Why yes, income inequality is a problem

posted at 9:06 am on October 29, 2011 by Jazz Shaw

One of the hot terms occupying the center ring of the political circus these days is “income inequality.” (See what I did there?) It’s become so popular, in fact, that the Congressional Budget Office has jumped on the bandwagon and produced a study on it.

As the Occupy Wall Street movement persists in cities across America and gains supporters across the globe, a new report by the nonpartisan Congressional Budget Office (CBO) echoes the concerns raised by the movement’s growing legions.

The CBO report details trends in the distribution of household income between 1979 and 2007, and reveals that after-tax income for the highest income households grew more than it did for any other group during that period. After-tax income is income after federal taxes have been deducted and government transfer payments, such as Social Security and unemployment insurance, has been taken into account.

Right off the bat, I would note that there is something inherently stirring for Americans about the term inequality. We don’t like it and we never have. The long term trend of our nation’s admittedly flawed past has been to eliminate, not reinforce, instances of inequality. When I think of that term, I think of a government which allows one group of people – such as men – to vote and participate in the democratic process while another group – let’s say… women – are not allowed to do so. And we had that in our country. The government was treating different groups of people in an unequal fashion, and we eliminated it.

Going further back, we had the institution of slavery. Yet again the government was treating two groups of people – based on the color of their skin – in different, unequal fashions. And, again, we got rid of it.

So when I hear the term “income inequality” – and call me crazy if you like – here’s what comes to my mind: a government which treats two groups of people differently by way of how heavily they will tax the income and wealth they manage to accumulate. In this case the two groups are those who succeed in accumulating more, and those who fail to do so. And given our system of reporting income for tax purposes, it’s not much harder to determine who falls into each group than it is to identify the skin color or gender of any given American.

So yes, Virginia, we do have income inequality in America. The government is treating two subsets of the population with a different level of harshness. I wonder if we shouldn’t get rid of this inequality as well?

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kingsjester on October 29, 2011 at 12:06 PM

Are you mocking your Lord and Savior?

MJBrutus on October 29, 2011 at 12:09 PM

Oh now I get it.

Akzed on October 29, 2011 at 12:07 PM

Typing error on my part. I meant of course that cronyism is punishing …

MJBrutus on October 29, 2011 at 12:10 PM

Are you mocking your Lord and Savior?

MJBrutus on October 29, 2011 at 12:09 PM

Never. Unlike you, classless.

kingsjester on October 29, 2011 at 12:11 PM

kingsjester on October 29, 2011 at 12:11 PM

But I’m following Christ’s advice (at least as attributed to him) and you’re mocking it. One would think that a sincere Christian would follow it himself and not mock others for doing so. Does Jesus tell you to follow people around on message boards for months, taunting them?

MJBrutus on October 29, 2011 at 12:13 PM

Why doesn’t the right bring up the nasty effect of ‘inflation’ on the poor and middle class?

When we systematically rob the working man of the purchasing power of their dollar through deficit spending and excessive debt, then of course this ‘inequality’ meme is going to explode. Wages can never keep up with cost of living. The higher intellectual type jobs will always justify paying themselves more than lower jobs. The solution is to demand a strong dollar to keep the lower spectrum jobs’ pay as an actual ‘living wage’ and it keeps the upper spectrum pay from exploding. We should be blasting the liberals for wanting more deficit spending and the effects of it everytime they bring up inequality and still want more spending.

Chubbs65 on October 29, 2011 at 12:13 PM

MJBrutus on October 29, 2011 at 12:13 PM

I don’t answer, regarding my witness, to you. It is well with my soul. And you?

kingsjester on October 29, 2011 at 12:16 PM

The free market is punishing the shareholders of those corporations. It results in loss of profitability. The problem is that the corporate boards who make the decisions don’t care because the loss of profit from those activities is more than made up for by the paybacks they get for making them. It is the employees who have fewer jobs and the general public who hold too few share to influence the decisions who get burned. It is a seeping wound, not a fatal blow to most of our large businesses. On the scale of what IBM makes it is not very noticeable on their bottom line, but it is there. And the result is that a fortunate, well connected few get enormously rich through cronyism and not through free competition.

MJBrutus on October 29, 2011 at 12:01 PM

Like I said, your approach is not a purely free market approach.

MeatHeadinCA on October 29, 2011 at 12:16 PM

The Liberal / Socialist / Communist only wants to “share” with the ones that have more than them – not with the ones that have less.

gullxn on October 29, 2011 at 12:17 PM

One of the key trademarks of pure communism is that is supports income equality. I for one, am not surprised to see such Marxist thought our in the open -it’s just a matter of time. We have dumped God, morality, family and responsibility for the Pagan life – there’s no reason to see that given up voluntarily.

Don L on October 29, 2011 at 12:17 PM

Equality before the law should be our goal. The Left wants to substitute the changing standards of “Social Justice” for equality before the law. And since the Left is so preoccupied with money, “social justice” to them is largely about money. I like Dennis Prager’s idea of an optimal society: one with a just government and compassionate people, rather than one with a compassionate government which distorts relationships between people, hurts some people to help others and decreases people’s capacity for compassion (both interpersonal and intergenerational).

I also like this observation about economic inequality: “Free people can treat each other justly, but they can’t make life fair. To get rid of the unfairness among individuals, you have to exercise power over them. The more fairness you want, the more power you need. Thus, all dreams of fairness become dreams of tyranny in the end.”
- Andrew Klavan

It is natural to want fairness. One of the defining divisions between today’s Right and Left is how much liberty you are willing to give up in exchange for imposing economic fairness through government.

KarenT on October 29, 2011 at 12:17 PM

Poverty is already quite expensive, and it is not “the poor” who are the rent-seekers.

VerbumSap on October 29, 2011 at 12:20 PM

I don’t answer, regarding my witness, to you. It is well with my soul. And you?

kingsjester on October 29, 2011 at 12:16 PM

I have no soul. My conscience is clear though. In part because I don’t hold petty grudges for months or years. Heck, I rarely hold one for an hour.

You’re not a hard one to figure out. You pretend to be a Christian. It’s a mask that you wear the gives you identity. That peace, love and understanding stuff is for others. You just like to be a Christian soldier, marching off to war. It’s the authoritarian aspect that appeals to you.

Your conservatism is of the same vein. You don’t agree with conservative ideas through some well thought out process. Rather you don the mask and hew to what people tells you the dogma says. You adopted it as your identity as well. It lets you pretend when look in a mirror that some one is looking back.

So you keep on marching and I’ll keep turning the other cheek.

MJBrutus on October 29, 2011 at 12:23 PM

MJBrutus on October 29, 2011 at 12:23 PM

I have no soul.

Wow. Just wow.

kingsjester on October 29, 2011 at 12:26 PM

MeatHeadinCA on October 29, 2011 at 12:16 PM

I disagree. When a company, such as AT&T did becomes a monopoly can the free market function? What about if all of the world’s oil came from a few countries that cooperate with each other to set prices?

Is it any different than when corporate executives collude to hire and compensate their own?

MJBrutus on October 29, 2011 at 12:26 PM

kingsjester on October 29, 2011 at 12:26 PM

Don’t feel bad for me. None of us do. It is an invention of the imagination.

MJBrutus on October 29, 2011 at 12:27 PM

FREE MARKET!

Think about it…..Those two words, together and separately are profanities to Progressives.

Those two words incorporate everything they HATE.

PappyD61 on October 29, 2011 at 12:39 PM

Right off the bat, I would note that there is something inherently stirring for Americans about the term inequality. We don’t like it and we never have.

Doesn’t bother me in the slightest. It’s a word that has no innate negative connotation. I don’t want income equality between my family and a family where they do not work hard. I don’t want equality with a bunch of crybabies who racked up tens of thousands of dollars in debt to go to school when I was working full time instead of going to school because I couldn’t afford it. I don’t want equality with a bunch of loser socialists who think that people need to pay upwards of 50% of their income in taxes. I don’t want equality with most of those freaks at OWS because rather than doing something productive with their lives, they’re camping out illegally in the middle of a city under some sort of a delusion that they are actually helping people by walking around shouting and carrying signs and in general being a nuisance. They are first class idiots and if I could boat the whole lot of them out of this country I would, and I’d invite a whole boat full of immigrants to come take their places.

My household is somewhere around the 75th percentile income wise. That makes us part of “the 25 %.” A lot of those losers who identify themselves as the “99%” fall in the same income category as we do. I’m sorry, but nobody even in the top 50% of this country has ANY BUSINESS complaining about JACK S**T.

OH NO. The rich are getting richer. It cant’ be because stupidheads are racking up debt, debt which costs interest, interest which goes into the pockets of those evil, rich, mean nasty banks. And it can’t be that they are using that credit to buy products or services from people who are wealthy. OH NO, IT’ CANT’ BE THAT.

Polynath on October 29, 2011 at 1:10 PM

“… When a company, such as AT&T did becomes a monopoly can the free market function? What about if all of the world’s oil came from a few countries that cooperate with each other to set prices?

Is it any different than when corporate executives collude to hire and compensate their own?

MJBrutus on October 29, 2011 at 12:26 PM

I could care less, what bothers me is the monopoly of power that is running this nation – one violates the constitution and our freedoms routinely and the other is getting its power by pretending that it really intends to stop them.

Don L on October 29, 2011 at 2:06 PM

I disagree. When a company, such as AT&T did becomes a monopoly can the free market function? What about if all of the world’s oil came from a few countries that cooperate with each other to set prices?

Is it any different than when corporate executives collude to hire and compensate their own?

MJBrutus on October 29, 2011 at 12:26 PM

You’re addressing antitrust laws now … let me look this up, but I’m pretty sure both Friedman and Sowell argue that antitrust laws are not legislation for a free market capitalist to embrace.

MeatHeadinCA on October 29, 2011 at 2:11 PM

Here, MJ

“I have gradually come to the conclusion that antitrust laws do far more harm than good.”

This is a quote from Friedman. From what I remember, he did support them at one point but upon thoughtful consideration, he no longer supported them. I’ll have to read more on this.

MeatHeadinCA on October 29, 2011 at 2:13 PM

Yes, Friedman hits the nail on the head in the last article. IIRC, there was a time when Microsoft even helped out Apple so that they wouldn’t be in violation of an antitrust law. This was part of Microsoft’s strategy to follow the rules and turn a profit. The point is, businesses will ALWAYS find ways around regulations and these regulations are not free market approaches.

MeatHeadinCA on October 29, 2011 at 2:17 PM

Here’s a link from Sowell on how the courts have misinterpreted the free market system – which I believe is exactly what you’re doing, MJ.

http://www.forbes.com/forbes/1999/0503/6309089a.html

MeatHeadinCA on October 29, 2011 at 2:18 PM

while we talk about economic equality, where is the measurement for how hard and long someone works and how much they spend in exchange for their monetary reward?

How can we have economic equality without ensuring that everyone work at least 8 hours a day, 5 days a week. Then you need to measure equality in spending. Of course someone who spends more will have less economic equality than someone who saves.

Someone who is older, therefore has worked longer, should have more than someone who is 20 and never worked a day in their life. Someone who refuses to work should have nothing, and someone who plays at work should have little. Right?

And then how to we make adjustments for those who have been robbed, had a disaster happen that ate their economic purse or had more children than another? Does everyone need to consume the exact same food and portions, drive the same car and live in the same box house?

How about pets? Do we reward those who keep them with more so they can support them, or do we penalize them? How about different intellectual abilities granted by God. Remove some of their brain? Does the football player now make the same as the master violinist? How do we place a value on their contributions? How about the would be musician with no talent but wonderful perseverance versus the musician with God given but rather wasted talent?

We will go back to “separate but equal”?

katablog.com on October 29, 2011 at 2:19 PM

Jazz I think you and folks like you are missing the whole point. And your over-complicating this issue. No one begrudges the rich their riches. What working people want is for corporate America to stop sending our jobs, wealth, technology and intellectual property overseas. Stop leaving our nations vault door open and unguarded. There’s plenty of fault on the OWS side for sure but there’s also fault on those that influence/control corporate America. If we still had an abundance of high paying private sector jobs available most of these OWS people would not be out on the street. They’d be working. DD

Darvin Dowdy on October 29, 2011 at 2:25 PM

because rather than doing something productive with their lives, they’re camping out illegally in the middle of a city under some sort of a delusion that they are actually helping people by walking around shouting and carrying signs and in general being a nuisance.

Yeah. How do you put an economic value on something (without the free market system) when different people have different values?

OBTW, where’s the “equal” treatment for all lawbreakers? Why do Tea Parties need permits when OWS openly breaks every law on the books? Can we have some equal treatment here please?

katablog.com on October 29, 2011 at 2:26 PM

What working people want is for corporate America to stop sending our jobs, wealth, technology and intellectual property overseas.

And why do you think they do that? Because they hate America? Or could it be because of Government regulation that DRIVES business out of the USA with regulation instead of allowing the free market to work?

katablog.com on October 29, 2011 at 2:27 PM

Right off the bat, I would note that there is something inherently stirring for Americans about the term inequality. We don’t like it and we never have.

You’re missing the point. One major reason for this level of inequality is the ‘redistributionist’ policies of the last 10 years. Government social engineering is largely responsibly for this new gap- with capital gains taxes at one of their lowest levels in our history, coupled with low tax rates on the highest income earners.

By raising tax rates to pre-Bush levels, the government is doing nothing more than returning to a long-standing norm.

As for claims that extreme income inequality signals the free market working normally, that’s true if you live in Guatemala or Panama. But it hasn’t been the case in the US since the rise of the middle class lead to a widespread prosperity.

bayam on October 29, 2011 at 2:35 PM

If we still had an abundance of high paying private sector jobs available most of these OWS people would not be out on the street. They’d be working. DD

Darvin Dowdy on October 29, 2011 at 2:25 PM

Oh, man. You are overestimating the drive that most of these OWS types have. They don’t want to work to make money. They’ve convinced themselves that they are not greedy and driving around in a beat up Volvo drinking fair trade coffee is the way to live … now if only someone would pay for their education.

MeatHeadinCA on October 29, 2011 at 2:44 PM

In this case the two groups are those who succeed in accumulating more, and those who fail to do so.

The great entrepreneurial successes of American business, men like Steve Jobs, Larry Ellison, and Warren Buffet- would strongly disagree with your description of teachers or military officers as ‘failures’ in any way. Our society would simply collapse if everyone placed the accumulation of wealth as the standard by which they measured their real worth or singular goal in life. It’s surprising how some individuals worship at the alter of the wealthy far more than the great capitalists themselves.

It’s also troubling to see you describe Abraham Lincoln, the President who instituted progressive tax rates, in such petty terms. That’s unusually small-minded for any American who appreciates Lincoln’s extraordinary contributions to this nation and its heritage.

bayam on October 29, 2011 at 2:45 PM

MeatHeadinCA on October 29, 2011 at 2:11 PM

Yes I am. I am saying that corporate executive hiring is performed using practices that are in constraint of trade. Friedman did not object to laws against trust formation in principle. He objected to the poor laws that attempted, but did not succeed in doing that.

MJBrutus on October 29, 2011 at 3:15 PM

I have no soul.

MJBrutus on October 29, 2011 at 12:23 PM

Sounds more like a brain is what you truly lack.

fossten on October 29, 2011 at 3:19 PM

Yes I am. I am saying that corporate executive hiring is performed using practices that are in constraint of trade. Friedman did not object to laws against trust formation in principle. He objected to the poor laws that attempted, but did not succeed in doing that.

MJBrutus on October 29, 2011 at 3:15 PM

Any law that you come up with to “fix” the system will be a poor one. There is no law that is going to bring everyone into 100% compliance with it. The idea that we can make a law forcing businesses to be fair and good is wishful thinking. Once you accept that we don’t live in a perfect world, your best chance of justice (note, not fairness) is to allow the market to punish crooked backroom deals. If corporation X wants to rub Y’s back by giving him the reigns, either they will succeed on their own or Y will sink X.

MeatHeadinCA on October 29, 2011 at 3:28 PM

OK, let’s see if this can be properly deconstructed:

I’m talking about people who are brought in to manage a large company. Most of the time they did not compete in an open market place for their huge salaries. Instead, they are hired because they are connected. Often they sit on a board of directors who has influence with the board who hires them.

This appears to be a naked assertion on your part. Do you have any actual evidence to show that over 50% of all “people brought in to manage a large company” were not hired due to their demonstrated talent, but instead because they were “connected”? I assert that you do not have such evidence.

“There are plenty of brilliant people who could manage those corporations more effectively and if they were competing on merit the supply of them would drive the salary down. But they’re not competing at that level, they’re colluding. It is a cartel and not free market capitalism.”

Again, do you have some actual evidence that there actually are other candidates (in over 50% of all managerial hirings of this type) who could have managed a given corporation “more effectively” in exchange for radically lower compensation than the manager who was actually chosen… or is this simply a hunch on your part?

Where are these hundreds or thousands of ultra-talented managers of major corporations with demonstrably superior talent who keep being turned away, despite being willing to accept a mere 1% of their competition’s salary requirements? Do any of them have names, so that we can objectively compare their demonstrated track records of success to that of the connected crony who got the position instead?

Do none of these corporations have stockholders clever enough to see this gross inefficiency, and point it out at shareholder meetings?

Let’s assume for the moment that your assertions to this point are true. What solution does true free market capitalism offer? Simply this: that corporations which engage in such a practice will be marginally less efficient than their competition, and thus likely to lose market share. A free market punishes inefficiencies of this type by offering opportunities for more nimble, less wasteful competitors to outrun these corporations that mis-allocate resources in such a way.

Yes, of course. And I’m all for that. But that is a different problem that won’t solve the inequity of corporate executive compensation. A company can find a more talented and effective CEO for $5 million than the one they’re paying $500 million if it were a free market and not a cartel. And that $495 million saved can either reward the shareholders or finance expansion to hire thousands of workers instead.

MJBrutus on October 29, 2011 at 10:47 AM

Again with the naked assertions. You’re simply stating outright that such candidates always exist, and would have been hired instead of the actual choice, if not for the existence of this shadowy cartel that somehow prevents this from happening… that 99% of this compensation is routinely being wasted, and somehow that the shareholders are accepting the bypass of this reward to them blithely, without so much as a word about it.

Where are the shareholder revolts taking place because of this? Where are the ‘non-cartel’ candidates with demonstrably superior talent who are so obviously a bypassed choice that could have saved a major corporation half a billion dollars or so? Are we to accept that all of these shareholders simply don’t have your insight, MJBrutus, and that’s why they continue to go along with this, and in all of our major corporations to boot?

Here’s the start of a solution. A role of government in a free market is to ensure competition. To break up monopolies and cartels. We have cartels in charge of corporate leadership. By what means should this be accomplished? I can’t say that I know.

MJBrutus on October 29, 2011 at 11:01 AM

Aha! We get to the root of it! You appear to believe that it is the proper role of government to “break up monopolies and cartels” in a free market capitalism environment.

I get the feeling that you’re using the term “free market capitalism” in a different way than many others, including myself. I assert that, to the extent that government interferes in the marketplace, government tends to make the market less efficient, rather than more so.

You keep offering up this notion of the marketplace for labor being “not free”, but from the perspective of the potential candidate, rather than from the perspective of the corporation which is seeking to do the hiring.

So let me ask you this: Do you think that restricting the choices of candidates who can be hired by any given corporation somehow makes the marketplace more free, rather than less so? Because that seems to a common thread through your comments: that corporations are consistently hiring the ‘wrong’ candidates, and that there should be rules or regulations that somehow stop them from doing so… that corporations should be less free to make their own internal choices about whom they wish to hire (and then to receive the natural reward or punishment that corresponds to the value of their decisions).

Part of the notion of free market capitalism is to allow companies to compete with one another, and the marketplace can then ‘vote with their dollars’ regarding the wisdom of the choices made by those companies. It sounds to me like you think companies should somehow be forced to make decisions that are somehow better by being in line with the way you would have decided… and then to assert that by doing so, you’ll be making the marketplace more free!

That strikes me as a fundamentally incoherent position. You don’t make a market more free by making its competitors more restricted. You might make it more ‘equal’ or more ‘egalitarian’, but not more free. Free includes free to make bad hiring decisions, or free to waste money on Disney-whistling robots, too. It’s not the proper job of government (in a proper free market system, in my opinion) to force corporations to make “better” hiring decisions.

It’s the ‘job’ of the marketplace and consumers to identify which companies are doing better jobs of providing value in the aggregate of their decisions, and this is a natural side-effect of these companies being more efficient and productive, rather than wasting half a billion dollars as you so blithely assert, and thus offering better value to consumers.

I hold that, to the extent that you think “a role of government in a free market is to ensure competition” by means of anti-trust, anti-monopoly or anti-cartel interference, you don’t actually believe in free market capitalism. Instead, you believe in a more ‘mixed economy’, and that a logical extension of your stated positions is that you think the government should be interfering more in the marketplace, via the creation of these new laws / regulations.

And to take my answer further, I think that what is needed are rules to put an end to the kinds of conflicts of interest that rules the corporate world. Something in place that would prevent hiring of executives without demonstration that the decision is based on merit and not payback. Crony capitalism is not just a problem for government largesse. It is alive and thriving in the corporate world and should be stopped as well.

MJBrutus on October 29, 2011 at 11:13 AM

We shouldn’t worry, of course, because it’s really for our own good. You just want these new restrictions in order to make things “more free”, right? Or at least more efficient, and thus more profitable. These bone-headed companies clearly don’t know the right way to be efficient, so let’s pass laws and regulations that will force them to stop making these inefficient crony-based decisions!

As long as it’s still called free market capitalism by some people, we shouldn’t be concerned with the proposed methods… only with the asserted outcomes that will arise from these best-of-intentions changes.

Down that road lies madness.

What I have consistently said is that we need laws that promote FREE MARKET capitalism. You can’t understand that cronyism in the private economy is cronyism. At the executive level, we do not have free markets for labor. That is the problem related to executive compensation. It is a drag on our economy and it is a drag on productivity meaning a drag on profits and employment.

MJBrutus on October 29, 2011 at 11:45 AM

Clearly, we can’t rely on the invisible hand of the market to correct these drags on productivity, profits and employment. No, this is a problem that is far too important to leave to the free market. Let’s force the market to be more productive, profitable, and thus increase employment. Who wouldn’t want that?

In order to save the freedom of the free market, clearly we must implement more laws and regulations! Only through more rules can we truly be free! Once we restrict our corporations enough, then they’ll be truly efficient, and free to compete!

Freedom through more regulation. It’s our only hope.

George Orwell, call your office please.

VekTor on October 29, 2011 at 3:40 PM

Yes I am. I am saying that corporate executive hiring is performed using practices that are in constraint of trade. Friedman did not object to laws against trust formation in principle. He objected to the poor laws that attempted, but did not succeed in doing that.

MJBrutus on October 29, 2011 at 3:15 PM

If you can demonstrate that a competitor to the corporation which made a crony-capitalist decision in hiring is not able to compete efficiently in the marketplace, then you might have a point with respect to constraint of trade.

Without such a demonstration, your point is incoherent. This alleged practice of inefficient hiring doesn’t somehow force other businesses to do so as well. To the contrary, the fact that one corporation has done so leaves these other, far more cost-efficent candidates (that you insist are available) to be hired by any corporation which freely chooses not to engage in that practice, and thus to compete the socks off these crony-filled corporations.

Trade is thereby not constrained. QED.

Or are you contending that this shadowy cartel is somehow controlling not only every corporation out there (to ensure compliance with this practice), but also every potential future competitor that might arise tomorrow?!?

How truly diabolical. Now I see the need for these new laws. No force so evil can be rightly permitted to stalk our fair land with impunity.

VekTor on October 29, 2011 at 3:53 PM

Two thoughts:

1) A couple years ago in an internet debate about income inequality I did the math and here is what I found:

Let’s take one company, say the largest retailer notorious for its “low pay,” and benefits, Wal-Mart.

Take all of Wal-Mart CEO’s $18.7 million, all of it, and give it to the rest of the employees. That works out to $10 per employee per year, less then 1/2 cent per hour or .20 cents a week. There, now we are all even.

As a matter of fact take the entire management team’s pay (about $125 million) and give it all to the employees. That is about $70 per year per employee, about .03 cents an hour, or $1.35 a week.

Yeah, that helps, huh? How about we worry about new refineries and oil fields and reducing the cost of gas just .50 cents a gallon. Bet that $5 a week ($250 per year) or so helps out more then complaining about how much the CEO makes, not to mention all the good paying energy jobs!

Today the company employes 2.1 million people and the CEO makes $35 million or $17/year per employee or .32 cents a week (.01/hour on a 32 hour week).

How many people could successfully manage 2.1 million people (for only $17 per employee btw) so that they all retain employment?

2) Free markets have a built in correction for this inherent inequality. It is called recessions. Recessions cause everyone to reevaluate their priorities, everyone from the single mother to the board of the biggest banks. Unfortunately the government, in its infinite wisdom, continues to step in and disrupt that market correction by saving failing companies and corrupt tax workarounds.

LifeTrek on October 29, 2011 at 4:07 PM

VekTor on October 29, 2011 at 3:53 PM

It’s not the least bit shadowy. It is blatant. Corporate executives are most frequently hired because of their connections. Their compensation is likewise determined by the others in their network. That is why their pay is so entirely beyond what a true market would pay them.

Consider IBM. It just hired a new CEO. The company is full of brilliant people who could and would handle the job as well or better for a small fraction of what they’re paying this new guy. We can argue about how much it affects IBM’s bottom line, but it is an inequity. And it feeds the correct notion that the system is rigged in this way.

MJBrutus on October 29, 2011 at 4:39 PM

Clearly, we can’t rely on the invisible hand of the market to correct these drags on productivity, profits and employment.

VekTor on October 29, 2011 at 3:40 PM

Wrong. Smith’s invisible hand works only in a free market. As I said, we don’t have a free market for high level corporate management. We have an artificially arranged system of rewards and paybacks for cronies.

MJBrutus on October 29, 2011 at 4:41 PM

Wrong. Smith’s invisible hand works only in a free market. As I said, we don’t have a free market for high level corporate management. We have an artificially arranged system of rewards and paybacks for cronies.

MJBrutus on October 29, 2011 at 4:41 PM

Of course it will only work well in a free market; however, you said you were applying free market approaches to solve the problem. Which is it? You have so much as acknowledged that the free market approach is more just and that your “solution” is not a free market idea.

MeatHeadinCA on October 29, 2011 at 4:48 PM

MJBrutus on October 29, 2011 at 4:39 PM

IBM’s new CEO is a woman who started small and has worked her way up in the company since 1981.

As global sales leader for IBM, Ms. Rometty, 54, is accountable for revenue, profit, and client satisfaction in the 170 global markets in which IBM does business. She is responsible for IBM’s worldwide results, which exceeded $99 billion in 2010. She also is responsible for leading IBM’s global strategy, marketing and communications functions. Previously, Ms. Rometty was senior vice president of IBM Global Business Services. In that role, she led the successful integration of PricewaterhouseCoopers Consulting — the largest acquisition in professional services history, building a global team of more than 100,000 business consultants and services experts. She has also served as general manager of IBM Global Services, Americas, and of IBM’s Global Insurance and Financial Services Sector.

Ms. Rometty joined IBM in 1981 as a systems engineer. She holds a Bachelor of Science degree with high honors in computer science and electrical engineering from Northwestern University.

LifeTrek on October 29, 2011 at 4:48 PM

Consider IBM. It just hired a new CEO. The company is full of brilliant people who could and would handle the job as well or better for a small fraction of what they’re paying this new guy. We can argue about how much it affects IBM’s bottom line, but it is an inequity. And it feeds the correct notion that the system is rigged in this way.

MJBrutus on October 29, 2011 at 4:39 PM

1) That is your opinion. Clearly, you aren’t even in the position to make that choice and were not involved in making that choice.

2) As has been stressed, if IBM is making a bad decision they would pay the price in a free market.

MeatHeadinCA on October 29, 2011 at 4:50 PM

Ouch. That’s gonna leave a mark.

kingsjester on October 29, 2011 at 4:50 PM

The root problem is that real wages have been stagnating for some time in the US.

Period.

That’s the root of all this angst.

And it is a problem that neither political party or ideology has the solution for. The Dems answer is the rhetoric of class warfare (as if billionaires’ wealth somehow affected mean income levels) and the GOP generally just spouts off about less taxes and less regulation (as if the tax rate or environmental regulation on Michael Dell has any effect on the average salary of a Dell fulfillment center employee).

BocaJuniors on October 29, 2011 at 4:54 PM

It might be convenient to set up the issue in terms that we can diminish it by brushing it off as just another “equality” whine, but the problem is that we have a terrible national policy in place that purposely increases the gap between rich and poor. Poverty immigration and importing goods that were created with cheap foreign labor makes the poor poorer and the rich richer. The Democrats like it because it creates more government dependent Democrats. The Republicans like it because they are stupid.

Do Republicans still argue the concept of “trickle down theory”? If so, explain it with a straight face.

Buddahpundit on October 29, 2011 at 4:55 PM

…importing goods that were created with cheap foreign labor makes the poor poorer and the rich richer. …

Buddahpundit on October 29, 2011 at 4:55 PM

Not exactly. If I can go to Target and buy 2 or 3 shirts for the same price (relative) I paid for 1 shirt 15 years ago I am in actualit wealthier.

I may not feel it, but today I have money to buy a cell phone and the shirt.

LifeTrek on October 29, 2011 at 5:01 PM

Lowest income = zero, or as set by the government. Maximum income unlimited, but ever increasing. Therefore the “income inequality” will always be expanding as long as incomes are increasing, and that is a good thing.

Dasher on October 29, 2011 at 5:06 PM

It’s not the least bit shadowy. It is blatant. Corporate executives are most frequently hired because of their connections. Their compensation is likewise determined by the others in their network. That is why their pay is so entirely beyond what a true market would pay them.

Do you get paid for each naked assertion you make here, by chance?
How do you intend to objectively demonstrate that corporate executive pay is “so entirely beyond what a true market would pay them”?

What data could you possibly have to back up this assertion? How do you know what “the true market” would pay them? We know what an ACTUAL MARKET did pay them… but all we have is an assertion that it’s too much.

Consider IBM. It just hired a new CEO. The company is full of brilliant people who could and would handle the job as well or better for a small fraction of what they’re paying this new guy. We can argue about how much it affects IBM’s bottom line, but it is an inequity. And it feeds the correct notion that the system is rigged in this way.

MJBrutus on October 29, 2011 at 4:39 PM

Prove it. Name these people who are better-qualified for that job. Demonstrate objectively at least one of them that we can know for certain will do as well or better than the actual choice, at a small fraction of the actual agree-to compensation.

Then buy some IBM stock and show up at the next shareholder’s meeting with your evidence, showing how the board is clearly passing up and opportunity to improve the return for the shareholders by squandering capital in this fashion. Think the rest of the shareholders are going to just forgo that extra return on investment?

You’ve railed about the lack of a “free market for labor” in this respect.

Do you know what a truly free market in labor is? In a truly free market for labor, any company can hire anyone for any position, for any reason, for any agreed-to compensation package whatsoever… and any given candidate is free to accept or turn down any offer that is tendered, and free to accept any counter-offer from any competitor for any reason at any time, or to simply walk away if the mood strikes them.

That is the essence of “at-will” employment. To the extent that government interferes with those provisos, it makes the marketplace of labor less free.

What you have to realize is that, with respect to employment offers, candidates need to be treated in the same fashion as consumers treat businesses. No one should be forced to buy from a particular store if they don’t want to, and there is no practical remedy for a store owner under free market capitalism if no one chooses to ever buy from them. They fail.

Likewise, companies should not be forced to extend offers of employment (nor even interviews) beyond the particular subset of candidates which they consider. The ‘remedy’ you are proposing is nightmarish… companies would be guilty until proven innocent, and limited in who they could ‘shop’ with in order to buy the service of the given labor. Only if they could prove that no one else is “better qualified” could they extend a job offer at any given level of compensation.

That’s the exact opposite of a free market for labor.

If you don’t like the choices a given corporation makes, the answer is not more laws and regulations… it’s to punish that business by not favoring them with your dollars, and let the invisible hand work. Favor competitors who make better decisions, or start up your own competition to them if you think none exist.

Your assertions boil down to the notion that, by analogy, some company is buying their supplies from only a small subset of suppliers, rather than letting all of the other suppliers “compete” in a “free market” for that business, and that companies should be forced to show why this is the best possible choice.

In reality, the suppliers are all competing, but the decision of where to spend the money rests with the party that has the money. In the case of buying supplies, that rests with the company doing the purchasing. When it comes to extending a job offer and negotiating compensation, it’s also the company that’s doing the hiring that gets to make the decision.

The company that is hiring is the customer in this transaction in the marketplace of labor. To have a ‘less free marketplace for labor’, there would have to be fewer candidates from which to choose. And that’s precisely what your proposals cause for businesses.

Just as we wouldn’t say that forcing consumers to buy from mom-and-pop shops rather than big box stores is a proper practice of “free market capitalism”, we shouldn’t say that forcing corporations to tightly limit who they can hire is ‘making a more free market for labor’. It’s the exact opposite. You’re asking for less freedom, not more.

Now, a failing business would certainly see it to their benefit to have the government step in and force potential customers to justify why they’re not buying from that business, or to force certain customers to NOT buy from their competition… that’s their own rice bowl that they are protecting. But such advocacy would be silly to call ‘increasing market freedom’. It’s taking choice away from the decision-maker in the transaction, and that’s inherently less free.

Likewise, from the perspective of what you’ve been describing as better qualified (more cost-efficient) candidates, it would be to their personal benefit if corporations were forced to interview them, and somehow prove that they aren’t the best possible choice, or be forced to hire them in the absence of that proof. That’s to their personal benefit, but that’s not making the labor market more free. It’s the exact opposite.

VekTor on October 29, 2011 at 5:21 PM

Not exactly. If I can go to Target and buy 2 or 3 shirts for the same price (relative) I paid for 1 shirt 15 years ago I am in actualit wealthier.

I may not feel it, but today I have money to buy a cell phone and the shirt.

LifeTrek on October 29, 2011 at 5:01 PM

Of course you are wealthier. Bloomberg talked about how nice it is to have cheap available illegal alien labor to keep his greens fees lower. He’s a few bucks wealthier because of it, and what a relief that is!

Buddahpundit on October 29, 2011 at 5:22 PM

Of course you are wealthier. Bloomberg talked about how nice it is to have cheap available illegal alien labor to keep his greens fees lower. He’s a few bucks wealthier because of it, and what a relief that is!

Buddahpundit on October 29, 2011 at 5:22 PM

Do you disagree, though, that the poor have access to cheaper products because these products were manufactured in say China?

MeatHeadinCA on October 29, 2011 at 5:27 PM

MeatHeadinCA on October 29, 2011 at 4:50 PM

For you to believe that the CEO of a company like IBM adds more value to that company than 1000 high level engineers is the height of naivete. As is the notion that in this nation of ours there are not literally thousands of brilliant and capable people who would be willing to do the job for 1 percent of what they’re paying. And for you to think that the game is not rigged and that it is not harming this nation’s competitiveness is willful ignorance. Of course it hurts us just as union labor constrains other hiring and firing practices in a company. It is a drag on our economy that we all pay for.

MJBrutus on October 29, 2011 at 5:30 PM

For you to believe that the CEO of a company like IBM adds more value to that company than 1000 high level engineers is the height of naivete

That’s the thing. I don’t necessarily believe that. I don’t work with IBM. I don’t do business with IBM (other than being a consumer in the marketplace). And I certainly don’t hire at IBM. I will say that if I felt that IBM was losing out on profits, I wouldn’t invest with them; and if I felt that IBM had an unhealthy work environment, I wouldn’t work there. How is that naive?

As is the notion that in this nation of ours there are not literally thousands of brilliant and capable people who would be willing to do the job for 1 percent of what they’re paying. And for you to think that the game is not rigged and that it is not harming this nation’s competitiveness is willful ignorance.

MJBrutus on October 29, 2011 at 5:30 PM

Unleash the free market, then. If you claim you are using a free market approach and you want more justice, then you will support this idea. The notion that we need to make things more “free” by installing more regulations is either totally ignorant or willfully deceptive. And, again, your approach is 1) not a free market approach and 2) will lead to even more clever strategies around these constraints. This is what business people do.

MeatHeadinCA on October 29, 2011 at 5:48 PM

Of course you are wealthier. Bloomberg talked about how nice it is to have cheap available illegal alien labor to keep his greens fees lower. He’s a few bucks wealthier because of it, and what a relief that is!

Buddahpundit on October 29, 2011 at 5:22 PM

Glad you agree, so does the worker who has a job, and since golf is no longer just a rich mans game so do those who can now afford to spend some time relaxing on a Saturday at their own greens.

But more importantly, why do you begrudge the few bucks Bloomberg has and NOT praise the same few dollars everyone else has?

LifeTrek on October 29, 2011 at 5:51 PM

MeatHeadinCA on October 29, 2011 at 5:48 PM

What’s naive is to think that most of corporate America is not corrupt in this way. The alternative to investing or consuming products from corporations that are not run by insider cronies is to keep your money in a mattress and buy nothing.

I’m not claiming to have all the answers. But I am claiming to not be blind to this problem we have. A problem that is only becoming more malignant and blatant with time.

MJBrutus on October 29, 2011 at 6:03 PM

What’s naive is to think that most of corporate America is not corrupt in this way. The alternative to investing or consuming products from corporations that are not run by insider cronies is to keep your money in a mattress and buy nothing.

Is corporate America corrupt? Yes. Is corporate America passing up opportunities to bring in more profits by making the janitor the CEO? No. Now, I’m exaggerating a bit here, but business men and women by and large are not intentionally throwing away profits.

MeatHeadinCA on October 29, 2011 at 6:07 PM

yes, jazzy, the rich should have more and the poor less. put that on a bumper sticker.

sesquipedalian on October 29, 2011 at 9:22 AM

How about this for your bumper sticker: “Robbing the Rich for the Guys in the ‘Hood”

unclesmrgol on October 29, 2011 at 6:15 PM

I’d say that if we are going to fleece the rich, let’s start with the trust fund boys. Edward T. Hall III comes to mind immediately.

unclesmrgol on October 29, 2011 at 6:20 PM

Pseudo intellectualism abounds on HA…

d1carter on October 29, 2011 at 6:41 PM

As is the notion that in this nation of ours there are not literally thousands of brilliant and capable people who would be willing to do the job for 1 percent of what they’re paying

MJBrutus on October 29, 2011 at 5:30 PM

The fact that these crowds of talented, capable people aren’t off forming their own more efficient firms with vastly reduced labor costs and eviscerating their former companies presents a bit of an issue for your argument.

TexasDan on October 29, 2011 at 6:49 PM

Do you disagree, though, that the poor have access to cheaper products because these products were manufactured in say China?

MeatHeadinCA on October 29, 2011 at 5:27 PM

This is the same fallacy as “workers should want to make lower wages, not higher wages…because it’s cheaper for them to buy the stuff they are making when their wages are low”.

If you have a policy of keeping the market favorable to employees, employers need to bid higher for their labor and that will create some labor based inflation and lower profits. Laborers pay more for these products because of the inflation they benefited from, but they don’t pay all of it so it’s a net gain for the workers.

You could also turn the fallacy around and aim it at the shareholders: We’ll cut costs of our products by 50% which will decimate the stock, but the stockholders can go out and buy the product cheaper so it’s a push!

As far as the Chinese shirts, what do the unemployed use to buy the Chinese shirts? Welfare money?

Buddahpundit on October 29, 2011 at 6:58 PM

I love and believe in capitalism, but all you folks that think the market is efficient to the point that certain people cannot get rich by making bad decisions really just don’t know business. I have an MBA in finance from a highly rated school and have worked in business in many different roles and different size companies, as well as being independent and a corporate lawyer, so it is not as if I want to see socialism, I don’t. But look at the companies whose execs have made terrible business decisions and still got very, very wealthy…let’s see

GM, Ford, Chrysler, Kodak, Apple (before Steve Jobs returned) US Steel, and on and on and on…. and as for Congress and the lobbyists in DC, they get very, very rich making very bad economic decisions.

Yes, in the long term, where allowed, the market corrects, but by that time lots of folks have walked away with billions and they are looked at as successful when in fact they were incompetent.

georgealbert on October 29, 2011 at 7:00 PM

For you to believe that the CEO of a company like IBM adds more value to that company than 1000 high level engineers is the height of naivete.

How much do you believe the new CEO of IBM, Virginia Rometty, will actually be paid (she doesn’t assume the position until January)?

According to BusinessWeek, her calculated compensation package for 2010 was a hair under $6.4 million. That’s not much more than the 1% of 500 million you mentioned earlier that should be the target, right?

Sure, her predecessor made more. Sam’s compensation jumped about 30% year-over-year, and a great deal of that was due to performance bonuses, because net profits rose $1.4 billion during that same year-over-year period.

So that must make his compensation truly massive after that, right? Somewhere near that 500 million you were talking about, which explains why you think it’s a 1000-to-1 ratio.

Oh, wait. After that massively profitable year, with those huge performance bonuses, his total compensation jumped to $31.7 million.

So at a 1000-to-1 ratio that you allege, you apparently think there are 1000 “high end engineers” with total compensation packages (salary and all benefits) of only $31,700 per year.

This is entirely a red herring, though, since the skill sets and underlying markets are not fungible. You can’t substitute one for the other, so the market clearing price for a given level of talent is thus radically different.

As is the notion that in this nation of ours there are not literally thousands of brilliant and capable people who would be willing to do the job for 1 percent of what they’re paying.

That’s a radically weaker claim than you were making earlier. You said earlier:

Consider IBM. It just hired a new CEO. The company is full of brilliant people who could and would handle the job as well or better for a small fraction of what they’re paying this new guy [sic]. We can argue about how much it affects IBM’s bottom line, but it is an inequity. And it feeds the correct notion that the system is rigged in this way.

So before, you were talking about people within the company who could do the same or a better job for that tiny fraction of CEO compensation… as opposed to bringing someone in to manage the company. You know, some of those thousands of brilliant people in this nation.

As has been pointed out, Virginia has worked her way up through the company at IBM, rather than being brought in.

But hey, why not libel her along the way. You’ve clearly stated that she didn’t earn this position on merit, but instead only got it because she was “connected”… despite her demonstrated track record of success within that company.

But go ahead, present your evidence for the candidate within IBM who would do the same or better job than she would, at 1% of her compensation… and be sure to show how they were passed over in favor of Virginia, a less-qualified candidate that you think is making 99% too much.

I guess that was true as senior VP in 2010… her “true market compensation” should have been less than $64,000 right?

VekTor on October 29, 2011 at 7:46 PM

Buddahpundit on October 29, 2011 at 6:58 PM

Peter Schiff dealt with someone like you down at the OWS rally. He pointed out that the US had “better” wages back in the day. I suggest you check out what he’s saying. He gave a nice, concise answer.

My point was, I don’t particularly cringe when I buy something made in China because I realize if it were made here under the current system we have in place, it would cost me (a non-welfare recipient) more money.

MeatHeadinCA on October 29, 2011 at 8:29 PM

I love and believe in capitalism, but all you folks that think the market is efficient to the point that certain people cannot get rich by making bad decisions really just don’t know business.

I’ll stop you right there.

Capitalism is not business (or even successful business). Capitalism will not keep bad businesses afloat. Capitalism is often the worst nightmare of the “good” businessman.

MeatHeadinCA on October 29, 2011 at 8:32 PM

If you want everyone’s incme to grow together, then you need to get everyone’s work ethic to grow together first. It doesn’t. Everyone has worked where there is at least one lazy person who does the bare minimum to not get fired. They show up 5 min late, leave 5 minutes early, take long breaks and lunches. They just disappear at random times. These are the people who do not deserve the higher income.

And if you have never worked with a lazy person before, then the lazy person at your workplace is probably you.

jeffn21 on October 29, 2011 at 8:59 PM

If you want everyone’s incme to grow together, then you need to get everyone’s work ethic to grow together first. It doesn’t.

jeffn21 on October 29, 2011 at 8:59 PM

I think the current “conservative economics” position is that I should be able to bring a million starving Asians or Africans to the US and pay my new labor crew one dollar an hour and give them three cheap meals a day and a tent, and if US citizens can’t match the bids I’m able to make with my cheap labor army, then it’s their work ethic that is to blame.

Buddahpundit on October 30, 2011 at 6:39 AM

bayam on October 29, 2011 at 2:35 PM

You do realize of course that capital gains is a second tax on the same money? And that the rich pay more taxes as a percentage and in real dollars than any other group.

Also you can tax the rich all you want and you still couldn’t balance the budget at the current levels of spending

gwelf on October 30, 2011 at 10:49 AM

I find the whole notion of “income inequality” as offensive to freedom and a free society. It’s another perfect example of liberals controlling the debate the terms of discussion. There have always and will always be “inequalities” in who has how much wealth. The whole discussion presupposes that people don’t have a right to their own property and that “society” or the government have some sort of obligation to make things more “equal”.

What about the federal government which has accumulated, borrowed and spent more wealth than any other entity in history yet it’s never considered to be greedy or part of “inequality”. Liberals view government as the greatest good and the Mediator of life, liberty and happiness. History has shown us time and time again that when the government seeks to more “fairly” redistribute wealth to fix “inequalities” it never accomplishes this goal but does succeed in taking more freedoms away from people.

gwelf on October 30, 2011 at 12:02 PM

The great entrepreneurial successes of American business, men like Steve Jobs, Larry Ellison, and Warren Buffet- would strongly disagree with your description of teachers or military officers as ‘failures’ in any way. Our society would simply collapse if everyone placed the accumulation of wealth as the standard by which they measured their real worth or singular goal in life. It’s surprising how some individuals worship at the alter of the wealthy far more than the great capitalists themselves.

It’s also troubling to see you describe Abraham Lincoln, the President who instituted progressive tax rates, in such petty terms. That’s unusually small-minded for any American who appreciates Lincoln’s extraordinary contributions to this nation and its heritage.

bayam on October 29, 2011 at 2:45 PM

You mean the Steve Jobs who it was recently reported decried the wretched state of education in our country mostly due to the influence of teacher’s unions?

The same Warren Buffet who pushes for taxation structures which won’t actually tax him and is currently in arrears for billions of back taxes and is fighting having to pay them? We talk about Buffet’s secretary lilke she’s some sort of pauper living in the gutter. She makes a very fine living and it’s really no ones business how much she makes compared to her boss. Taking Buffet’s money away from him isn’t going to help anyone – unless you’re a owed a favor by the current politicians in power ala Solyndra etc.

gwelf on October 30, 2011 at 12:06 PM

so we should tax the poor?
How about just providing them with land that the people living on can’t afford to defend?

Observation on November 1, 2011 at 10:06 AM

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