The Washington Post ran the first article in a series about "breakaway wealth" in America on Saturday. The story presents evidence that business executive pay is driving a rise in inequality in America.
The author, Peter Whoriskey, uses the example of the CEO of Dean Foods. In the '70s, the CEO earned the equivalent of $1 million a year today, and was satisfied with it. The current CEO, Gregg Engles, makes 10 times as much, has access to a private jet, and lives in a $6 million house.
Whoriskey then presents two studies that, taken together, make the case that higher executive pay (which Whoriskey hints is a product of normalized greed) is generating massive inequality. First, the rich are getting much richer:
In 1975, for example, the top 0.1 percent of earners garnered about 2.5 percent of the nation's income, including capital gains, according to data collected by University of California economist Emmanuel Saez. By 2008, that share had quadrupled and stood at 10.4 percent.
The phenomenon is even more pronounced at even higher levels of income. The share of the income commanded by the top 0.01 percent rose from 0.85 percent to 5.03 percent over that period. For the 15,000 families in that group, average income now stands at $27 million.
Second, those gains appear to be going largely to executives:
Sure, people like Bill Gates and LeBron James made lots. But it wasn't at all clear who the other roughly 140,000 earners were in the top 0.1 percent - that is, people earning about $1.7 million a year, including capital gains.
Then, late last year, economists Bakija, Cole and Heim completed their massive analysis of income tax returns.
Little noticed outside academic circles, their research focused on the top 0.1 percent of earners. From those tax returns, they could glean a taxpayer's occupation, which is self-reported. Using the employer's tax identification number, the researchers found the industry they were employed in.
After executives, managers and financial professionals, the next largest groups in the top 0.1 percent of earners was lawyers with 6.2 percent and real estate professionals at 4.7 percent. Media and sports figures, who are often assumed to represent a large portion of very high-income earners, collectively made up only 3 percent.
"Basically, executives represent a much bigger share of the top incomes than a lot of people had thought," said Bakija, a professor at Williams College, who with his co-authors is continuing the research. "Before, we just didn't know who these people were."
This is a lot to think about. Now, although the tone of the article suggests otherwise, there is nothing inherently wrong with executives getting bigger houses and the use of jets, especially if they're not gaining at the expense of others. Whoriskey provides some anecdotes that suggest that the folks lower on the corporate ladder are struggling, but they are far from convincing. As Daniel Indiviglio notes, the hard-luck case Whoriskey finds is a Dean Foods worker who makes about $47,000 per year -- he could be doing better, but it's not exactly a sob story.
And if the point of the piece is to give readers pause about "breakaway wealth," the CEO of Dean Foods is a bad example. Although a $10 million yearly salary is enough for anyone, it's not even in the same ballpark as the highest yearly earners. In fact, no executive salaries are, not even the salaries of investment bankers. The highest earners are hedge fund managers. The slideshow accompanying the Post article includes a few of these managers, for instance, George Soros and John Paulson. In 2010, according to the New York Times, Soros made $450 million for himself: 45 times as much as Gregg Engles. John Paulson made $4.9 billion: 490 times as much as Engles.
The Bakija, Cole, and Heim study that Whoriskey cites captures the rise of the ultra-rich financiers: the number of financial professionals in the top 0.1 percent of earners has gone up drastically since the '70s, and their share of the national income has nearly quadrupled. Clearly hedge fund managers have played a significant role in the overall "breakaway" of the wealthy.
If the breakdown of social norms restraining greed is really to blame for the rise of inequality at the top of the economic ladder, the few millions earned by Gregg Engles are nothing compared to the scandal of the billions raked in by Soros and Paulson. That fact doesn't lend itself as easily to stories about exploited workers and greedy executives.
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