Aug 22, 2017
It might seem odd for tech entrepreneurs to take an interest in income distribution policy. But an increasing number of high-profile Silicon Valley executives are endorsing universal basic income (UBI), a system in which everyone receives a standard amount of money just for being alive.
Virgin Group CEO Richard Branson became the latest mogul to endorse the radical idea, writing in a blog post that “most countries can afford to make sure that everybody has their basic needs covered.”
On the one hand, basic income is a way to reduce poverty, but tech folks like Branson also see it as a way to solve the growing problem of robot automation, which they themselves are helping to create.
Here are some of the highest-profile entrepreneurs who have endorsed UBI.
Basic income advocates have long argued that the security of getting regular income would encourage people to take risks and invest.
Butterfield, CEO of the messaging app Slack, seemed to agree when he wrote on Twitter in early August that “giving people even a very small safety net would unlock a huge amount of entrepreneurialism.”
In February, the eBay founder donated $493,000 through his philanthropic organization, Omidyar Network, to an experiment in basic income taking place in Kenya later this year.
The experiment is put on by GiveDirectly, a charity that delivers cash transfers to people in East Africa as a means to lift the from poverty.
The findings will be “unlike those of any past study and provide evidence-based arguments to shed light on the discussions around the future of work and poverty alleviation policies,” according to a February statement.
In the wake of Donald Trump winning the US election, Ng, co-founder of Coursera and chief scientist at Baidu, wrote on Twitter that “More than ever, we need basic income to limit everyone’s downside, and better education to give everyone an upside.”
Ng has expressed his support for basic income before. In January, he said at the Deep Learning Summit that basic income deserves serious consideration. He also claimed the government should help fund lifelong education to keep the workforce strong.
The president of Y Combinator, Silicon Valley’s largest start-up incubator, Altman has repeatedly come out in favor of basic income, arguing that the robot-run economy will almost certainly materialize this century.
Y Combinator has launched a basic income experiment in Oakland, California to see how the system works in reality. Roughly 100 people are receiving $2,000 a month, no matter what.
“In 2014 Mexico was home to as many as 200,000 US-dollar millionaires and 804 people with personal fortunes of over $50 million. Many of these people owe their vast wealth to the rampant privatization of the country’s resources unleashed in the early 1990s by then President Carlos Salinas de Gortari, who also signed Mexico up to NAFTA in 1994.”
Aug 20, 2017
Mexico is nothing if not a land of bewildering contrasts. Economically speaking, the country is a regional powerhouse. On the one hand, it boasts one of the richest “official” billionaires on the planet; on the other, some of the worst income inequality rates in the Western hemisphere. It places 20th on the list of countries with the most millionaires but it’s also home to the 15th largest population of poor people on the planet.
A new study released this week reveals that the wealthiest Mexicans, equivalent to 1% of the population, own roughly the same amount of wealth as 95% of the people further down the wealth scale.
The study, titled “The Distribution and Inequality of Financial and Non-Financial Assets in Mexico” and published by Miguel Ángel del Castillo Negrete of the Autonomous Technological Institute of Mexico, documents how after two-and-a-half decades of rampant financial and trade liberalization in Mexico, the lion’s share of the economic benefits have flowed to a tiny minority.
“Few countries have embraced economic liberalization, deregulation, and privatization as enthusiastically as Mexico,” Ricardo Fuentes-Nieva, director of Oxfam Mexico, told BBC World Service. “But some groups benefited disproportionately and they are now the richest.”
In 2014 Mexico was home to as many as 200,000 US-dollar millionaires and 804 people with personal fortunes of over $50 million. Many of these people owe their vast wealth to the rampant privatization of the country’s resources unleashed in the early 1990s by then President Carlos Salinas de Gortari, who also signed Mexico up to NAFTA in 1994.
Just as happened in Yeltsin’s Russia, the “liberalization” of Mexico’s markets gave rise to a new caste of oligarchs. Many state companies were sold off, but instead of promoting competition, the new owners, with the help of the government, applied quasi-monopolistic models.
There’s no better example of this than the country’s (and once the world’s) richest man, Carlos Slim, who essentially bought up Mexico’s entire cellphone market in the 1990s. A close associate of Salinas, Slim was able to pay for Telmex out of the company’s future profits.
It was Mexican consumers who ended up paying the real price. According to a study by the OECD, between 2005 and 2009 Mexican consumers were overcharged $6.5 billion a year for landline usage. The total loss to the Mexican economy of Slim’s dominance in telecommunications is estimated at $129 billion over a five-year period, due to excess charges and poor investment in infrastructure.
Granted, in 2014 Slim was forced by changes in Mexico’s telecommunications legislation to divest a large part of his holdings (worth some $10 billion) in América Movíl, but a fresh court ruling a few days ago watered down the telecoms overhaul. As a result, Slim’s company will once again be able to charge rivals a fee for any calls that end up in its network, prompting fears that renewed competition will suffer and consumer prices for telecom services will resurge.
Slim is not the only Mexican billionaire whose fortune was built from the ashes of once state-owned assets. More than half of the 11 Mexican tycoons featured on Forbes’ 2012 Rich List (who between them controlled a total wealth of $130 billion) are or once were owners of former state-run enterprises. They include owners or important shareholders of mines (German Larrea and Alberto Bailleres), telecoms companies (Carlos Slim, Ricardo Salinas Pliego, and Emilio Azcárraga) and banks (Roberto González Barrera, Alfredo Harp Helú, and Roberto Hernández Ramírez).
At the other end of the income scale, 55.5 million people are poor — 2.3 million more than five years ago. That’s after five years of unbroken, ableit moderate, economic growth. One out of every five Mexicans suffers from hunger — a situation that is now being exacerbated by inflation, which spiked by 6.4% in July, the fastest rate since 2008.
But it’s in the financial sector where the inequality is most pronounced. According to the new study, just 23,000 people in a country of 127 million own 80% of the shares on Mexico’s benchmark BMV index. Those shares have grown at a much faster clip than the country’s economy or workers’ wages. As a result, the wealth of the richest 1% grew at an annual rate of 7.9% between 2003 and 2014 while Mexico’s GDP grew on average each year by 2.6%. During the same 11-year period, period the median wage increased by just 4%.
The government has tried to alleviate poverty through a variety of costly public programs (financed, of course, by the tax-paying middle classes). According to the deputy secretary of Planning and Evaluation at the Department of Social Development (Sedesol), the government invests 12% of its budget on anti-poverty measures. Yet poverty continues to grow.
All the while, Mexico’s deeply corrupt government, for obvious reasons, does nothing to address the main cause of inequality — the money used by Mexico’s super wealthy and foreign corporations, such as Brazil’s Obedrecht or Spain’s OHL, to buy up politicians and senior civil servants in order to maintain their stranglehold over the direction of government policy and regulation. As Fuentes-Nieva told the BBC, “the decisions have been taken by an elite, for an elite, and supervised by an elite.” If recent scandals are any indication, it’s a model that’s unlikely to change any time soon. By Don Quijones.
After several months of predominantly positive developments, including the governing Institutional Revolutionary Party’s electoral victory in its key state, the outlook for Mexico’s economy is no longer negative; it’s stable. That’s according to rating agencies, Fitch and Standard & Poor’s. But there are some hiccups. Read… Two of Mexico’s Biggest Bugbears Surge Again
From last month, in case you missed it.
No wonder the USA wants him out, look what he is doing to his country:
“Since 2006, a year after Morales came to power, social spending on health, education, and poverty programs has increased by over 45 percent.”
American Herald Tribune, Anti Media
Bolivia’s President Evo Morales has been highlighting his government’s independence from international money lending organizations and their detrimental impact the nation, the Telesur TV reported.
Bolivia’s President Evo Morales has been highlighting his government’s independence from international money lending organizations and their detrimental impact the nation, the Telesur TV reported.
Morales has said Bolivia’s past dependence on the agencies was so great that the International Monetary Fund had an office in government headquarters and even participated in their meetings.
Bolivia is now in the process of becoming a member of the Southern Common Market, Mercosur and Morales attended the group’s summit in Argentina last week.
Bolivia’s popular uprising known as the The Cochabamba Water War in 2000 against United States-based Bechtel Corporation over water privatization and the associated World Bank policies shed light on some of the debt issues facing the region.
Some of Bolivia’s largest resistance struggles in the last 60 years have targeted the economic policies carried out by the International Monetary Fund and the World Bank.
Most of the protests focused on opposing privatization policies and austerity measures, including cuts to public services, privatization decrees, wage reductions, as well the weakening of labor rights.
Since 2006, a year after Morales came to power, social spending on health, education, and poverty programs has increased by over 45 percent.
The Morales administration made enormous transformations in the Andean nation. The figures speak for themselves: the nationalization of hydrocarbons, poverty reduction from 60% to less than 40%, a decrease in the rate of illiteracy from 13% to 3%, the tripling the GDP with an average growth of 5% annually, the quadrupling of the minimum wage, the increasing of state coverage on all fronts, and the development of infrastructure in communications, transportation, energy and industry. And above all, stability, an unusual word in the troubled political history Bolivia, of which today, with the economic slowdown experienced by many countries in the region, is a real privilege.
For all its faults, Chavismo has finally put marginalised Venezuelans at the centre of national culture – and many on the right still resent it.
Lecturer in Latin American Studies, University of East Anglia
Aug 17, 2017
Over the last four months, hardly a day has gone by without news coverage of the political and economic crisis in Venezuela. At least 124 people have been killed, some by security forces, while participating in or accidentally encountering opposition-led street demonstrations.
The mainstream media narrative is of an increasingly authoritarian government repressing a series of popular uprisings in a desperate bid to hold onto power. Political leaders in the UK, the US and other countries warn that President Nicolás Maduro is turning into a dictator.
But little has been said about the reported 49% to 80% of Venezuelans, both pro- and anti-Maduro, who are “in disagreement” with the radical opposition’s use of violence as a political tool. Not all who oppose Maduro support the radical opposition or want them in power.
While acknowledging that Venezuela’s political unrest “remains mostly confined to middle-class enclaves”, the authors of an article published in the Wall Street Journal suggested that many “poor Venezuelans” are just “too hungry” to march. But rejection of the radical opposition goes far deeper than this. It is rooted in profound historical concerns, not just political and economic, but also racial and cultural.
Before Hugo Chávez was elected in 1998, Venezuela attracted little international attention. It was seen as exceptionally stable by Latin American standards, and was best known for its beauty queens and its oil. Those national icons represent the racial and cultural politics that are driving today’s unrest.
Let’s start with the beauty queens. While a majority of Venezuelans identify as black, indigenous or mestizo (mixed-race), the country’s beauty queens invariably conform to white beauty ideals. The organiser of the country’s most important beauty pageant has stated that black women are not pretty because their noses are “too wide” and their lips “too thick”. Afro hair is commonly referred to as pelo malo – “bad hair”.
These aesthetic values have political, cultural and economic counterparts. In the mid-19th century, several Latin American governments implemented “whitening” policies along the ideological lines laid out in books such as Facundo: Civilisation and Barbarism. Large scale European migration was promoted for the “improvement” of “the race”. In Venezuela, these policies continued until the 1940s.
This belief in the natural superiority of Europeans was also evident in the economically crucial, foreign-owned oil sector. Professionals and middle managers were white Venezuelans, but labourers were recruited from black and mixed-race sectors. By the time oil was nationalised in 1976, the Venezuelan middle class it helped to create had come to identify with US-style political, cultural and consumer patterns. For these Venezuelans, dubbed “miameros” because of their frequent shopping trips to Miami, oil symbolised civilisation, while the black and mixed-race masses represented the perceived barbarism of the past.
But Venezuela’s apparent “exceptionalism” was an illusion. In the 1960s and 1970s, the “common sense” ideas of progress and modernity promulgated by the oil industry and backed by the government ran into trouble. Social tensions developed around the unequal access to oil profits, and strong currents of barrio and grassroots activism began to surge. The situation worsened in the 1980s as oil prices dropped and the bolívar currency was devalued.
In February 1989, the Caracazo uprisings broke out in anger at newly-imposed, right wing economic reforms. An ensuing military crackdown claimed the lives of more than 400 people, mainly from the barrios. To this day, poorer Venezuelans remember this state violence as an act carried out to protect the interests of the wealthy middle classes and their foreign allies. As a woman from the 22 de Enero barrio told me in 2008: “You never saw anybody on the right protesting against the shooting of us; [they] … never cried when we were shot.”
In the early years of Hugo Chávez’s rise to power, right wing criticism of the government was frequently couched in racial and cultural terms. The private media portrayed government supporters as hordes of “monkeys” moved by base emotions and swayed by an authoritarian leader.
One anti-Chavista told me in 2005 that a president should be a “señor” who speaks English, and not someone from such a humble background that he only started wearing shoes at the age of eight. Chávez was not fit to be president, she elaborated, “because of his culture, the tiny bit he has … He wants us all to live like he used to live”. For anti-Chavistas, Chávez and his supporters in the barrios represented the perceived barbarism of the past, and this instilled fear in them.
While the Chávez government attracted international attention for its economic and political programmes, it also addressed cultural injustices. Through new cultural policies and social programmes, such as Misión Cultura, Chavismo raised the symbolic status of the historically excluded poor and mixed-race masses. For the first time, previously marginalised people saw their history and cultural values, as they defined them, promoted by the government and included in official representations of the national cultural heritage.
These efforts were extremely powerful, and won the government deep support. As a barrio resident put it to me in 2008:
We have a sense of belonging now … This is the responsibility of all of us, not Chávez alone … he can’t do it without us.
The opposition protests that have flared up since Chávez first came to power need to be understood within this cultural and racial context. Radical sectors of the right wing opposition have repeatedly refused to accept the legitimacy of Chavismo and what it represents. In 2002, they helped organise both a short-lived US-backed coup and oil strikes meant to create chaos and bring the government down. The street demonstrations raging today are aimed at achieving regime change, but the opposition has not indicated what policies they would introduce and how they would deal with the country’s problems if they were in power.
Maduro’s popularity has fallen significantly this year, but many who have withdrawn their support for him feel alienated by the opposition’s anti-poor discourse. They fear that a return to the political right would reverse the gains made under Chavismo, and worse. Their fears are not theoretical; as observed by Gabriel Hetland of the State University of New York at Albany, the opposition has carried out “brutal attacks” directed at “black and brown men … and other people who look Chavista”.
The crisis in Venezuela is not simply a matter of left wing versus right wing political and economic systems. It is also rooted in competing ideas about racial and cultural worth. The ugly truth is that for some, it is still a matter of civilisation versus barbarism.
More and more people in work in Europe are being forced into poverty. This is demonstrated by a new study by the Hans Böckler Foundation which was made public last Thursday. The study, titled “Activation policies and poverty,” notes that a growing proportion of the population of Europe live in poverty, although they are working.
The researchers from the Economic and Social Sciences Institute (WSI) of the Böckler Foundation examined the effects of labor market and social policy measures in 18 EU countries from 2004 to 2014. All of the measures were aimed at forcing unemployed people into low-wage labor.
According to their research, an average of about 10 percent of the workforce aged between 18 and 64 in the countries studied were “working poor.” This means they earn less than 60 percent of the average income in their country. The proportion of working poor was highest in Romania at 18.6 percent, followed by Greece, 13.4 percent, and Spain, 13.2 percent.
In Germany, the number of working poor doubled from almost 1.9 million, or 4.8 percent, in 2004 to almost 4.1 million, or 9.6 percent, in 2014. The increase is even higher in absolute figures, because the total number of employed in Germany increased during this period from 39.3 million to 42.6 million. In Germany in 2014, a single person with less than €986 net per month was considered poor. For a household with two adults and two children under 14 years, the threshold was €2,072.
“In most countries, poverty for those in work had already begun to increase before the crisis in the euro area,” the study states. In the wake of the crisis, however, the situation in many countries worsened. “The measures taken to combat high unemployment have seen a further deregulation of the labor markets and a reduction in social benefits.”
The social counterrevolution in Europe finds its sharpest expression in Greece under the Syriza government. High levels of unemployment due to the destruction of regular paying jobs is combined with savage cuts to unemployment benefits and pensions. Due to the already existing level of social decline, however, the statistical increase in the numbers of working poor in Greece is relatively low.
The example of Germany, where the number of those employed increased was “particularly remarkable,” the Böckler report concludes. “Evidently the link between employment growth and poverty is more complicated than commonly assumed.” This is a deliberately vague understatement of the social counterrevolution that has taken place in the past two decades.
The increase in precarious, temporary, low-paid, part-time employment for millions is an international phenomenon implemented by the ruling elites.
“The positive development in the German labor market is to a large extent due to an increase in atypical employment, especially part-time, often in the service and low-wage sector,” the study notes. The growth of the low-wage sector has been accelerated by extensive deregulation of the labor market, the reduction of benefits and increased pressure on workers to take any form of work. This increased pressure on the unemployed forces them to find a job as quickly as possible.
The trade unions in all countries played a major role in this development. They rushed to the side of capitalism in the crisis of 2008/2009, and helped transfer benefits for workers won over the course of decades into fresh reserves for bankrupt banks and their respective governments. The Böckler Foundation is the official think tank of the German trade union movement (DGB), and this explains the diplomatic tact of the WSI researchers in their report, although their statistics on poverty among workers are an indictment of the system.
The explosive growth of the low-wage sector in Germany was inaugurated in 2005 by the Hartz IV anti-social laws and Agenda 2010 program introduced by the SPD-Green coalition government led by Gerhard Schröder and Joschka Fischer. In 2004 the trade unions actively opposed those seeking to protest against the Hartz IV laws. The priority for unions was to enforce the new measures.
The concrete effects of the increasingly severe and far-reaching sanctions used by job centers is clear in the city of Duisburg, situated in the former industrial hub (Ruhr area) of Germany. With a population of almost half a million inhabitants, 77,000 people in Duisburg are dependent on measly Hartz IV benefits. The number of those employed in jobs with social security protection rose between 2006 to 2016 by about 15,000 to just under 166,000. However, the number of full-time employed fell by 700 during the same period, while the number of part-time employees rose by around 14,000 to over 38,000.
The number of temporary contract workers (most of them working full-time) has tripled during the past 10 years to 9,986. Some 37,000 workers in Duisburg have a so-called mini-job and 10,000 of these workers have more than one job in order to earn enough money to survive. This means that more than a third of all workers in Duisburg are employed part-time, on a temporary basis or/and in a mini-job.
A study drawn up by the DGB, reported by the Berliner Zeitung at the beginning of July, notes that this trend is taking place nationwide. More than 1 million people are hired out by agencies, 8.5 million in part-time work, while 2.53 million have temporary employment. Nearly 2 million are registered as self-employed.
The DGB study also notes that the one-fifth of the workforce with the lowest hourly wages between 1995 and 2015 experienced a real wage loss of 7 percent. The next fifth of the workforce lost 5 percent. This is a direct consequence of the policy of the trade unions themselves.
While the WSI researchers seek to conceal the reasons for widespread poverty, referring to the “complex links” between employment growth and poverty, it is clear who profits.
The Global Wealth Report drawn up by the Swiss bank Crédit Suisse (November 2016) reveals a significant growth in the fortunes of the rich and super-rich. The report notes that the number of dollar millionaires in Germany increased by 44,000 to around 1.6 million between mid-2015 and mid-2016. The club of super-rich, with a fortune of at least $50 million, increased by 500 to a total of 6,100. This put Germany in third place behind the US and China. According to Forbes, 114 billionaires live in Germany. The richest 36 of them have as much wealth (€276 billion) as the poorer half of the population.
This growing social inequality can only be halted by a policy directed against all of the political parties at the beck and call of the major banks and corporations.
In its election statement for this autumn’s federal election, the Socialist Equality Party declares:
“The SGP fights for a society in which the needs of the many stand higher than the profit interests of big business. The super-rich, the banks and the corporations must be expropriated and placed under the democratic control of the population. Only in this way can the social rights of all be secured. These include the right to an adequately paid job, a first-class education, affordable housing, a secure pension, high quality old-age provisions and access to culture.”
The only words that come to mind: Self-serving, self-centered, greedy, self-entitled psychopathic snowflakes that are destroying the fabric of society.
Photo Credit: (Wikimedia Commons / Jericho)
The following is an excerpt from the new book The CEO Pay Machine: How It Trashes America and How to Stop It by Steven Clifford (Blue Rider Press, May 2017), available from Amazon and IndieBound:
In the long term, the indirect effect of the Pay Machine—the increase in income inequality—is economically more injurious than the erosion of company earnings or a stock market downturn.
Income inequality in America has risen sharply since 1976. Economists and pundits point to multiple causes—globalization and competition from low-wage countries; growing educational disparities that particularly affect men and minorities; technological changes that reward the highly skilled; decline of labor unions; changes in corporate culture that place stock price and earnings above employees; free market philosophy and the rise of winner-take-all economics; households with high-income couples; lower rates of marriage and of intact families; high incarceration levels; immigration of low-skilled individuals; income tax and capital gains tax cuts and other conservative economic and tax policies; deregulation; and decreased welfare and antipoverty spending coupled with redistribution programs that disproportionately benefit the elderly.
All of the above may contribute to inequality. However, the proximate cause is quite simple. The jump in inequality is due to a small number of people, mostly business executives, who make huge amounts of money. They are the Mega Rich, the top .1 percent in income, who averaged $6.1 million in income in 2014. The Merely Rich are the rest of the 1 percent. It’s the Mega Rich, not the Merely Rich, who drive inequality. (I’m a member of the Merely Rich, so don’t blame me.)
As shown in the graph [that follows]… between 1980 and 2014 the average real income of the Mega Rich has nearly quadrupled, increasing by 381 percent. Over the same period, the Merely Rich doubled their income while the bottom 90 percent lost ground, suffering a 3 percent decline.
Data from Facundo Alvaredo, Anthony B. Atkinson, Thomas Pikkety, Emmanuel Saez, and Gabriel Zucman, The World Wealth and Income Database, April 5, 2016.
The Mega Rich captured most of the national income gains during the last four decades as their share of income increased from 3.4 percent in 1980 to 10.3 percent in 2014. The share of the Merely Rich rose from 6.6 percent to 11.0 percent over the same period. Thus the Mega Rich snared over three-fifths of the income growth of the 1 percent and nearly 40 percent of all income growth. In the tepid recovery from 2010 to 2012, the 1 percent took virtually all of the income gains. The Mega Rich again got the lion’s share: their average income increased 49 percent in this three-year period.
The Mega Rich are getting mega richer. Their average household made 113 times as much as the typical American household in 2014. In 1980, this number was 47. In 2014, the 115,000 Mega Rich households had as much wealth as the bottom 90 percent. They now hold 22 percent of the nation’s wealth, nearly double their 1995 share.
Since Fortune 500 CEOs can account for only 500 of the 115,000 Mega Rich, you might be surprised to learn that the majority of the Mega Rich are business executives. CEOs and other business executives constitute the largest high-income group in America. Not the old families with their inherited wealth. Not the sports heroes with their jaw-dropping contracts. Not the movie stars at $20 million per blockbuster movie. Executives, managers, supervisors, and financial professionals constitute three-fifths of the top 0.1 percent. Moreover, they accounted for about 70 percent of the increase in income going to the top 0.1 percent from 1979 to 2005. As Nobel Prize–winning economist Paul Krugman puts it, “Basically, the top 0.1 percent is the corporate suits, with a few token sports and film stars thrown in.”
In Capital in the Twenty-First Century, Thomas Piketty, after analyzing enormous amounts of data, wrote:
The vast majority (60 to 70%, depending on what definitions one chooses) of the top 0.1% of the income hierarchy in 2000–2010 consists of top managers. By comparison, athletes, actors, and artists of all kinds make up less than 5% of this group. In this sense, the new US inequality has much more to do with the advent of “supermanagers” than with “superstars.”
Piketty asserts that increasing income inequality is caused not by investment income but by high wages driven by “the emergence of extremely high remunerations at the summit of the wage hierarchy, particularly among top managers of large firms.”
Furthermore, “CEOs use their own power not only to increase their own salaries, but also those of their subordinates,” one study determined. As a result, the majority of “supermanagers” are either CEOs or executives whose compensation is heavily influenced by their pay—private company CEOs, other senior corporate executives, and the professionals who advise them. There are more than 5,000 publicly traded companies and 5.7 million private companies with employees.
The graph… [that follows] shows that the annual income of the Mega Rich and the ratio of CEO to average worker pay are highly correlated—the two lines look almost identical. While correlation does not prove causation, I find it easier to believe that runaway CEO pay caused the income of the Mega Rich to skyrocket rather than the other way around.
Average Income Data from Facundo Alvaredo, Anthony B. Atkinson, Thomas Pikkety, Emmanuel Saez, and Gabriel Zucman, The World Wealth and Income Database, April 5, 2016. Compensation Ratio Data from Mishel, Lawrence, and Alyssa Davis. “Top CEOs Make 300 Times More than Typical Workers: Pay Growth Surpasses Stock Gains and Wage Growth of Top 0.1 Percent.” Economic Policy Institute. June 21, 2015. Accessed May 16, 2016.
Keep this graph in mind as we analyze how growing inequality curbs economic growth. Every time you see the phrase “increasing inequality” or “income inequality,” you could substitute “rising CEO pay.”
“There’s been class warfare going on for the last twenty years,” said Warren Buffett, “and my class has won.” Some celebrate this result in the belief that free markets have justly rewarded talent, hard work, and initiative. Others bemoan the division of America into the Mega Rich who pluck the fruits of economic growth and the 99 percent who stagnate.
I side with the bemoaners, but others have examined the moral and social reasons why income inequality is bad far better than I can. I will examine the economic damage. Americans may differ about politics, religion, and sports teams, but all applaud economic growth. They may argue how to best divide the pie, but they agree that a bigger pie beats a smaller one and that economic growth is preferable to its alternative—a recession. Whether increasing inequality helps or hurts the economy is the wrong question. The right question (and an easier one) is, “Given where America is today, will greater or lesser income inequality spur economic growth?”
From 1949 to 1979, while the ratio of CEO‑to‑average-worker pay was relatively constant, the US economy grew 2.56 percent annually. When this ratio surged from 1981 to 2014, economic growth dropped to 1.71 percent a year. The difference may sound small, but over half a century, the higher growth rate results in an economy that is 50 percent larger. That’s a big difference.
This correlation doesn’t prove that income inequality slowed economic growth, but it suggests that overpaying CEOs has not done much to help. Economist Richard Freeman draws an inequality curve in the form of an inverted U as shown [below]… The vertical axis shows the level of inequality. The horizontal axis depicts total economic output or GDP. At Point A on the left, there is perfect equality; everyone gets the same amount of money regardless of talent and effort. Therefore, no one has a financial incentive to work and economic output is zero. From this point, increases in inequality are good for the economy, for a while. At some point, more inequality begins to stifle growth. At the right end of the curve, one person gets all the money, and again, no one has an incentive to work. At the top of this curve, between total equality and total inequality, economic output is maximized at Point I.
Plotting the curve from evidence is difficult, but we were almost certainly nearer the optimum output point (I) between 1949 and 1979 than we are today.
Leading economists who argue that increasing income inequality hampers economic growth include Nobel laureates Krugman and Joseph Stiglitz, Piketty, Alan Krueger (former chairman of the White House Council of Economic Advisers), and Raghuram Rajan (former chief economist at the International Monetary Fund).
In a 2014 report, the ratings agency Standard & Poor’s says that current inequality levels are hindering US economic growth and the firm has cut its growth forecast. Its report states, “We’ve reduced our 10‑year U.S. growth forecast to a 2.5 percent rate. We expected 2.8 percent five years ago.”
Excerpted from the new book The CEO Pay Machine: How It Trashes America and How to Stop It by Steven Clifford (Blue Rider Press, May 2017), available from Amazon and IndieBound.