Friday, June 21, 2013

Mark Gongloff — Banker, CEO Pay Largely Responsible For Rising Inequality: Study

Josh Bivens and Lawrence Mishel, economists at the Economic Policy Institute, a left-leaning think tank, argue in a study responding to Mankiw that most of the rise in income inequality over the past few decades is due to the soaring pay of CEOs and Wall Street bankers who are milking money from the markets rather than generating much in the way of economic production.
"A substantial part of the extraordinary rise of top 1 percent incomes is not a result of well-functioning markets allocating pay according to value generated, but instead resulted from shifting institutional arrangements leading to shifting of rents to those at the very top," Bivens and Mishel write.
The technical term for this is "rent-seeking." Mankiw, a former economic adviser to President George W. Bush and Mitt Romney, suggested in his recent paper, "Defending The One Percent" that there wasn't much of this going on, that the 1 percent are just richer than you, and getting even richer all the time, because they are better than you.
But he does admit that rent-seeking could be a problem: 
If the top 1 percent is earning an extra $1 in some way that reduces the incomes of the middle class and the poor by $2, then many people will see that as a social problem worth addressing. For example, suppose the rising income share of the top 1 percent were largely attributable to successful rent-seeking. Imagine that the government were to favor its political allies by granting them monopoly power over certain products, favorable regulations, or restrictions on trade. Such a policy would likely lead to both inequality and inefficiency. Economists of all stripes would deplore it. I certainly would.
Unfortunately, this is pretty much what has happened in the past 30 years, as Bivens and Mishel show, with numbers.
They point out that the top 1 percent of earners now take in about 74 percent of all the nation's capital gains, up from just 58.5 percent in 1979. That means they are getting the bulk of price gains in stocks, bonds and homes, to name just a few of the ways you can get capital gains. Increasingly, this kind of income is gathering at the very top and staying there. These price gains don't necessarily represent value added to the economy, just higher profit margins, Bivens and Mishel suggest.
The Huffington Post
Banker, CEO Pay Largely Responsible For Rising Inequality: Study
Mark Gongloff

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