Ain't We Got Fun?

That's the title of  a fairly popular song written in the early 1920s by Richard Whiting, Gus Kahn and Ray Egan. It's a song about income inequality in the boom years. Part of the lyrics that resonate with me:

There's nothing surer
The rich get rich and the poor get children
In the meantime, in between time
Ain't we got fun?

This is all by way of introducing you to a very informative article by Peter Whoriskey of the Washington Post. The article is entitled "With Executive Pay, Rich Pull Away From Rest Of America". It is based largely on a monumental study of tax returns by economists Jon Bakija, Adam Cole and Bradley T. Heim. 

One finding of the study: "In 2008, the last year for which data are available, for example, the top 0.1 percent of earners took in more than 10 percent of the personal income in the United States, including capital gains, and the top 1 percent took in more than 20 percent". The question is who is in this 10 percent. Surprisingly, perhaps, the answer is that the largest number of people in this category are not entertainers or sports figures; they are executives. And, not only the executives of Goldman Sachs etal. They come from a wide variety of industries. Ergo, it's the pay of these executives that bears a major responsibility for the rise in income inequality over the past 30 - 40 years. 

Since the 1970s, executive compensation has roughly quadrupled, while that of the Average Joe has basically stayed flat in real terms. The top .1% (that's one-tenth of one percent) of earners made 2.5% of the country's income. In 2008 they had boosted that to 10.4%. This type of income distribution is like that in a developing country rather than in a mature economy.

There is quite a difference in the executive compensation pre and post the 1970s. One reason is very likely the following quote from a former board member of a company highlighted in the article, “He (the CEO) believed the reward went to the shareholders, not to any one man. Today we get cults of personality around the CEO, but then there was not a cult of personality.”