OMT One Man's Trash...from Norman Leahy

Tuesday, November 21, 2006 :::

On Inequality

Jerry (as is his want) has already commented on this piece from the TD's Bart Hinkle on Jim Webb's foray into economics. Like so much of what Hinkle writes, there are loads of facts and statistics galore, many of which show that Webb's assertions may not have the weight of truth behind them.

But that's the nature of statistics: they will prove almost anything to almost anyone.

However, in today's Wall Street Journal, David Wessel takes long look at the politics behind the economics. He describes the playing field this way:

Today's inequality reflects a confluence of forces. Technology is increasing employers' appetite for some skilled workers, while diminishing it for assembly-line workers in auto and textile factories. Imports and outsourcing are doing the same. Schools aren't graduating enough of the workers in short supply, such as engineers. Immigration is contributing to a glut of others, visible wherever day laborers gather hoping for work. Unions are atrophying. Corporate boards, hedge funds and sports teams are increasingly willing to write super-sized paychecks to a chosen few.

At the extremes, some politicians (not all of them Democrats) believe the benefits of a globalizing, high-tech economy are outweighed by the costs to U.S. workers. They would build a fence around the U.S. to reduce immigration or erect tariff barriers to imports. Even at the Democratic middle -- where the virtues of technology and globalization are prized -- proposals to reduce inequality range widely. They include interceding in the market to raise pay at the bottom or limit it at the top, pushing "Robin Hood" take-from-the-rich tax policies, improving shock absorbers that protect workers when their employers crash, extending health and retirement plans to workers without them and spending more to promote education from pre-K through college.

Even a cursory reading will show that there's not a lot of new thinking here. Expanding existing or creating new social programs, tinkering with the tax code, stuffing more federal money into education...these have been staples of the Democratic playbook for generations. And while the ideas themselves are not exactly revolutionary, neither is the conceit that underlies them, namely, that government -- any government -- can somehow manage outcomes and moderate economic forces.

Wessel looks at one area -- CEO pay -- where the Democrats tried and failed to change private behavior:

Limiting pay at the top has proven tough. A 1993 law that discouraged tax deductions for executive salaries above $1 million is widely regarded as a bust. "Executives responded by rewarding themselves with millions of dollars worth of stock options" instead of big salaries, lament former Clinton aide Bruce Reed and Chicago Rep. Rahm Emanuel, a key strategist in the Democrats' win, in their pre-election book calling for "a new social contract for the 21st century." They go on, "This time we should approach the problem from the other direction and require companies that provide stock options to their executives to provide stock options to every worker."

Actually, stock options were supposed to bind the CEO's interests more closely to that of the average shareholder and, in theory, increase the wealth of managers and owners alike. It's worked sometimes and failed (miserably) in others. Some companies do issue options to everyone. Others provide discount programs for employees to buy shares (which hasn't always worked, either). Is there a way to spread the wealth more equitably? No. Nor should there be. Sooner or later, markets will determine an optimum level of CEO pay. Right now, the tendency is for high pay and perks. But the downside is less job security:

Global turnover of CEOs set another record in 2005, with more than one in seven of the world’s largest companies making a change in leadership — compared with only one in 11 a decade earlier, according to our annual study of chief executive succession at the world’s 2,500 largest public companies. The rate of outright dismissals was also near its peak: Four times as many of the world’s top CEOs were forced out last year as in 1995. Ten years ago, the CEO’s job was all about “stewardship” of the corporation’s assets for stakeholders; today, it’s all about the bottom line for investors.

The Booz Hamilton study is worth reading (if the plight of CEOs is your thing) if for no other reason than to show that life at the top of the corporate pyramid isn't all champagne wishes and caviar dreams.

If anything, among the most stable and well-paying jobs -- jobs that also includes a great health plan, sweet perks, generous retirement benefits and loads of travel -- can be found in Congress. House members serve an average of 9 years and Senators 11.

Not bad work, if you can get it.

::: posted by Norman Leahy at 11/21/2006 0 comments


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