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Time to Rein in the Robber Barons Again

It’s time to make the US economy work for everyone.

(Photo: Philip Taylor; Edited: LW / TO)

I’m going to let you on a little secret about many of the CEOs of the US’ largest companies: The biggest decision that they make these days, is how best to divvy up the wealth that they’ve stolen from US working families and middle class.

Seriously, according to research by Lawrence Mishel and Jessica Schieder at the Economic Policy Institute, CEOs in the US’ largest firms are raking in an average of $15.5 million in compensation.

That’s an average compensation of 276 times the annual average pay of the typical worker!

See more news and opinion from Thom Hartmann at Truthout here.

And that’s DOWN from 2014, when the average CEO of the US’ largest firms earned 302 times the average pay of a typical US worker.

But don’t feel too bad for the poor CEOs who are only earning $15.5 million as opposed to the $16.3 million they earned in 2014, because their earnings are still up over 46 percent since President Obama took office.

The fact is, CEO compensation only appears to be down because so much of their compensation comes in the form of stock options, which means that the market slowdown in 2015 is really the only reason that it looks like CEOs earned relatively less than they did in 2014.

Despite the market downturn and the decrease in top-CEO pay in 2015, the average compensation for a CEO of one of the US’ largest firms is still up over 940 percent since 1978, back when CEOs “only” earned about $1.5 million per year, roughly 30 times more than the average worker.

In Mishel and Schieder’s analysis, they point out that most major CEO’s simply extract wealth from the economy without adding to the economy in any truly productive manner.

They write that, “We have argued that high CEO pay reflects rents — concessions CEOs can draw from the economy not by virtue of their contribution to economic output but by virtue of their position. Consequently, CEO pay could be reduced and the economy would not suffer any loss of output.”

And that tells us something very important, and very troubling: Right now we’re living in another gilded age, and the CEOs of the largest US corporations are nothing but 21st century robber barons.

While CEO pay has increased by over 940 percent since 1978, average worker pay has only increased by 10.3 percent, meaning that while top CEOs have seen their earnings go up by $15 MILLION a year since 1978, average workers are only earning about $5,000 a year more on average.

It wasn’t always this way, as you can see in this graph, CEO pay didn’t start tracking to the stock market until the early 1980s.

As economist JW Mason points out, one major reason for the change was the “shareholder revolution” in the early 1980s, when incentives under the Reagan administration made it so that companies became more interested in buying back their own stock from the public than they were in investing in new projects or hiring US workers.

That turn towards stock buybacks and away from reinvestment in making companies grow disconnected stock value and dividend payouts from real economic output, and priced out smaller investors while concentrating wealth and voting power into the hands of a few economic elite who serve as corporate executives and board members.

But up until 1993, the top CEOs still “only” made between 50 times and 90 times what a typical worker would make.

Then, Bill Clinton and Congress passed a law placing a $1 million cap on how much a company can deduct for executive pay as a business expense.

And that sounds like a good plan, because it places a hard limit on how much a firm can pay out to its executives before taking on giant tax burdens.

But there was a huge exception written into the law that made the stock buyback situation even worse.

Under that law, compensation that’s based on a company’s “performance” is exempt from that $1 million limit, and since a company’s stock market value is supposed to be a measure of economic performance, companies started simply paying their executives in stock shares and options.

But remember, stock options don’t actually reflect a firm’s performance anymore, because ever since the “shareholder revolution” in the 1980s, firms have been artificially inflating their stock value by buying back their own stock from the public to decrease the number of available shares and thus artificially drive up the price of the stock.

The nation’s 1% has been making a killing from artificially inflated stock prices for nearly four decades, and that concentration of wealth and power has come at the direct expense of the US working and middle class.

Between 1948 and 1973, productivity and wages tracked very closely, productivity increased by 96.7 percent and wages went up 91.3 percent.

But between 1973 and 2013 (that’s the same time period when stock buybacks effectively de-linked stock value from economic output), worker productivity increased by 74.4 percent, and wages only increased by 9.2 percent.

And that’s been really harmful to our economy, because it’s a basic economic fact that the wages of average workers, the people who actually buy stuff, are what drive real economic growth.

It’s no coincidence that as stock prices grew since 1979, the top 1% of earners in the US saw their wages increase by 138 percent, while the entire bottom 90 percent of US earners only saw their wages increase by 15 percent.

Because the top 1%, and especially the CEOs and board members of the largest firms in the US, are nothing but a new generation of robber barons.

Modern CEOs of most of the US’ largest firms don’t create anything, many don’t even steer their companies to become more economically productive.

They simply siphon wealth from the US working and middle class, from average investors, and from the US economy as a whole.

The biggest decision these modern robber barons make, is how best to divvy up that stolen wealth among themselves.

And it’s time to rein them in.

We need to raise the highest marginal income tax rates to where they were before the insane policies of Reagan’s trickle-up economics, and we need to end corporate tax subsidies and close corporate tax loopholes that let companies evade US taxes and stash their earnings overseas.

It would be a good thing for the US economy to set higher corporate tax rates for companies that pay their executives hundreds of times more than their average workers.

We need to make it so that a company’s shareholders vote on how top executives are compensated, instead of allowing the old boys club of corporate executives and board members to choose their own compensation.

It’s time to make the US economy work for everyone, and to take real action to reign in these robber barons and the obscene level of income inequality they’ve created in this country.

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