free enterprise system that after all allowed the massive accumulation of riches in recent decades. So the extremely well-to-do should be paying more to assure a worthy capitalist system is maintained in a healthy state, benefiting the bulk of citizens more generously.

Right now the politicians and press in Washington are obsessed with the challenge of the huge budget deficit and accumulating federal debt, so the climate for populism is cool. Vermont Senator Bernie Sanders is probably the only major politician who regularly speaks on issues of economic inequality with a populist flair.

Obama’s tax proposal not enough

President Obama in his proposed new budget mildly calls for eventual tax increases for upper-income individuals making more than $200,000 a year and couples who earn more than $250,000, letting expire the Bush tax cuts for the rich. He’s also proposing to raise slightly the tax rates for corporate dividends and capital gains. This change wouldn’t take effect until 2013 and would only affect those above the $200,000/$250,000 threshold. It would not hurt most of the middle class, because the top 10 percent of Americans own 90 percent of all US stocks, bonds, and mutual funds, while the top 1 percent control 51 percent.

Nor does the proposed budget raise estate taxes; it merely “resets” them to 2009 levels. Raising them would be another way to stop or slow the growing concentration of wealth – and to pay for deficit reduction.

The economy thrived decades ago when estate taxes and income taxes on the rich were far higher. Though the rhetoric of conservatives maintains a boost in taxes on the rich now would clobber the economy, it is hard to imagine why it is so different now than in the 1960s or 1970s.

Are CEOs really 300 times more valuable?

When this writer attended annual gatherings of the CEOs of the nation’s biggest corporations in the 1960s, they were paid about 30 times the wages of their lower-paid workers. Today’s corporate chiefs are paid around 300 times the wages of their low-paid workers. Are today’s executives really ten times brighter and more able than their counterparts were 50 years ago? Common sense says no. They have merely managed to persuade members of corporate boards that they deserve fantastic pay. Potential members are unlikely to get invited to join a board by the CEO if they have a reputation for toughness on pay. And CEOs tend to mistakenly measure their own individual worth by their level of pay.

By the way, some hedge-fund managers that received hundreds of millions in compensation for amazing returns on their investments in recent years are being charged now with cheating – receiving insider information.

So an eloquent populist in the nation’s capital, by highlighting the growing concentration of income and wealth, could make it politically embarrassing for conservative members of Congress to continue coddling the rich.

David R. Francis was a longtime Monitor economics reporter and columnist.

This post was included in the Carnival of Money Stories hosted by Funny About Money

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I started this blog years ago as a way of keeping myself accountable to my own debt reduction plans. Now I'm using this site to help others get out of debt, and learn about personal finance so that they can live their best lives.

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