Income Inequality

Arthur C. Brooks (past President of the American Enterprise Institute) has frequently spoken on topics relating to America’s economy.  He feels that the issue of income inequality is often used as a political distraction.  The real problem he said is the increasingly diminished opportunity for upward mobility for those in the lower 20% of the economic strata.   Without opportunity, comes income stagnation.

Social programs have gradually replaced upward mobility opportunities.  This creates a culture of dependence on social programs rather than incentive for individual initiative.  And effort.  The culture of dependency seems to encompass more and more people.    

When Bill Gates first came on the scene as one of the world’s most successful and richest men, a survey was conducted about how people felt about him.   Americans typically thought “my son or daughter can be the next Bill Gates.”  The French, however, incline toward burning his house down and taking his stuff.  The subtle shift in American attitudes in the direction of this European ethos has spawned a political environment of class warfare — the heroic and virtuous 99% versus the evil 1% (which is evolving into the heroic and virtuous 44% of Americans who pay no income taxes against those who do). 

The United States is already heavily-taxed and heavily-regulated.  To hear the recent debates – it may become more so.   But the proposed policies on dealing with income inequality (“free everything“) do not address the underlying problem.   We should want people to succeed.  Want people to learn.  Want people to achieve.  Want people to become entrepreneurs.  Want people to take initiative.  Want people to try.  Incentive and opportunity are liberating concepts.  These precepts can’t be replaced by stifling regulation, suffocating taxes and unrestrained governmental handouts with no expectation of responsibility . . . .     

 

Income Inequality

I just read where Seattle Mariner second baseman Robinson Cano signed a $240 million 10 year deal.  This amounts to $24 million a year or $461,000 a week.  LeBron James makes nearly three times that — $59 million a year (with endorsements) and Kobe Bryant makes  $61 million a year (with endorsements).  The highest paid athletes are Tiger Woods $78 million a year and Roger Federer – $71 million a year.  Not bad gigs for shooting hoops, playing basketball or tennis or – still my beating heart – playing golf.  One difference among members of this group is that LeBron, Kobe and Robinson get paid their salaries regardless of their performance.  Robinson may bat .125 and drop every ball that comes to him.  And he’ll get paid.  Tiger and Roger?  They don’t get paid for tour events unless they win.          

When the CEO of a Fortune 500 company earns a few million dollars a year, many squeal that such compensation is unfair.  Yet what about the aforementioned athletes?  Or heaven knows the actors/actresses who bank tens of millions of dollars.  On one film.  We rarely hear complaints about earnings of those in the NFL, NBA or MLB or the Screen Actors Guild. 

If a CEO is performing – providing jobs for tens of thousands of workers and returning good profits for shareholders – is there a metric that suggests his/her contribution is worth more to America (to wit – the economy) than a second baseman who earns 10 times as much?   Most CEO’s – and managers – receive bonuses based on productivity — and success.  Just like in golf or tennis.  Some salaries and compensation arrangements are wayyyyy beyond reason.  But it seems to me that productivity and success are justifiable components for compensation for those at the upper levels.  Does a basketball player merit a million plus dollars a week?  And what do we do (if anything) with – or for – those at the other end of the comp spectrum?    One of the answers is providing, enhancing and streamlining job and educational opportunities.  Another is to consider measures set forth in my post of May 11, 2012.  What are other answers?   One is that I should have gone to Q School.  Heck.  Maybe I still can. . . .       

Income Inequality

CNBC recently had Arthur C. Brooks (President of the American Enterprise Institute) as a guest host on “Squawk Box.”  Mr. Brooks spoke on topics relating to America’s economy.  He feels the claims that income inequality cause our economic problems is a political distraction.  The real problem he said is the increasingly diminished opportunity for upward mobility of those in the lower 20% of the economic strata.   Without opportunity, comes stagnation.

What we have done is to gradually substitute social programs for upward mobility opportunities.  We are thus creating a culture of dependency on social programs rather than inspiring individual initiative.  And that culture of dependency is spreading to more and more people.  We are being told it is all the fault of the evil 1%.  And it’s just not true.     

When Bill Gates first came on the scene as one of the world’s most successful and richest men, a survey was conducted about how people felt about him.   Americans typically thought “my son or daughter can be the next Bill Gates.”  The French on the other hand were highly jealous and felt they should burn his house down “and take his stuff.”  It is the subtle and barely noticeable shift in the direction of the European ethos that has spawned a political environment of class warfare — the heroic and virtuous 99% versus the evil 1% (which is evolving into the heroic and virtuous 50% who pay no taxes against everyone else). 

The United States is the most heavily-taxed and heavily-regulated country in the world.  Our policies on dealing with the 20% are missing the point.   We should want people to succeed.  Want people to learn.  Want people to become entrepreneurs.   Want people to achieve.  Incentive and opportunity are truly liberating concepts and not a substitute for social programs.     

To see Mr. Brooks’ interesting comments, check out http://www.aei.org/media/economics/arthur-brooks-guest-hosts-cnbcs-squawk-box-the-road-to-freedom