Friday, November 03, 2006

Very wealthy getting much wealthier, rest falling further behind

Two related reports in the news this week shed some light on the continuing trend of growing economic inequality. First, blogger Jerome a Paris, writing at Daily Kos brings to our attention a study conducted by Reuters Estimates on behalf of the Financial Times that finds "[t]he median pay package of US chief executives, which consists of salary, bonus, options exercised during the period and other long-term compensation, rose 20 per cent to about $5m in the last fiscal year." Of course, the report notes that such growth in executive compensation represents a shift toward "more restraint" in compensation demands.

Fortunately, toward the end of the article the FT provides us with the much-needed context under which these increasingly exorbitant executive compensation packages are being doled out. According to the paper:

"[But] corporate governance experts argue that the rate of growth and absolute levels of executive pay are still dwarfing those of the average worker.

"Why shouldn't the employees get the same increases in pay? After all they create earnings growth too, " said Charles Elson, director of the Weinberg Center for corporate governance at the University of Delaware. "The reality is that this is a false market driven not by appreciation in the share price and earnings but by what other chief executives are getting".

The paper also gives us the numbers to support this troubling claim. Specifically, "[N]et profits at their companies increased by an average of 15 per cent, and total shareholder returns, calculated by combining share price movements and dividends, rose by only 9 per cent."

That is, shareholders aren't seeing the profits, and non-management employees certainly aren't seeing their fair share of the profits. After all, as blogger Hale Stewart notes, wages for the average worker have been stagnant or declining over the past 6 years. You could say that profits are being retained by the corporations, and doled out by the Compensation Committee of the company's Board to senior executives in huge pay raises, bonuses and of course stock options and grants.

Another article, this one in McClatchy's Newspapers (Knight Ridder Washington Bureau) reports on a new study from University of California, Berkeley. The findings fill in more of the picture left out by the FT's executive compensation piece.

According to McClatchy's, "In 2004, the richest 1 percent of households - 719,910 of them, with an average annual income of $326,720 - had 19.8 percent of the entire nation's pretax income. That's up from 17.8 percent a year earlier, according to a study by University of California-Berkeley economist Emmanuel Saez. [. . .] However, median, or midpoint, family income rose only 1.6 percent between 2001 and 2004, when adjusted for inflation, according to the Federal Reserve. Median family real net worth - a family's gross assets minus liabilities - rose only 1.5 percent during those four years.

Those are very sluggish income-growth rates compared with the four years between 1998 and 2001, when median family income grew by 9.5 percent and median family real net worth grew by 10.3 percent. How's that for "shared prosperity"? How's that for an "ownership society" with a "rising tide lifting all boats? Indeed.

The article goes through some of the causes for this continuingly widening chasm between the haves and the left-behinds. Education plays a role, with colege graduates having greater income potential than non-graduates. But that is just one of many factors, leading experts to believe that hard work and differences in abilit only explain part of the trend. Other factors include (but are not limited to): the record-breaking stock market; the declining power of labor vis-a-vis management; the influx of illegal immigrants; the offshoring of jobs and global competition that holds down wage growth (i.e. corporate-written "free" trade deals).

And then there's the GOP Congress' and Bush administration's regressive economic policies enacted over the past six years, specifically his tax cuts. The Bush tax cuts have purposely and aggressively redistributed wealth to the already super-wealthy, while at the same time slashing funding for non-military entitlement programs that benefit the lower- and middle-class, working Americans and expanding the record federal budget deficit.

The article notes: "$110,000 per household in 2004, according to Morgan Stanley, the banking giant. The value of stocks held by the other 90 percent of Americans averaged $8,350.

Those numbers lead some to question the fairness of Bush's 2003 tax cuts, which lowered the top rate at which capital gains and dividends are taxed. Individual income tax rates in the top four income brackets were also lowered to 25, 28, 33 and 35 percent."

So there you have it in a nutshell. At the same time senior executives are reaping huge pay raises, outstripping on average their actual contribution to wealth creation for either their company's shareholders or employees, we have the Republican party's retrograde economic policies hard at work playing reverse Robin Hood--essentially ensuring that the rich get richer while everyone gets a smaller piece of the economic pie and less funding to the governmental programs that helps them survive. Truly pathetic, and the number one reason besides the continually degenerating war in Iraq to vote on Tuesday for your Democratic Congressman or Senator.

Additional Reading:

Center for Budget and Policy Priorities: Many Americans Not Sharing in the Growing Economy
Center for Budget and Policy Priorities: Tax Cuts: Myths and Realities
Christian Science Monitor, Tax Cuts Do Work - But Only For A While"
Troubled Times, Taking a Closer Look at the '07 Budget
USA Today, Cutting Medicare Will Be Tough Sell in Election Year
WebMD, Medicare Faces Cuts in Bush Budget

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