The following is an excerpt from my forthcoming book, Under the Affluence: Shaming the Poor, Praising the Rich and Jeopardizing the Future of America (San Francisco: City Lights, 2015) This section explores the way that many (especially on the right) valorize the wealthy and insist that unlike the poor — the so-called “takers” in society — the rich should be praised for their unique contributions to society. In this portion of the book, and in this excerpt, I respond to the idea that the wealthy carry a disproportionate share of the nation’s tax burden, or that they have been successful solely because of their own efforts, demonstrating that in fact the wealthy are as dependent (if not more so) on government than the poor and working class. In coming weeks I will post a few more excerpts from the book, which is in the editing process currently. Note, there may be slight changes to the final text when it is released in book form.
When Mitt Romney issued his now-infamous “47 percent” remark during the 2012 presidential campaign, in which he insisted that roughly half of the American public is dependent on hand-outs and will never be persuaded to “take responsibility for themselves,” many in the media and among the general public seemed shocked. But was there any reason to be surprised that an economic plutocrat like Romney might feel that way? Fact is, Romney (as with his running mate, Paul Ryan, who previously had suggested as many as 60 percent of Americans were “takers” rather than “makers”) was not going off-script in the least. He was merely giving voice to an all-too-common belief among the nation’s ruling elite and their conservative media mouthpieces: namely, that the poor are simply different from the rich in terms of values, work ethic and talent. While the latter create jobs and add value to the larger society, the former simply live off the more productive.
Of Makers and Takers: Taxes, Public Subsidies and the Real Face of Entitlement
Rather than criticize the wealthy, the poor and working class should be thanking them for all the good they do, or so the thinking goes. According to billionaire real estate investor Sam Zell, “the one percent work harder,” and rather than criticize them, everyone else should emulate them. Likewise, Forbes columnist Harry Binswanger has said in all seriousness that anyone “who earns a million dollars or more should be exempt from all income taxes,” and because even that tax rate of zero is insufficient thanks for all the good they do for the world, “to augment the tax-exemption, in an annual public ceremony, the year’s top earner should be awarded the Congressional Medal of Honor.”
To question the prerogatives of the wealthy (let alone to actually advocate policies that might shrink the disparities between the elite and the rest of us) is to invite howls of protest that one is essentially the equivalent of a Nazi looking to march the rich into the ovens. To wit, the recent claim by venture capitalist Tom Perkins of San Francisco, that those who fight for greater equality are essentially gearing up for their own “progressive Kristallnacht,” reminiscent of what Hitler’s legions launched against the Jews of Germany. Perkins, a billionaire who likes to brag about his $300,000 watch, is worried about poor people literally killing off the rich, which is ironic since it is he, a rich guy, who has actually been convicted of killing someone. In 1996 while racing his yacht off the coast of France, Perkins collided with a smaller boat, killing a doctor in the process, a crime for which he was tried and convicted but only paid $10,000 as punishment.
Although his remarks about the pending slaughter of the oligarchs, published in the letters section of the Wall Street Journal, provoked howls of outrage, Perkins defended himself by noting that although the Nazi imagery was perhaps unfortunate, the underlying argument was true: demonizing the rich is no different than demonizing any other minority. It’s a position that the editorial page of the Wall Street Journal then ratified in the wake of the controversy, as did FOX Business contributor Charles Payne, who defended Perkins’ comments by claiming that the wealthy have a justified rage at those who would question their wealth, and that Perkins’ predictions of a progressive Kristallnacht were possibly overdrawn but not by much. As Payne explained it:
There is a war on success. It hasn’t been violent, but that doesn’t mean that it can’t, or that it won’t one day (sic)…We can snicker at Tom Perkins and his poor analogy, or we can look around and understand that his fears may one day spread to many others because the kind of anger based on envy can become uncontrollable. It can ravish (sic) an individual or a country once its spreads. Coupled with failed economic policy it can destroy. I don’t think we should wait for people to be dragged out of their Park Avenue homes before we see how dangerous this war really is and can become.
In other words, to Charles Payne, Tom Perkins was wrong, but not really. The paranoid billionaire was just a few years ahead of the curve with his prediction.
For others, like AIG CEO Robert Benmosche, criticisms of the rich might not quite be equal to the Holocaust—after all, diminishing the horrors of Nazi genocide might be a bit dicey for a nice Jewish boy like Benmosche—but they certainly are comparable to the lynching of black people. After public outrage erupted over the massive bonuses paid to the company’s executives (even as AIG had to be bailed out by the government), Benmosche claimed that the uproar “was intended to stir public anger, to get everybody out there with their pitchforks and their hangman nooses, and all that—sort of like what we did in the Deep South… And I think it was just as bad and just as wrong.” Yes, because criticizing million-dollar bonuses for people who helped bring down the economy is exactly like the extra-judicial murder of black people. Exactly. The. Same.
The tendency to view the wealthy as virtual superheroes to whom the rest of us owe some debt of gratitude, is becoming increasingly prevalent, and not only in the U.S., but among the Anglo-elite in the U.K. as well. Boris Johnson, the Mayor of London, has recently admonished the commoners in his own city that they should be “offering their humble and hearty thanks” to the super-rich because, as he put it:
These are the people who put bread on the tables of families who—if the rich didn’t invest in supercars and employ eau de cologne-dabbers—might otherwise find themselves without a breadwinner.
For clarification, an “eau de cologne dabber” is someone who literally places perfumed water upon the temples of the rich, and is paid to do this because, naturally, the rich cannot put on their own perfume. The working class should be grateful, apparently, that the rich in London are so lazy; otherwise, how might the masses even manage to feed themselves? That such incredibly lazy souls as these have somehow managed to become millionaires and billionaires despite their pathetic indolence, apparently gives Johnson no pause. That people who can’t even “pick up their own socks” (as Johnson himself puts it) can somehow control such an outsized portion of the world’s wealth, causes no national reconsideration of the so-called merit of the wealthy, though among more sober-minded persons one might expect that it would.
Elsewhere, great inequalities of income and wealth are applauded as the only imaginable incentive for hard work on the part of the poor. Canadian millionaire Kevin O’Leary responded to a recent OXFAM report, which noted that the world’s wealthiest eighty-five people are worth as much as the bottom half of the world’s population (approximately 3.5 billion people), by exclaiming that the report was “fantastic news.” Only such incredible inequality can spur the poor to better their condition, according to O’Leary. When asked if a poor African living on a dollar a day is truly inspired to harder work by the presence of the eighty-five wealthiest persons on the planet, and that they might actually think they are going to be the next Bill Gates, O’Leary felt no compunction saying that such inequality and great wealth was exactly “the inspiration that everyone needs.”
Central to elite defensiveness about the extent of their wealth is the idea that the rich do more than enough, and especially in terms of the share of the nation’s tax burden they shoulder. As Romney suggested, when it comes to taxes, nearly half of Americans are skipping out on them while the wealthy pick up the tab. It’s not a particularly new position among conservatives. Rick Perlstein notes in his recent book, The Invisible Bridge: The Fall of Nixon and the Rise of Reagan, that as soon as the Earned Income Tax Credit was first passed, so as to remove low-income Americans from the tax rolls by offering tax credits intended to subsidize work, some on the right were already screaming foul. Despite the fact that the program only benefitted those who were working, and reduced reliance on other forms of welfare that were not tied to employment, conservative firebrand Pat Buchanan was enraged. In his very first syndicated column, published in 1975, Buchanan, fresh off his work in the Nixon White House, blasted tax relief for the poor as “the redistribution of wealth, downward,” and insisted that the 4.6 million low-income persons that were to be dropped from the tax rolls would be “reassigned to that expanding army of citizens who pay nothing in federal income taxes for the broad and widening array of social benefits they enjoy.” They would, in Buchanan’s estimation come to represent “a new class in America, a vast constituency of millions with no interest whatsoever in reducing the power of government, and every incentive to support its continued growth.”
But actually, when it comes to who pays taxes and who doesn’t, the elite position is without merit. When Cato Institute Senior Fellow Alan Reynolds says, “Poor people don’t pay taxes in this country,” or when FOX Business host Stuart Varney insists, “Yes, 47 percent of households pay not a single dime in taxes,” they are lying.And when FOX’s Greg Gutfeld claims he envies those who are too poor to owe income taxes, as if to suggest that minimum wage workers are living it up while highly paid media commentators like himself are oppressed, he makes no sense at all. I’m sure FOX would be happy to pay him $7.25 an hour if he’d like to experience life without income taxes (or much income), but somehow I’m guessing he won’t request such a perk. Let’s look at the facts.
On the one hand, yes, nearly half of the American population does not end up paying net federal income taxes, but it’s important to understand why people who don’t pay taxes enjoy that so-called luxury. One-fifth of those who don’t pay income taxes are elderly and on fixed incomes, with nearly another fifth being students, the disabled, or persons who are unemployed but actively seeking work. The remaining three-fifths do work but simply don’t earn enough to owe federal income tax. Why? Well surely it isn’t because they have chosen to receive crappy pay just to get out of paying taxes. It’s not as if the poor and struggling are turning down six figure job offers just to avoid having to fork over a percentage to the government. They are not earning enough because they can’t find a job that pays enough, and they are not paying taxes on what they earn because the poor and near-poor have been removed from the income tax rolls due to bipartisan agreements in place since the Reagan years, intended to boost disposable income with programs like the Earned Income Tax Credit.
Additionally, although such persons may not pay income taxes, those individuals almost inevitably contribute to the overall tax pie via state and local sales taxes and payroll taxes, the latter of which only apply to the first $117,000 of income, thereby hitting middle and working class folks harder, proportionately, than the rich. In fact, when it comes to taxes other than those levied on income at the federal level, lower- and middle-income Americans actually pay quite a bit more, percentage wise, than the affluent. State and local taxes, on average, take more than twice as much from the poorest residents (those in the bottom fifth of households) as from the top one percent: about 10.9 percent of income from those at the bottom compared to only 5.2 percent from the wealthiest. The middle class too pays nearly twice what the wealthiest one percent pays at the state and local level. This is because state and local governments rely heavily on sales taxes, which take a higher share of income from those at the bottom than from those at the top. If a rich person and a poor person both buy a gallon of milk in Tennessee, for instance, the taxes levied on both gallons will be the same as a share of the purchase price, but as a share of both shoppers’ incomes, the tax bite will be more onerous to the lower income shopper. Over the course of a year, taxes such as this add up to a substantial burden at the bottom of the economic pyramid, while amounting to only a very small burden for those at the top. In some states, the disproportionate burden for the working class and poor is especially crushing relative to that for the rich. In Washington State the poorest fifth of residents pay about seventeen percent of their annual income in state and local taxes: nearly six times the percentage paid by the wealthiest one percent at only 2.9 percent of income. In Florida, the poorest residents pay five times as much, percentage wise, as the wealthiest; in Texas, the ratio is nearly four-to-one.
Overall, there is not much difference between the tax burdens on the wealthy as opposed to the middle- and working class, when all taxes (federal, state and local) are considered. Whereas the elite would have us believe they are carrying a disproportionate amount of the tax load, the data says something else altogether. The richest one percent of Americans pays 21.6 percent of all taxes, but they also earn twenty-one percent of all national income. The next richest four percent of Americans pay 15.5 percent of all taxes, but they also earn 14.3 percent of all income. In all, the top tenth of earners pay forty-eight percent of all taxes, which seems extreme, but they also bring in more than forty-five percent of all national income. Meanwhile, the middle fifth of income earners pay only 10.3 percent of all taxes, which may seem as if they were not paying their fair share, but they only receive 11.4 percent of all income. So too, the poorest fifth percent of Americans contribute only 2.1 percent of all taxes paid in the country—a seemingly inadequate percentage—but this fifth only receives about 3.4 percent of all income.
Of course, it’s not just with regard to taxation where the meme of the “makers versus the takers” is dishonest. The other implicit assumption of that narrative is that the rich, unlike the poor, don’t rely on government for their success. According to elite rhetoric, government is for the little people while the wealthy and successful rely on their own genius and the magic of the free market. But how anyone could believe that only the poor rely on government, especially in the wake of the government bailout of the banking industry and several American corporations, is beyond the scope of the rational mind to comprehend. The overall value of the various government-backed initiatives on behalf of industry since the economic meltdown includes not just the more than $800 billion disbursed to financial institutions by the Treasury Department under the Troubled Assets Relief Program (TARP), but it also includes hundreds of billions in additional loans to banks to improve their ability to start lending again. Without these bailouts, the banks in question would have gone under. Whether or not one believes that rendering these institutions “too big to fail” might have been a necessary evil at the time of the bailouts, there can certainly be no doubt that it was government, not the magic of the marketplace or the genius of the leadership in these places, which allowed them to continue existing at all, let alone to prosper once again.
The poor have certainly never received the kind of forbearance as the banks and their top leaders, and frankly, that’s just how the elite like it. Far from relying on the marketplace, they quite openly insist that they deserve government assistance unlike the lowly poor folks who can’t seem to make ends meet. So consider the breathtakingly tone-deaf remarks of billionaire Charles Munger, Vice-Chair of Berkshire Hathaway: In 2010 while speaking at the University of Michigan, Munger told the audience that they should “thank God” for the bailouts of Wall Street, and rather than “bitching” about them, they should wish those bailouts had been “a little bigger.” But when asked if it might also have been helpful to bail out homeowners who were upside down on their mortgages—in many cases because they were roped into terms that were unfavorable to them, though quite favorable to the banks and rich investors—Munger was incredulous: “There’s danger in just shoveling out money to people who say, ‘My life is a little harder than it used to be’,” Munger explained. “At a certain place you’ve got to say to the people, ‘Suck it in and cope, buddy’…” In other words, the poor and working class should suck it up and cope while the rich sit back and shovel in money from the taxpayers to keep their businesses afloat.
It’s not just the bank bailouts that demonstrate how dependent the rich are on the government. From 2000-2012 not even including the bailouts, some of the world’s wealthiest companies received $21.3 billion in direct government subsidies—about $200 million, on average, for each of the companies in the Fortune 100—in the form of subsidized loans, technology development grants and subsidized insurance, all of which reduce operating costs to corporate America. Overall, well over $100 billion in government subsidies have been handed out to businesses in recent years, the vast majority of it to huge corporations.
In addition to direct subsidies, there are also indirect ways in which government benefits the corporate class. Because of what are known as “tax expenditures”—preferential tax treatment that reduces revenues available to the government, thereby operating like a spending program, but through the tax code rather than normal budget process—corporations are able to artificially slash their tax burdens. In 2011, the government allowed corporations to defer paying $24 billion in taxes they otherwise would have owed by not taxing income earned abroad until those earnings are repatriated to the U.S. So although the money has been earned and is available to benefit the company, so long as they reinvest those earnings in another country rather than in their home base of America, taxes on those earnings go uncollected. And the preferential treatment of capital gains income—a government program, which favors the income earned by the wealthy over the income earned by average Americans—provides a huge windfall to the rich, saving those who make over $1 million per year about $131,000 in taxes, as opposed to the EITC for poor and working class families, which provides about $2,200 in relief to them. So again, who is more dependent on the government? Who are the makers, and who are the takers?
Or consider the way that private businesses profit from the rise of mass incarceration in America. As the number of persons in jail or prison has exploded, especially for non-violent offenses and disproportionately for people of color, companies like Corrections Corporation of America (CCA) have developed entire business models that rely on the continuation of a public policy to lock people up. Their profits are not the result of innovation or business acumen. In a nation that didn’t incarcerate so many people, no matter how bright their executives might be, and no matter how hard working their employees, they simply could not be profitable. Their entire existence owes to government policy. Private prison operators require states to fulfill “occupancy guarantees,” or else pay penalties to the company, if for some reason they can’t find enough criminals to lock up. Think about it: state officials are agreeing to lock up enough people to keep a private prison full, even before they even know how much crime will be committed or how many dangerous offenders there will be in the coming year who might need to be detained. And if they fail to meet their incarceration targets they agree to pay a penalty for underutilization. Which means that states will either have to find people to incarcerate (no matter how minor their offenses and no matter whether there might be more productive ways to deal with many offenders), or else pay the companies a penalty for having effectively reduced their local crime rates. What is that, if not a textbook example of private businesses subsisting on the public dole, where the government subsidy provided is not just money but the bodies of actual citizens locked up to boost private profits?
But companies that operate private prisons are not the only ones making money from incarceration. So too are those companies that use prison labor. Currently as many as a million prisoners in the U.S. are working as call center operators or taking hotel reservations or manufacturing textiles, shoes, and clothing, while getting paid less than a dollar per day in some cases. This prison labor boosts profits for American businesses by giving them a cheap supply of virtual slave workers, while undermining employment opportunities for people on the outside. It’s a practice for which we condemn China and other countries, but which we practice without compunction.
Of course, to the ruling class, all of this this makes perfect sense. To give public money to the rich or to steer such money in that direction is different than giving money to average people. When you listen to the remarks of a Charles Munger or Lloyd Blankfein, chief of Goldman Sachs—who has said that investment bankers are “doing God’s work” and who has defended the roughly $13 billion his firm got from the bailout of large insurer AIG—it is hard to resist the conclusion that at some level, the elite simply believe that the rich and poor are two distinct species of humanity. On the one hand they insist that putting more money in the pockets of the wealthy via the bailouts or tax cuts can incentivize productive economic activity, and that when the rich have this extra money they can be guaranteed to do great things with it. They’ll create jobs, start companies, and invest it wisely to the benefit of all. In other words, the rich respond positively to more money. On the other hand, the same voices assure us that putting more money in the pockets of the poor and struggling via minimum wage hikes, overtime pay protections, the expansion of safety net programs or unemployment benefits, will do the opposite: it will strip the poor of the incentive to work, and if they have this extra money they will do horrible things with it; they’ll buy drugs, sit around all day doing nothing, or make babies they can’t afford. In other words, the poor respond dysfunctionally to more money. The only thing that will properly incentivize them is the threat of destitution. Only the fear of homelessness, starvation and death in the gutter can possibly make the poor do any work whatsoever. Only someone who believed that the poor were barely human, such that they don’t respond to the same incentives the rest of us would, could make this kind of argument. And only someone who believed the rich were inherently superior could justify the benefits showered upon them by the state.
No, You Didn’t Build That: Confronting the Myth of Elite Talent
Naturally, that’s what the elite and their conservative cheerleaders believe. They sincerely preach the gospel of meritocracy and the idea that those who make it to the top of the power structure have done so by dint of their own hard work and talent. But what evidence actually supports this position?
Looking at it historically, the idea that the wealthy have earned their great fortunes has never made much sense. Slave owners, who were the nation’s original aristocracy, relied not only on the stolen labor of Africans for their wealth but also on the willingness of government to defend their investment in human property by enshrining enslavement in the laws of the land and agreeing to the return of runaway slaves to their owners. Had it not been for the state’s support in the maintenance of human bondage, the work and genius of the wealthy planter class would have meant nothing. They surely weren’t prepared to pick the cotton or build the levees or construct the houses in which they lived; nor were they willing to pay market rates for that work. Their fortunes came from the unjust and immoral exploitation of unfree labor and from no other source.
Interestingly, the elite of the planter class all but admitted their own dependence on enslaved black bodies and bragged about their own relative idleness, never noting the way such admissions contradicted whatever pretense they may have had to actually deserving their station. The thought of abolition frightened them because if they could not force African peoples to work for them for free, their every luxury would be lost. Why? Because naturally it would be absurd to expect the elite to do the hard work needed to maintain the lifestyle to which they had become accustomed. That, after all, would make them little better than the slaves to whom they felt so naturally superior. As Herbert Gutman and the American Social History Project note in their epic volume, Who Built America?
Chattel slavery discredited hard work, associating those who performed it with the slave’s lowly status…planters generally prided themselves on being men of leisure and culture, freed from labor and financial concerns (1)
One especially honest (but not-too-self-aware) member of the South Carolina planter class summed up the thinking when he explained, “Slavery with us is no abstraction but a great and vital fact. Without it our every comfort would be taken from us. Our wives and children made unhappy…our people ruined forever” (2). One Mississippi planter, lamenting the abolition of slavery after the south was vanquished in battle, put it this way: “I never did a day’s work in my life, and don’t know how to begin” (3). In short, the rich southerner, totally dependent on the institution of slavery for his fortune, was the ultimate lazy slacker; yet, his laziness hardly prevented him from attaining monumental riches.
So too, the wealth of the early industrialists had less to do with their own hard work or intellect than with illegal activity and the intervention of the state. The Erie Canal, constructed with public money from 1817 to 1825, linked the Great Lakes and Ohio Valley to the Hudson River and New York City, vastly lowering shipping costs of goods to the nation’s interior and boosting profits for private businesses, none of which spent their own cash to finance the project (4). The further growth of the nation’s economy in the late nineteenth century and the profits of the business class at that time were only made possible by the transcontinental railroad. But in order to make the railroad feasible at a profitable rate, officials with the Central Pacific and Union Pacific railroad companies had to bribe elected officials to give them free land on which to lay the track, engaged in illegal kick-back schemes, overcharged the government for the costs of construction and arranged for multiple public subsidies, allowing them to reap enormous profit at public expense. And as with slave owners, these business elites depended upon the use of exploited workers, mostly Irish and Chinese, to keep their profits high (5). Between 1862 and 1872, Congress gave railroad companies more than one hundred million acres of previously public land, in addition to granting them tens of millions of dollars worth of tax concessions and loans (6).
Additionally, beginning in the early 1860s, the government began handing out large parcels of land to white families under the Homestead Act: hundreds of millions of acres upon which to farm and carve out a living. Although the work done on those homesteads was no doubt real, the ability of those farmers to access that land in the first place was due to government initiative (7). For those denied access to the land, like African Americans, or those pushed off the land (like indigenous persons or Mexicans who lost land claims after the war with Mexico), that government intervention also enshrined significant white racial privilege and advantage. And in many instances, even the small-scale white farmers were taken advantage of by big mining and lumber interests that would pay the individuals to stake claims for them under the Act, and then assume ownership after paying them a small pittance (8).
By the early 1900s, the government was hard at work granting monopoly charters to corporations in a number of industries, from banking to transportation to insurance among others, thereby extending to the owners of these companies exclusive rights to engage in various types of enterprise. Their resulting fortunes, which were vast indeed, owed to government favoritism and graft, not to their own genius or having won a competition against less worthy competitors. Throughout this period, government forces were used to crush labor movement activity including strikes by workers made to toil in often horrific conditions, suggesting that again, without the heavy arm of the state, their profits would have been far less assured (9). And far from being self-made men, fully ninety-five percent of executives and financial tycoons at the beginning of the twentieth century were from upper-middle class or wealthy backgrounds. Throughout the nineteenth century only two percent of industrialists were born to working-class parents (10).
But things are different today, some would insist. Surely the wealthy today earn their own keep, regardless of how the rich in earlier times might have procured theirs. Although it’s possible—putting aside the fact that the wealthy of the 1700s, 1800s and early 1900s all would have said they had earned their fortunes too—in truth, the elite are no more justified in their positions now than in the past. First, recall the examples of direct government subsidy and preferential tax treatment mentioned earlier in this chapter, to say nothing of the government bailout of the financial industry, all of which demonstrate that the wealthy owe their position to the loving hand of a charitable state. But that isn’t all. In 2008, for instance, less than one-fifth of the income earned by those making more than $10 million came from actual labor, while the rest came from interest, dividends and rents on properties these folks already owned. In other words, even if they hadn’t gotten out of bed for a single day of work, these individuals would have still made at least $8 million on average that year. What does that have to do with merit in any appreciable sense, let alone hard work?
Drilling down a bit more specifically, consider Wall Street traders. Far from making their fortunes due to their own skills, such folks are able to make hundreds of millions of dollars more than what they otherwise would, not because they’re working harder, but simply by utilizing lightning-quick computers and software programs to which only they have access. These systems allow them to see trades that are in the process of being made—perhaps by individuals doing their own investing, or simply by investors who don’t have such computers. Before the trade can go through, the high-speed traders can buy the same stock that’s about to be purchased by the regular investor, and then sell it to that initial investor for a few pennies more than they were going to otherwise pay for it, all before the original trade is final. Although the practice has little discernible impact on the small investor, who likely won’t notice the tiny markup, the practice, which is done millions of times a day, rakes in mega-profits for those engaged in it. They are not producing anything of value. They are not making the companies whose stock is purchased worth more, allowing them to create jobs. They are simply skimming money off the top with a practice that is essentially the high-tech equivalent of mind reading or card counting in Vegas, only far more foolproof than either of those. It has nothing to do with merit or skill.
Likewise, to believe that America’s corporate executives have “earned” their exorbitant pay and that income reflects effort or ability seems downright delusional. From 1978 to 2013, CEO compensation (base pay plus exercised stock options) increased by 937 percent. Although it should be obvious that such an elite bunch did not in fact manage to increase their work effort by this much, or become nearly a thousand percent smarter or more productive in that time, let there be no mistake: this boost in pay at the top was more than double the rise in the stock market over that same period. In other words, CEO pay grew twice as fast as the company value overseen by those CEOs. In the process, it far and away outstripped wage growth for the typical worker whose pay barely budged, if at all, even as their productivity rose dramatically.
In 1965, the ratio of CEO-to-worker compensation was only about twenty-to-one. By 1978 that ratio had grown, but still only stood at thirty-to-one. By 1995, however, the average CEO was bringing home 123 times what the average worker earned, and today, that ratio stands at 296 to 1. The typical American CEO’s annual bonus alone is sixty-two times greater than the average worker’s annual pay. To think that these numbers reflect merit not only requires one to assume that a typical CEO is worth three hundred times more than a typical worker, or works three hundred times harder, or is three hundred times more productive; more to the point, given the change over time, one would have to believe that CEOs were evolving at a scientifically unheard of pace. After all, the top executive in 1965 was only twenty times more productive, according to this logic, and didn’t really gain much in terms of ability or smarts over the next fourteen years. But then, suddenly, it’s as if some biological breakthrough occurred, and although average workers stopped evolving, the specie known as homo executivis enjoyed some amazing genetic leap to previously unheard of levels of talent and ability.
If we consider it logically, we must know that pay scales do not reflect hard work, per se, let alone one’s larger social value. Few among us, for instance, would actually accept the notion that a hedge fund manager like Steven Cohen really earned his $2.3 billion income in 2013, especially considering that the very same year he received this amount his firm pled guilty to insider trading, for which they were hit with a fine of $1.8 billion. Doubtless, few of us have jobs that would allow us to commit a major financial crime and still remain on the free side of a jail cell, let alone able to walk away with a payday larger than the penalty we were asked to fork over. Likewise, it’s hard to believe the earnings of Chris Levett, head of Clive Capital (a commodity hedge fund) are earned. After all, from 2011-2013, even as the firm lost money in both years for its investors, Levett was paid nearly $100 million. In general, research finds that the average annual rate of return for hedge funds is actually no better, and sometimes worse, than for low-risk or even no-risk investment instruments, and no better than the annual rate of return for the S&P 500. In other words, most hedge fund managers aren’t even outperforming the market or government bond rates, yet they rake in huge excess profits.
The absurdity of such hefty incomes for hedge fund managers is particularly obvious when contrasted with the incomes of many others in society, whom most would likely consider far more vital to the overall national well being. If you ask most people what jobs they consider the most important in the society, the list you’ll get in response will always be pretty similar, and rarely if ever will they include jobs like “hedge fund manager” or “derivatives trader” or “real estate developer” or even “corporate executive.” These are the jobs that pay the big money, but not because they have more objective value in the minds of Americans. Unless you asked this question of actual bond traders, it is unlikely that a single person would answer, “bond trader,” when pressed about the society’s most important positions. In fact, I’ve conducted this little experiment before, and the list of the ten most important jobs is always top-heavy with professions that don’t pay very much. With the exception of doctors, the jobs listed are some of the nation’s lowest paying. Other than physicians, they typically include teachers, nurses, firefighters, police officers, soldiers, childcare providers, eldercare and nursing home providers, farmers, clergy, and mothers. Occasionally, they will also include engineers—another high-paying profession—but rarely any other career that is particularly lucrative.
Now, compare the average person’s list to the highest-paying careers, according to the Labor Department. In addition to investment bankers, the highest paid are physicians of various types, CEOs, petroleum engineers, lawyers, architectural and engineering managers (especially for the oil and gas industry), natural sciences managers, marketing managers, computer and IT managers, and industrial psychologists. No offense meant to anyone in one of those positions, but your pay hardly reflects the value placed on your jobs by the public. And let’s be honest, no kid ever went to bed at night, clutched a teddy bear and said, “When I grow up, I want to sell highly-leveraged mortgage backed securities,” even though doing so would no doubt make those kids a lot of money. Children don’t think about things like money. They have more ethical concerns and far more admirable value systems.
According to the Bureau of Labor Statistics, almost none of the most socially useful jobs identified by the general public are among the best paid. Other than doctors—a broad category, in which various specialties almost always pay more than the general practice thought of by most when the term “physician” is used—the pay rankings of the most socially useful jobs rank very low. Police and detective supervisors (not what most people are thinking of when they say police, in answer to the question), come in at number 180 on the list of best paying professions, which is the highest ranking of any job other than physician that most folks mention. Detectives and criminal investigators rank 211; police detectives, 215; farmers, ranchers and agricultural managers rank 268; while no others rank among the top three hundred.
Ultimately, pay levels are not about merit or social value; they’re about power dynamics. They’re about how much value is placed on various types of work, by people with lots of money to spend. So, for instance, if patients in nursing homes each managed to crap a flawless ten-carat diamond once they reached the age of ninety, rest assured, elder care workers would be paid like investment bankers, solely for their ability to keep old people alive until it was time for the diamond harvest. But as it is, they are paid horribly, since rich people see more value in office buildings and yachts and derivatives than they do in the people who care for their own grandparents.
Pay on Wall Street is a good example of the disconnect between productivity and reward. Consider recent bonus pay for investment bankers as one obvious example. As Robert Reich has noted, bonuses recently skyrocketed to $26.7 billion: a fifteen percent boost from the previous year, bringing bonuses to their highest point since the economic collapse. But these bonuses had nothing to do with a fifteen percent gain in productivity, or any measurable notion of merit. Instead of merit, these bonuses (and indeed the entire profitability of the banks that paid them) were made possible by government policy, and the indirect subsidy received by these entities ever since the government bailout rendered the investment banks, and especially the largest of them, “too big to fail.” By bailing out the investment banks and sending a clear signal that these institutions—as opposed to smaller depository institutions, like your local bank branch—will not be allowed to go under, the government indirectly subsidized the larger banks by making it more attractive for persons to park their money with Goldman Sachs, for instance, than a smaller bank. Even though the investment banks pay out a smaller interest rate on the money deposited with their institutions, the security purchased by “too big to fail” steers money to the large firms that would otherwise have gone elsewhere; as such, it results in more money for investment banks, and higher bonuses for investment bankers on Wall Street. If the government had not made Wall Street investments so artificially attractive with the bailout, roughly $83 billion fewer dollars would have been deposited on Wall Street last year, according to recent estimates.
Needless to say, without that $83 billion, which only exists because of government policy and has nothing to do with the genius of bankers, there is no way investment banks could have paid out nearly $30 billion in bonuses last year. In fact, the amount of the predicted subsidy received by just the “big five” investment banks was roughly equal to those companies’ profits last year. In other words, without government helping to steer money to those institutions, they would have barely broken even, let alone have been able to pay out such massive bonuses. It is more accurate then to think of investment banks and bankers as charity cases and welfare recipients, rather than as hard-working and highly skilled business folks.
Even beyond the bailout and its salutary effects for current banking profits, the everyday operations of Wall Street are made easier by government actions (or perhaps we should say, inactions). Investment banks have reaped significant profits above and beyond what otherwise could have been possible, thanks to the deregulation of the financial industry in the 1990s—a government decision that made possible several investment instruments and practices that previously would have been disallowed. In short, had it not been for the power of the banking lobby to convince lawmakers to loosen the rules for Wall Street, no matter the genius and hard work of the investment class, hundreds of billions, even trillions of dollars simply wouldn’t have been made. That’s not about a magical marketplace, but naked political clout. Likewise, the lack of a sales tax on financial transactions, despite sales taxes on virtually all other consumer purchases, amounts to a form of preferential government treatment of one type of purchase alone, and in this case, one most likely to be purchased by the wealthy. When Americans have to pay sales tax on baby formula and fresh produce worth a few dollars but not on stock purchases worth trillions, it seems obvious that certain types of economic activity are being favored in the market over others, to the benefit of the wealthy.
At the most elemental level the issue is this: the rich almost always depend entirely upon the working class for whatever fortunes they manage to build. The idea that the poor and working class need the wealthy, rather than the other way around, though a common perception it appears, couldn’t be more backwards. It is only by paying workers less than the value of what they do for you that you are able to make a profit. It seems axiomatic that if you do a job for me that I could not and would not do for myself, and which enriches me to the tune of $100, but I only pay you $70 for your effort, I have taken advantage of you. To that argument the defender of capitalism would reply that without the capitalist to offer the job, the worker would have made nothing. But this equation continues to miss the obvious: without prior workers, there would have been no capitalist. The wealth held by the capitalist came from somewhere, and in almost no instance did it come from their own direct labor; rather, it came from someone else’s labor—either people the capitalist hired, or those his predecessor hired; or it came from state-sanctioned violence and the forcible expropriation of land. The railroad tycoons did not lay their own track and dig their own tunnels, not even for one day, let alone long enough to save up the money with which they were able to hire all those other folks to continue the effort. They inherited their companies or knew the right people and had the power of the state at their disposal to make their profits possible. To give thanks to the capitalist for the job offer he is able to make, without acknowledging the complete reliance upon labor that made the capitalist possible, and without which he or she could not exist, is to invert the cause and effect relationship between work and wealth.
It was something that Abraham Lincoln understood quite clearly, however much his words might appear radical by comparison to today’s political boilerplate:
Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital and deserves much the higher consideration (11).
In short, the rich didn’t build their fortunes: the labor of others who were underpaid for their trouble did. Capitalists, it turns out, may be the most dependent people on the planet.
1. Herbert G. Gutman and the American Social History Project, Who Built America: Working People and the Nation’s Economy, Politics, Culture and Society – Volume I (New York, Pantheon, 1989), 286.
2. Herbert G. Gutman and the American Social History Project, Who Built America: Working People and the Nation’s Economy, Politics, Culture and Society – Volume I (New York, Pantheon, 1989), 365-6.
3. James W. Loewen and Charles Sallis, Mississippi: Conflict and Change (New York: Pantheon, 1980), 141.
4. Herbert G. Gutman and the American Social History Project, Who Built America: Working People and the Nation’s Economy, Politics, Culture and Society – Volume I (New York, Pantheon, 1989), 227-228.
5. Howard Zinn, A People’s History of the United States (New York: Harper Perennial, 1980), 247-249.
6. Herbert G. Gutman and the American Social History Project, Who Built America: Working People and the Nation’s Economy, Politics, Culture and Society – Volume I (New York, Pantheon, 1989), 516-7.
7. Philip F. Rubio, A History of Affirmative Action, 1619-2000 (University Press of Mississippi, 2001).
8. Herbert G. Gutman and the American Social History Project, Who Built America: Working People and the Nation’s Economy, Politics, Culture and Society – Volume I (New York, Pantheon, 1989), 518.
9. Herbert G. Gutman and the American Social History Project, Who Built America” Working People and the Nation’s Economy, Politics, Culture and Society – Volume I (New York, Pantheon, 1989), 327-342.
10. James Loewen, Lies My Teacher Told Me: Everything Your American History Textbook Got Wrong (New York: The New Press, 1996), 203.
11. Carl Sandburg, Abraham Lincoln (New York: Harcourt Brace and World, 1954), 271.