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Why I'm no longer a Libertarian, part 83

Rant time.

This article is an excellent summary of how runaway executive compensation and stagnating middle-class jobs are widening the class divide in America, and the toxic effects this is having on our society. Sample statistics:
Executives' salaries aren't to blame for this—bloated as they are, they still generally constitute only a tiny fraction of major companies' revenues—but they are a symptom of the larger trend. According to the Congressional Budget Office, between 1979 and 1997 the richest 1% of American families—those who had an annual income of at least $677,900 in '97—saw their incomes more than double. But for families in the middle, income grew by only 10%. For the lowest 20%, it actually fell.

Especially illuminating is how executive compensation has leapt onto a vicious upward spiral. In short, increased recruitment of executives has led to the increased use of consultants who try to give salary offers based on the industry average plus a few deal sweeteners (since who wants to pay less than the average?) -- which drags the average up, which then gets factored back into the calculations when the next round of management changes rolls around.

Libertarians, broadly speaking, favor decreased regulation on businesses and less government intervention in market forces setting the fair price for goods, services, and labor. But the problem here is that it's market forces that are creating the problem. Boards, acting in their own self-interests, drive up executive wages; executives, acting in their own self-interests, hold out for higher wages. Shareholders would normally be acting in their own self-interests by exerting a counterforce holding these expenses down ... but, um, considering the vast number of stock options thrown into these deals, who exactly are these shareholders and what are their interests?

The 1,100,000 Washington households that makes less than $46,000 a year probably collectively own less stock than the one man who is chairman of its flagship corporation Microsoft. Meanwhile, a great number of those million-plus households can't even afford health insurance (45 million Americans go without). Gods forbid their primary income provider(s) get in a car accident.

Now, it might be the case that market forces can also solve the problem of the widening class divide. But I don't see an answer being suggested. Even the Libertarians who get beyond "I don't get it. Why is having a handful of ludicrously rich people a problem for America?*" generally smile and say "The market can fix it" and then ignore the problem entirely as if those words were the magic incantation that made the market start fixing it. (Or, worse, blame the poor and middle class for not putting more economic pressure on the corporations to change their policies. Look, folks, popular apathy is just about the only glue holding our society together. When the proletariat bands together and decides to put pressure on their bourgeoisie ... there's a word for it, and it starts with R and ends with evolution.)

I've heard a few market-based, non-government solutions that could conceivably have a positive effect. For example, voluntary regulation or industry-set salary caps. I'd be quite willing to give these a try, seeing as how they're better than nothing, but nobody is seriously advocating them. Show me one Libertarian, even one, who considers income inequality a major political issue and feels it's among the top issues that society must address before it spirals out of control.

No, really. Please show me one. I want my respect for the party back.


At any rate, I'm trying to figure out how an equitable way of addressing this problem (governmental or otherwise) would work. Because this does need to be addressed.

Simply raising the marginal tax rates is really the best first step. The top bracket used to be over double what it is today, and it didn't slow down the Rockefellers. J.T. Wellington never had to mortgage his mansions because two-thirds of his income went to the state. I wouldn't mind seeing Samuel Walton get the same treatment.

But that's only half the issue, and doesn't solve the underlying problem. It would go a long way toward providing services and quality of life for the rest of us that can't afford private jets to our personal neurosurgeon's office, but it's basically just a big transfer of wealth from the rich to the politicians, and one thing I still do share with the Libertarians is a distrust of our lords and masters. Still better than nothing, but not a complete solution, especially given big money's stranglehold on government these days.

The goal is to reduce income inequality, not income.

Flat salary caps are a little too simplistic for my taste, and politically DOA -- almost no Americans would support a plan that limited the money one could earn.

But what does seem more interesting is a sort of hybrid of that idea. I've been tossing it around in my mind for a while. What about a firm-by-firm cap in which each individual company could only give an executive total compensation equal to some set multiplier times its [median/lowest] compensation? This sets no hard limits and allows individual megacorps to outbid each other for highest top salary -- but only if they lifted all of their workers up at the same time.

Brief illustration: Badcorp employs some janitors to clean its offices -- near minimum wage with no health insurance at $16K/year. Their top compensation package could be capped at (60*16000) ~= $1 million/year. Meanwhile, Niftycorp pays its lowest-paid janitors basic union wages with good benefits - $50K/year (factoring in the value of health insurance, etc). Niftycorp's CEO could get (60*50000) ~= $3 million/year. To sweeten the pot, perhaps the multiplier could even go up relative to how well the employees do versus the national average -- so Niftycorp's CEO might get (100*50000) ~= $5 million/year.

If these salaries seem low, just remember the figures from the article -- one of 1983's top executive salaries was $1.2 million. Adjusted for inflation, the Niftycorp CEO even at 60X would take him down a peg.

Remember, too, that 1983 was within my lifetime. When I was growing up, my parents sent me to a private school near the Bay Area's exclusive Blackhawk community. (I was one of the po' middle class folk.) And even then, in the late 1980s, when Blackhawk was a gated community for rich snobs, a million-dollar income meant something. The homes there sold for seven digits and normal folks' eyes bugged out at this incredible extravagance.

Ahem. Anyway. Obviously, some concerns would have to be addressed (how do outsourced jobs figure in? Contractors? How would this affect, say, service-industry corporations, whose employees are guaranteed to earn less than white-collar corps?), but the basic idea at least appeals to my inner radical.




* Because power corrupts, dumbass, and the concentration of power further corrupts. Think for a second about the entire POINT of a limited-government stance. I'll give you a hint: You ... want ... to ... prevent ... the ... accumulation ... of ... power. Classical liberalism is a very populist philosophy.
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