America has money. Which is better than not having money. But all of the money in America is going to the rich. This is our basic problem.
We have prosperity, in the aggregate, but we do not have much equality in the distribution of all of that prosperity. This is America's most pressing economic and social flaw. It is important to keep talking about it and talking about it some more, until it changes. If you have a taste for soberly presented data, you should explore this new report from the Center for American Progress (accompanying analysis by David Leonhardt
here), which takes a very "mainstream" look at the growth of economic inequality in America and in much of the rest of the Western world, and presents various "mainstream" proposals for fixing it. ("Mainstream" here is defined as "maybe something Hillary Clinton might say at some point.") It is a useful reminder of some basic facts about how we got here. For example: the decline of organized labor and the rise in power of corporations relative to workers.
Declining worker bargaining power, for example, appears to be a global trend. A job in many European countries can be offshored as easily as a job in the U.S. Midwest, which has been the case for workers across the manufacturing sector in high-wage countries. Yet nations that have robust minimum wages and protections for workers that empower their voice in the workplace have not seen such a strong divergence between worker productivity and worker pay. Indeed, Australia's workers face the same global trends, yet its switch to collective bargaining over and above a strong set of minimum conditions has helped workers keep more of their productivity gains in take-home earnings.
And an important effect of the current corporate incentive structure:
The shift to large equity-based compensation practices is a logical outcome of the shareholder-value movement, which purports that the share price of a publicly traded firm is an accurate market valuation of how well it is managed. In principle, tying executive pay to market valuations aligns the incentives of managers and shareholders, though experience suggests it is not so simple, and the shift to equity-based pay has caused management to devote resources to maximizing short-term share prices at the expense of the long-term value of the firm.
A testable prediction of this theory is that firms where managers and owners have similar information and incentives will be more responsive to market forces and more profitable in the long run. A recent study that compares similar privately and publicly held firms found that private firms invest nearly 10 percent of total assets annually, about twice as much as public firms, which invest closer to 4 percent of assets. Interestingly, the study's authors note that not only do private firms invest more, they invest better, responding strongly to changes in investment opportunities, while public firms barely respond at all.
Issues like CEO pay and general corporate governance are important not just because of how they affect the performance of a single company, but because the incentives that they put in place drive the behavior of the corporate leaders who ultimately drive much of the performance of the national and global economy.
When you consider also the role that the financial sector of the economy plays in leeching money away from everyone else like a great big, uh, leech, you may be encouraged to learn that earnings of the largest Wall Street banks are almost uniformly lower now. The banks tend to attribute this to various one-off problems that can quickly be corrected, but there is also the chance that it will turn out to be attributable to the long-term evolution of our society towards rationality and fairness and downright efficiency, and away from bloodsucking rent-seekers.
But it's hard to say for sure just yet.
