Thursday, June 12, 2014

How not to run an economy

The paragraph below should appall you.

It won’t appall everyone, because some people think that those who contribute capital to a business are more deserving than those who contribute labor. I’ve had arguments with some in my family about this and the idea seems to be that investing money in a business is far more important than anything a worker invests. But while it’s generally agreed that ownership or management of a company should confer certain benefits above the typical worker in that company, should the disparity in those benefits be this bad?
In all, average CEO compensation last year was $15.2 million, an increase of 21.7 percent since 2010. Workers fared much worse. Compensation for private-sector workers fell 1.3 percent in that time and is still at its 2009 level. That contrast continues a long-standing trend: CEO compensation, adjusted for inflation, rose 937 percent between 1978 and 2013, which EPI notes is more than double the growth of the stock market in that time. Workers, on the other hand, got just a 10.2 percent raise.
The issue is that productivity and profitability have gone through the roof over the past few decades. And almost all of that benefit has gone to the investors, not the workers. So the rich get richer, and the worker, the average American, gets paid less and less. Aside from the issue of basic fairness, the stupid thing is that this also (eventually) screws over the rich as rising income inequality leads to falling standards of living, more crime, full-time workers on welfare (Hi, Wal-Mart!) and less disposable income among those who actually buy the goods that business is selling. This leads the economy into a negative feedback loop which hurts everyone.

In the long run, even the rich would be better off if they’d share a bit more of the profits.

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