Here are some interesting facts that I dug up while idly googling this and that. The three biggest employers in the United States are Walmart, with 1.5 million employees, Amazon, with 950,000 employees, and the US military, with 1.4 million men and women in uniform. The president of Walmart is paid $22.5 million. The highest-paid executive at Amazon earns $56 million (not Jeff Bezos, by the way). The chairman of the Joint Chiefs of Staff earns $186,998.40. I think the military can claim to be at least as well-run as Walmart and Amazon and neither of those companies poses an especially great risk of being shot in the course of performing one’s corporate duties.
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The CJCS is an advisory position as are the separate service chiefs. The chain of command runs from the president through the Secretary of Defense to the various commands. The risks of combat injury are, of course, inverse to rank (I believe one two star was killed in Afghanistan). Perhaps an analogy is that a worker or manager who screws up gets fired with bupkis while at a certain point one becomes too high up to fail (see Carly Fiorina, etc.).
All of the members of the JCS are four stars, most likely with 35 -- 40 years in, and will wind up with a pension somewhere in the mid $200 K range plus perks. Then there will be things like board memberships and other no show jobs that will pay high five to low six figures (Gerald Ford was very good at this).
When most of us were kids the top marginal rate was ~90%. Kennedy cut that to ~70% and Reagan about haloed that. Ditto with inheritance taxes and things like generation skipping trusts (a friend's kids were quite wealthy the day they were born).
Executive salaries are what they are because plutocrats never give up.
Belated happy birthday and happy new years.
Anthony Fauci made 434,312 dollars in 2020.
I checked out his salary because it's impossible for me to see the chairman of the Joint Chiefs of Staff as a model for anything positive. The Pentagon has done so much evil.
It could be argued that Fauci has done good and deserves to be rewarded for it. He was the first name which came to mind of someone who has done good and whose salary could easily be googled. Maybe no one should make more than Fauci or other highly skilled medical professions.
s.w. the problem is that while Fauci is at or near the top marginal bracket his salary is set by law while the salaries of the private sector folks our host mentioned are set by the various boards of directors. Hence our mid - six figure public servant pays at the about the same rate as our eight figure parasite. The cure, of course, is a ~70% top marginal rate (there are papers on this), a steep inheritance tax above a modest exemption, restricted stock, and international agreements eliminating tax havens.
The president of Walmart is paid $22.5 million.
If you take that and divide it by Walmart's 2.3 million employees, it comes to $9.78 per employee, which is about the cost of a Happy Meal at McDonald's.
If you took all the CEO salaries in the US and distributed it to the workers, it would come up to about three cents an hour. Mark Perry has done the math for us.
What if the compensation for all S&P 500 CEOs were confiscated and redistributed to rank-and-file workers?
CEO salaries are a shiny object meant to distract people from the real things that make people poor. Like the war on terror, for example.
Costs of the 20-year war on terror: $8 trillion and 900,000 deaths
Divide that by the US population of 330 million, and you get...
About $24k per person, or about $96k for a family of four. That's some serious money.
Or the cost of crime estimated by these professors to be about $3.6 trillion per year.
New research examines the cost of crime in the U.S., estimated to be $2.6 trillion in a single year
Since most crime is associated with poverty, you could throw a couple of trillions of that in a UBI of about $6k a person, about $24k for a family of four, and prevent the cost of that crime in the first place. Plus you'd have a safer society.
Correction: Or the cost of crime estimated by these professors to be about $3.6 trillion per year.
That should be $2.6 trillion. The rest of the math is correct.
I'm not the best-qualified person to weigh in on this, but the first link in Ahmed's post above doesn't really pass the smell test, IMO. Has anyone actually proposed that a good solution to economic inequality would be to confiscate the wealth of the top-paid 500 CEOs (and only the wealth of those CEOs), and distribute it equally among 98 million "rank-and-file" workers? (Does the latter figure represent their lowest-paid employees, or (weirdly) the total number of comparably paid employees working anywhere in the country?) This seems likely to be an extreme oversimplification to misrepresent the views of the author's opponents.
Ahmed's other points about the unnecessary costs of war and crime seem more believable to me.
By the way, here's something Bertrand Russell wrote in 1917:
Few men seem to realize how many of the evils from which we suffer are wholly unnecessary, and that they could be abolished by a united effort within a few years. If a majority in every civilized country so desired, we could, within twenty years, abolish all abject poverty, quite half the illness in the world, the whole economic slavery which binds down nine tenths of our population; we could fill the world with beauty and joy, and secure the reign of universal peace. It is only because men are apathetic that this is not achieved, only because imagination is sluggish, and what always has been is regarded as what always must be. With good-will, generosity, intelligence, these things could be brought about.
Does something like this hold in the economic sphere? If so, redistribution of wealth (of which there could obviously be a variety of forms) is worth considering, and it's hard to see what purpose is served by tolerating extreme opulence while so many of the opulent's neighbors (and employees) endure severe poverty. I've heard people on the right complain that these notions imply that everyone should be "equally poor," but I don't see how that follows.
AF, using the "S & P 500 CEOs" and "redistribution" is a red herring. The more appropriate base would be (say) the top 0.5% of earners as well as those whose wealth is handled through family offices, GRATS and other trusts, etc. How we handle "income," capital gains, carried interest, basis reset, etc. needs to be considered. Basing opinions on AGI without first getting granular on how AGI is calculated for the different segments being analyzed is simply a fail.
re: the superstar effect
Juan Diego Florez cemented his reputation as a top operatic tenor during a 2008 performance of Gaetano Donizetti's La Fille du Regiment. Among professional singers, Donizetti's masterpiece is known as "the Mount Everest of opera"; a reputation due, almost entirely, to a devilishly tricky aria, "Ah! Mes amis, quel jour de fete," that arrives early in the first act. The aria demands the tenor to hit nine high C's in a row — a supremely difficult feat.
In his 2008 performance of Donizetti, at the Metropolitan Opera House, Florez hit all nine notes. The acclaim was so overwhelming that he was summoned back to the stage for an encore, overturning the Met's long-standing ban on the practice.
As a top opera singer, we can assume that Florez does well for himself financially (likely on the order of 5-digit paydays per performance), but not lavishly well. Put another way: he's well-off but not wealthy.
Then there are the superstars.
In 1972, a young tenor by the name of Luciano Pavarotti also made a name for himself performing Donizetti at the Met. Like Florez, he too hit the high C's. But there was something extra in Pavarotti's voice. The audience at the Met in 1972 did more than demand an encore from Pavarotti, they weren't content until he had returned to the stage seventeen times! In writing about Florez's 2008 performance, the New York Times noted: "If truth be told, it's not as hard as it sounds for a tenor with a light lyric voice like Mr. Florez to toss off those high C's…[I]n the early 1970's, when Luciano Pavarotti…let those high Cs ring out, that was truly astonishing."
In other words, both Florez and Pavarotti are exceptional tenors, but Pavarotti was slightly better — the best among an elite class. The impact of this small difference, however, was huge. Whereas we estimated that Florez was well off but not wealthy, when Pavarotti died in 2007, sources estimated his estate to be worth $275 to 475 million.
In a 1981 paper published in the American Economics Review, the economist Sherwin Rosen worked through the mathematics that explains why superstars, like Pavarotti, reap so many more rewards than peers who are only slightly less talented. He called the phenomenon, “The Superstar Effect.”
Though the details of Rosen's formulas are complex, the intuition is simple: Imagine a million opera fans who each have $10 to spend on an opera album. They're trying to decide whether to buy an album by Florez or Pavarotti. Rosen's theory predicts that the bulk of the consumers will purchase the Pavarotti album, thinking, roughly: "although both singers are great, Pavarotti is the best, and if I can only get one album I might as well get the best one available." The result is that the vast majority of the $10 million goes to Pavarotti, even though his talent advantage over Florez is small. —Cal Newport
So no, you can't just compare talent and say that this person is roughly equal to that person. In a winner-take-all economy, that little extra is everything and easily explains the large wage differential.
Lest anyone think I had gone off-topic, Cal Newport's article was titled "From CEOs to Opera Singers – How to Harness the "Superstar Effect". He and others say the same superstar effect is now widespread across the economy because of digital technology and the same effect explains the increase in CEO salaries. Here's a link to the full article:
From CEOs to Opera Singers – How to Harness the "Superstar Effect"
I looked at the linked article. I suppose I cd have missed it bc I didn't read every word, but it appears, despite its title, to say basically nothing about CEOs and their performance. Rather, it's about something the author calls "the superstar corollary," which appears to hold, put briefly, that if you're "the best" at something you will impress people and reap benefits, *irrespective* of what that "something" is and irrespective of how competitive a field that "something" is.
As for CEOs and opera singers, I'm dubious that CEO performance can be compared in the same way that opera singers' performance can be compared.
Ahmed Fares: "Since most crime is associated with poverty"
That might be true if you said, 'Since most crime that is prosecuted is associated with poverty....'
aaall: "The cure, of course, is a ~70% top marginal rate (there are papers on this), a steep inheritance tax above a modest exemption, restricted stock, and international agreements eliminating tax havens."
Michael Hudson (debating Thomas Piketty):
When your book came out a number of writers said, "This is the Marx of the 20th century." ... The One Percent looked at your statistics as a success story. They said, "Yep, we're really doing better than everybody else.... The head of Goldman Sachs said, "That's because we're so productive." But I think the reason your book was praised so much in the West is you didn't come up with a threatening political solution. When they said, "This is the Marx for modern times," that meant, don't read Marx, read this book. ...[T]he solution you said in the book [is] to tax income and wealth. This is not a threatening solution....
So [since the 1970s] there's been a huge monopolization, a huge privatization, a huge flooding of the economy with credit—and one person's credit is somebody else's debt.... The One Percent has gotten wealthy by indebting the Ninety-Nine Percent for housing ... medical care ... education. The economy has been forced increasingly into debt. How can one solve this? Taxation will not be enough. The only way that you can actually reverse this concentration of wealth is to begin wiping out the debt. If you leave the debt in place of the Ninety-Nine Percent, you're going to leave the One Percent's savings all in place, and these savings are largely tax-exempt....
s. wallerstein: "It could be argued that Fauci has done good"
Or not.
LFC writes:
As for CEOs and opera singers, I'm dubious that CEO performance can be compared in the same way that opera singers' performance can be compared.
Here's a quote to that effect (bold mine):
IF one loosens slightly the role played by technological progress, Dr. Rosen’s framework also does a pretty good job explaining the evolution of executive pay. In 1977, an elite chief executive working at one of America’s top 100 companies earned about 50 times the wage of its average worker. Three decades later, the nation’s best-paid C.E.O.’s made about 1,100 times the pay of a worker on the production line.
This has separated the megarich from the merely very rich. A study of pay in the 1970s found that executives in the top 10 percent made about twice as much as those in the middle of the pack. By the early 2000s, the top suits made more than four times the pay of the executives in the middle.
Top C.E.O.’s are not pop stars. But the pay for the most sought-after executives has risen for similar reasons. As corporations have increased in size, management decisions at the top have become that much more important, measured in terms of profits or losses. Top American companies have much higher sales and profits than they did 20 years ago. Banks and funds have more assets.
With so much more at stake, it has become that much more important for companies to put at the helm the “best” executive or banker or fund manager they can find. This has set off furious competition for top managerial talent, pushing the prices of top-rated managers way above the pay of those in the tier just below them. Two economists at New York University, Xavier Gabaix and Augustin Landier, published a study in 2006 estimating that the sixfold rise in the pay of chief executives in the United States over the last quarter century or so was attributable entirely to the sixfold rise in the market size of large American companies.
How Superstars’ Pay Stifles Everyone Else
Eric, time and inflation can solve a lot of problems while revolutions eat their own while immiserating most everyone else. Liquidate the kulaks and time plus neo-liberalism gets you oligarchs. Inflation, over time, will wipe out debts while high marginal rates and estate taxes will level things outas well as reducing incentives.
AF, AEI (with the exception of a couple of folks like Norm Ornstein) is a right wing think tank - a motley collection of Neo-Cons, Neo-Libs, and libertarians with a soupcon of torture advocates. Lenin and Lewis Powell showed the way - folks with bucks to spare started funding think tanks that produced papers that clearly showed how indispensable they were.
The cult of the indispensable CEO isn't new. It has its roots in the Social Darwinism of Herbert Spencer. Back in the 1930s there was a spate of films celebrating some of the First Gilded Age's robber barons.
Market size is a function of anti-trust enforcement which was a political decision - ditto financialization. GE used to make things and Jack Welsh's legacy is several smoking holes.
Eric,
'Since most crime that is prosecuted is associated with poverty....'
Not true of recent high-profile prosecutions. None of the defendants - Derek Chauvin; Travis McMichael, Gregory McMichael and William Bryan; Kimberly Potter; Ghislaine Maxwell; Elizabeth Holmes – were poor.
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