January 6, 2017
Please, please, show me why this set of facts is wrong: “Between 1980 and 2014, the richest 1 per cent have seen their average real income increased by 169 per cent (from $469,403, adjusted for inflation, to $1,260,508) and their share of national income more than double, from 10 per cent to 21 percent…Over the same thirty-four years, median household income grew by only 11 per cent.” Even so, these modest gains were mostly in the earlier part of the period. “…by 2014 [median income] was only .7 per cent higher than in 1989….” Furthermore, most of the modest gains for those of lower income are due to longer working hours. And, this while the percentage of Americans with college educations has doubled, suggesting that it’s not only those with only high school diplomas who have suffered. In fact, that group has actually seen a decrease in real income across this period (Stiglitz, 2016).
I understand some Conservatives simply detest Paul Krugman and Joseph Stiglitz, whose views are on the liberal side–favoring policies to achieve a more egalitarian society, believing government is as important as the free market in achieving just outcomes. The above quotes and facts are from Stiglitz. And, I admit the same distrust when I see “facts” quoted by ultra-Conservative economists–I admit I look carefully to see if the facts are correctly calculated. When studying in London in 2012/3, I learned a lot about data–how it can be chosen and manipulated to reflect the bias of the writer. So, I respect all of that. So, please challenge these facts!
Here is a little of the color behind these facts: CEO/pay of average worker has risen from 20:1 in 1965 to 354:1 in 2012. Financial executives took some of the greatest advantage. The top five C level Wells Fargo executives made $9 million to $11 million each in 2015, and the CEO made $19 million. While the average Wells Fargo bank teller’s salary was $12.40 per hour, the top consumer banking executive left the bank with a stock package of $125 million. Can there really be any argument that pay is in accordance with performance for these execs, when that particular executive oversaw a multi year performance of creating fake accounts, costing 5,300 lower level people their jobs (and probably their reputations and careers) and disgracing the bank, costing millions in correction and lost shareholder value. For a patient reader, Stiglitz has a much deeper analysis to disprove the theory that this kind of exorbitant executive pay is correlated with performance.
So, these are some of the facts. If you dispute the overall picture, explain why. For example, some have argued that inequality should be measured based on consumption, not on income (e.g., costs of some goods have declined). However, recent studies show the two measures produce about the same result–an alarming widening of inequality. So, show me where there is an accurate picture of a more egalitarian nation, such as we were in 1960.
For a good example of how data can be chosen and interpreted as it relates to inequality see this short treatise provided by Inequality.org, objectively explaining the many ways in which the “Gini index” of inequality can be calculated. However, the conclusion to the explanation gets to the bottom line, no matter how you calculate it: “So we’re right back to the haves and have-nots. That we’re a society of haves and have-nots may not be literally true, but it’s more than just a metaphor. America is suspended roughly half-way between full equality and a situation in which all of the country’s income is concentrated in one person’s hands.”In other words, we’re half-way between a socialist utopia and an absolute monarchy. America in 1968 was hardly a socialist country, but it was much closer to the utopia. Maybe it’s time to turn back the clock on income inequality. Utopia doesn’t sound so bad.” Our Gini index of .46 is back to that of the Robber Baron Era early in the 20th century.
There are at least three compelling reasons we must: One is that we will face the prospect of a revolution, with blood on the streets if we don’t do something, start to reverse the trend now.
Another is that a more egalitarian society is now thought to be able to grow faster than an unequal society, and all can benefit financially. After all, who’s going to buy the products if the lower classes have no income?
Finally, it is a moral imperative that we continuously work to create opportunity for all, food, shelter and health for all, education for all.
I have two requests: Show me how these facts present the wrong picture, if they do. Show me a radically more attractive set of historical facts. I’m open to learning. And, if the Stiglitz picture is a fair picture, tell me why we should live with this, or what we can do about it, so that it doesn’t persist, or worsen as seems likely to be the outcome with the new administration.
Show me or tell me.
5 thoughts on “Show Me or Tell Me”
Can’t fault your facts! Wish I could! But just to add a few more….. they were saying two days ago in the U.K.that top executives were paid £1000 per hour, that the average pay for a U.K. Worker was only 24 K per year, while basic wage is just ove £7 per hour. So one of the think tanks was saying that in the first two days of 2017, our top executives had already earned the same amount that it took the town clerk, or the parish priest, for example, a whole year to earn.
So it is not just happening in the US!
It is my belief that setting a minimum wage is dangerous. And that setting a minimum wage that is too low to live on, is downright unethical.
Thanks, Liz. It’s a huge problem throughout developed countries! Dale
Thank you for these posts, Dale.
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Hi Dale, there is no doubt that income inequality has increased. The highest earners are probably entertainers and sports-stars. But income is only part of the story. In some cases a very small part. Last year Warren Buffet’s wealth increased by 20% which in my estimate is about $ 12 billion. He does not pay any taxes on his increase in wealth whatsoever. He can choose his income. It is tiny in comparison to his increase in wealth. Same goes for Bill Gates and all the other rich people who are wealthy and have little income. Their wealth will never be taxed because it ends up in some way or another in a foundation dedicated to what they want to accomplish.
I have no problem with a leader of a corporation receiving a high salary. That is up to the shareholders which are the owners of the corporation. At UC Berkeley the highest paid employees are three coaches which make well over a million. Should I be against that? I am also not against the rewards coming to those who build and possibly sell a successful business. It’s tough to do. I know this guy who came as a refugee from Bulgaria. He had nothing to begin with. He started a “cloud” service which he sold for $ 20 million. Should I be against this? Then there is Peter Thiel who founded Paypal and became an early investor in facebook, he is a multi-billionaire. Should we limit these possibilities?
Frankly I don’t think there will be a revolution because of rich people getting richer. We do have a revolution because vast areas of this country were totally neglected and their people were viewed and called “deplorables”. Democrats never did swat about all these companies leaving for Mexico and China, leaving communities with nothing but having to board up what remained. These are people who produce our food and produced our goods and when war comes their sons and daughters will do the fighting and be proud about their country. The politicians in SF will never understand. Now Demos have reappointed Pelosi and appointed Schumer. What a way to go! This is why Trump won. He is the only one who spoke to the concerns of the losers from globalization and they view him as a successful businessman who will be on their side. Have you ever heard of a politician going after Toyota for planning to put a huge new plant into Mexico to build cars for the US market? Well Trump is and that will resonate.
I like Trumps economic plan of border adjustment taxes which gives incentives to exporters and disincentives to importers, same as countries do with value added taxes. It will give incentives for companies to create jobs in the US. It also raises revenue. Why have the Democrats not thought about this?
That does not mean that I am a Trump supporter. He is a narcissist and that is very dangerous.
Dale, I don’t get it why did you address your invitation to Conservatives?
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Always delighted to see your comments–always learn something. I’ll try to be more careful with “liberal and conservative,” as I acknowledge these are very broad labels and may not capture the idea being discussed–e.g., maybe sometimes substitute for “Conservative,” “those who favor private sector solutions over government solutions,” or ” those who wish to continue to reduce government and give greater freedom to the private sector,” etc.
I acknowledge that wealth inequality is even greater than income inequality. I think the issue is whether there is any political will to tax wealth–e.g., through inheritance taxes, or something like Piketty proposed. But the wealth inequality disparity, to me, simply accentuates the reality of the problem.
I don’t mind Peter Thiel making all that money, but I also don’t mind his paying an extra say 10% tax to simply help others (in some way), or maybe as a reflection that he undoubtedly benefitted greatly from our government along the way. I feel the problem with the philanthropy of the wealthy is that there is no collaborative process to enable focus on the major problems of the world, so a lot of it goes to the church, the ivy league university, or some pet project. Gates is an exception, of course.
As to corporate execs making all that money, I wouldn’t mind if we could see more clearly that the rewards are indeed tied to performance. I think the current system is far too “short-termism,” and also fails to reflect that many lower level folks make a greater contribution than is their reward. I can’t see $20MM for John Stumpf for 2015 as justified in any way. You’ve probably seen some of the much deeper analytical work which has been done around this, a little of which is summarized in the Stiglitz article I refer to above. Correct me if I am wrong, but I understand the bottom line is that there is little proof of correlation of pay to performance.
I don’t laud the Democrats for their work on behalf of the underserved either. Democratic administrations also promulgated the neoliberal economics which I feel has put us in this place. And, I totally agree that the revolution, if it comes, will be not because the rich get richer, but because the poor get poorer. I think “trickle down” has worked in China so far because the growth rate has been 6-10%, enough to better most people while several hundred billionaires were getting very rich. But here, I guess we simply can never see that kind of rate of growth. I agree Trump spoke to the needs of the underprivileged, and except perhaps for the border adjustment taxes which I only learn about through your comment, I can’t see much he offers that will do anything for the underserved. I don’t see the creation of jobs, not on a significant scale. I think technology and globalization are massive forces and greater than anyone can resist.
Thanks again for your time and intelligence! I’m hoping to use the Harvard experience of 2017 to improve the content and the style of my writing. I think more intelligent comments such as yours would be even better for my improvement.