Friday, November 18, 2011

Who Are The Members Of the Top 0.1%?

This article by Bill Clinton's top economic advisor does a good job of describing the sources of growing income inequality. Stock ownership in the US is concentrated in the top 0.1% and capital gains from the sale of stock is the biggest contributor to income inequality. Tax policy has become less progressive as well. The tax on capital gains from stock has been reduced to its lowest level in recent history. Changes in the way corporate executives are compensated and weak corporate governance have caused the executive class to move into an income area that was once reserved for founders of businesses.

The debate on growing income inequality usually turns into a debate about market forces versus policy decisions as sources of income inequality. Conservatives like to argue that rare skills have become more important as corporations have become larger and more complex and those skills are worth the premium that the market is paying for executive skills. Therefore, its simply a matter of supply and demand. That argument is hard to sustain. Are executive skills many times more valuable than they were in the recent past? Are American executives an order of magnitude more valuable than executives elsewhere in the world? This list could go on and on. Its much easier to connect growth in executive compensation to changes in the compensation system and to weak corporate governance.

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