A Brief History Of The Top .01%, Asset Prices And Tax Policy

This article contains two graphs that explain the relationship between asset prices, political policy, and income inequality.  The incomes of the top .01% are highly correlated with stock prices. The exception was during a period when government policies were less favorable to the top .01%.  Although many American's have small stakes in the stock market, the top .01% own the lion's share of corporate stocks (and other assets).  Wealth is even more unequally held than income.

Two policies have also had a major contribution to income inequality.  The compensation of corporate executives is primarily in the form of stock options.  They benefit from the rise in stock prices.  Stock prices, in turn are affected by the performance of their firm, and by the general performance of the stock market.  They get rewarded for firm performance, and for the general increase in the value of stocks.  Tax policy followed the shift in corporate compensation policies.  Capital gains on stocks were formerly taxed at the higher rates in which  ordinary income is taxed.  Today they are taxed at a much lower rate than ordinary income.  Politicians have been eager to reward our "job creators".  They are no better at creating profits and jobs than those who preceded them in running our major corporations.  The major difference is that they are compensated at a much higher level than their historical peers.  Their compensation is more like that of  the entrepreneurs who bore the risk of creating new ventures.  Their jobs have not changed much in relation to that of executives in the past.  They are still managers, and many of them benefit from the market dominance created by the manager's who helped to build their firms, but who did not have the opportunity to become multimillionaires or even billionaires.

Culture is also a factor in the rise of income inequality.  The general public tends to view business executives as celebrities.  Some have achieved the status of rock stars.  Many of the top executives employ public relation managers who promote their celebrity.  Corporate cultures have also changed.  Executives expect exorbitant rewards when they reach the top, and they tend to more inclined towards managing the financial metrics on which their compensation is based.  Many are also more comfortable dealing with Wall Street than they are with nature of the businesses that they manage.  Much of the decline in the US automobile industry may be explained by the rise of financial managers at the expense of those who really loved automobiles.