Results for “corporate tax” 261 found
Investing in the Poor
The Unincorporated Man is a science fiction novel in which shares of each person's income stream can be bought and sold. (Initial ownership rights are person 75%, parents 20%, government 5%–there are
no other taxes–and people typically sell shares to finance education and other training.)
The hero, Justin Cord a recently unfrozen business person from our time, opposes incorporation but has no good arguments against the system; instead he rants on about "liberty" and how bad the idea of owning and being owned makes him feel. The villain, in contrast, offers reasoned arguments in favor of the system. In this scene he asks Cord to remember the starving poor of Cord's time and how incorporation would have been a vast improvement:
"What if," answered Hektor, without missing a beat, "instead of giving two, three, four dollars a month for a charity's sake, you gave ten dollars a month for a 5 percent share of that kid's future earnings? And you, of course, get nothing if the kid dies. Now you have a real interest in making sure that kid got that pair of shoes you sent. Now it's in your interest to find out if he's going to school and learning to read and write. Now maybe you'll send him that box of old clothes you were thinking of throwing away. Under your system you write a check and forget about the kid, who'll probably starve anyway. Under our system, you're locked into him.
…the real benefit comes about when those 'evil, selfish, horrible corporations' get involved. How long will it take for a business to realize that there's a huge profit to be made in those hundreds of millions of starving children?…Imagine a world where a bank gives a loan to a corporation to build a school, hospital or dormitory. Not because its the right thing to do; who cares! They'd do it because it's the profitable thing to do. And because of that, my system, not in spite of greed and corruption and incorporation, but because of it, will work better than yours in any time period with any technology you choose."
So who do you stand with, JC or Hektor?
Hat tip to Robin Hanson for lending me the book and from whom I cribbed the description of ownership rights. Hanson offers other thoughts on the novel. And here are earlier comments from Reihan Salam.
Does Uruguay have multiple currencies? — hail Heinrich Rittershausen!
I'm holding back my post on mandates and penalties until comments are back up again. In the meantime, I have read the following:
Back in June of 2009, Uruguay embarked on a nationwide experiment with complementary currencies – a plan that evolved from a number of local trials of the alternative currency system in that country. The name of the currency is officially the ‘liquidity network”, but is known locally as the “charrua“.
Does that not sound like something out of a Borges story? The summary is this:
The system allows small- and mid-sized businesses to lend to each other, with debts being backed by the production value and assets of the lender.
The important fact is this:
…the charrua will be accepted for all debts, public and private. This means that taxes will be payable in both pesos and charrua (and I believe in US dollars, as well).
You'll find another description here. As I understand it, the system treats some corporate debt assets as money-like in a number of relevant ways, possibly to stimulate aggregate demand. Can it be that Uruguay has a version of Hayek's competitive currencies proposal, albeit without complete free entry? If you know more about this, do please email me. Googling "uruguay charrua moneda" doesn't yield much.
Here is a short article on Heinrich von Rittershausen.
For the hat tip I thank CheapSeatsEcon. Here is their graphic art for MR.
Addendum: Eapen Thampy sends me more.
Is there a case for a VAT?
I outlined it yesterday, to a small group at GMU. My tale went as follows:
1. The United States is on an unsustainable fiscal path.
2. For whatever reason, long-term interest rates don't reflect this problem. There will either be a sudden collapse of demand for government securities, or the current market already is figuring we will get a VAT. Either way it is more revenue for the government or a Greece-like scenario writ large.
3. I would prefer spending cuts, but voters seem too irrational to be willing to cut spending; here the libertarian argument comes back to bite us on the bum. They might be willing to cut spending once a financial crisis arrives (though maybe not), but then there will be days or only hours for decisive action.
4. We could, for now, wait and postpone fiscal reform. That means encountering a sudden collapse some number of years from now. We will then clean up the budget in some way, but under a TARP sort of mood rather than what we might do today.
5. We'll get a better deal, and make wiser decisions, if we do it today rather than in a panic. Plus another financial crisis would prove deadly to both the budget and to the quality of economic thinking.
6. There exists a credible bipartisan deal which involves at least half the VAT revenue for deficit reduction, combined with cuts, or slower increases, in marginal tax rates on income and perhaps an elimination of the corporate income tax. Spend some of the rest on health care for the poor, if that is the deal on the Democratic side.
I am by no means convinced this argument is correct but I would like to hear the strongest arguments against it. No one I talked to succeeded in defeating it, other than mentioning they don't like the idea of more revenue for the government. You will notice I structured the argument to be as neutral on the "left vs. right" question as possible.
You'll notice the use of a pivot here: the common "right-wing" views that a fiscal crisis would be awful, voters are irrational, and governments make bad decisions in panic times, are used to favor a VAT.
I wonder: how many people agree with this argument, but they are unwilling to say so because they don't want to weaken their bargaining position if and when a "deal" is put on the table.
Addendum: You'll notice that on Sunday Greg Mankiw mentioned that a VAT might be the best of available alternatives.
Health insurance and mortality follow-up
On health insurance and mortality, you'll find Megan's further thoughts (which I agree with) here (and now here). Neither of us is saying the real net effect is zero. Also check out Matt, Ezra, Austin Frakt, all of whom make good points.
Overall I'd like to see more numbers in the health care debate. If the Obama plan spends $90 billion extra a year on coverage and saves/extends 10,000 lives a year (a plausible estimate, in my view), that is $9 million a life, a rather underwhelming rate of return. That's a very gross comparison because life extension is not the only benefit and the $90 billion is not the only cost. Still, as a starting point for analysis I don't think it makes the plan look better. Keep also in mind that many of the newly covered people are bumping others back into the queue, since the overall supply of medical care isn't going up and may even be declining.
If you did a simple cost-benefit comparison, the Obama plan vs. a simple extension of Medicaid, more R&D through the NIH, and some targeted public health expenditures, I believe the latter would win hands down. And the latter seems more politically feasible too. It avoids the mandate, the unworkable and ridiculously low penalties for those who don't sign up for insurance, and the awkwardly high implicit marginal tax rates imposed by the subsidy scheme. It probably involves fewer corporate and "back room" deals.
In its favor, the Obama plan makes it easier to become an entrepreneur without losing health insurance coverage. I doubt if that's enough to swing the balance, but in any case it's worth thinking about.
Please don't argue that the Obama plan saves money. Even if you believe that (I don't), here we are talking about the marginal impact of one subcomponent of the overall plan. That subcomponent does cost money.
When it comes to the Obama plan, the easy targets are stupid or hypocritical Republicans. The hard target is why the plan should beat the alternative reforms I've outlined above or perhaps other ways of spending the money. I'd like to see more people take on the hard target rather than the easy.
The Politics of Cap and Trade
Good overview in the NYTimes on the politics of cap and trade. The bottom line:
How did cap and trade, hatched as an academic theory in obscure
economic journals half a century ago, become the policy of choice in
the debate over how to slow the heating of the planet? And how did it
come to eclipse the idea of simply slapping a tax on energy consumption…
The answer is not to be found in the study of
economics or environmental science, but in the realm where most policy
debates are ultimately settled: politics…Cap and trade…is almost perfectly designed for the buying
and selling of political support through the granting of valuable
emissions permits to favor specific industries and even specific
Congressional districts.That is precisely what is taking place now in the House Energy and Commerce Committee…
Here is how Tyler and I put it in Modern Principles: Microeconomics
With a tax, firms
must pay the government for each ton
of pollutant that they emit. With pollution
allowances, firms must either use
the pollution allowances that they are
given or if they want to emit more they
must buy allowances from other firms.
Either way, firms that are given allowances
in the initial allocation get a
big benefit compared to having to pay
taxes. Thus, some people say that pollution
allowances equal corrective taxes
plus corporate welfare.
That’s not necessarily the best way of
looking at the issue…
…To make progress against global warming, may require building
a political coalition. A carbon tax pushes one very powerful and interested
group, the large energy firms, into the opposition. If tradable allowances are
instead given to firms initially, there is a better chance of bringing the large energy
firms into the coalition. Perhaps it’s not fair that politically powerful
groups must be bought off but as Otto von Bismarck, Germany’s first chancellor,
once said,”Laws are like sausages, it is better not to see them being made.”
We can only add that producing both laws and sausages requires some pork.
Careful readers may recognize a friendly jab at a competitor.
Why the banking sector is hard to fix
Here is my latest column, excerpt:
The second set of solutions involves taking control of insolvent banks, either by nationalizing them or declaring them bankrupt. In the past, the Federal Deposit Insurance Corporation has used the model of rapidly shuttering failed banks, and it has usually worked.
Many
analysts cite Swedish bank nationalization, from the early 1990s, as a
model, because the Swedes later reprivatized these banks and resumed
economic growth.
But Sweden nationalized only two banks. And the
Swedish banks were much smaller and easier to run than the largest
United States bank holding companies, which combine a wide range of
complex international businesses, commercial paper operations, derivatives trading and counterparty commitments.
It
is quite possible that the reputation of a nationalized bank would be
so impaired that it would incur even greater losses as its web of
commercial dealings collapsed. These far-reaching commitments are a
reason that the F.D.I.C. model of rapid shutdowns cannot be applied so
easily here.
The most obvious problem with nationalization is the
risk of contagion. If the government wipes out equity holders at some
banks, why would investors want to put money into healthier but still
marginal institutions? A small number of planned nationalizations could
thus lead to a much larger number of undesired nationalizations.
On top of that, the government doesn’t have the expertise to run large bank holding companies like Citigroup.
There is the danger that caretaker managers, with bureaucratic
incentives, will never return the banks to profitability. And
restrictions on executive pay, already enacted into law, will make it hard to hire the necessary talent.
In
the meantime, there would be increasing pressure to politicize lending
decisions – for instance, by requiring loans to the ailing automobile
industry. Talk of taxpayers capturing an “upside” is probably
unrealistic.
The plight of the American International Group,
the giant insurer, provides a cautionary tale. The government has
already effectively nationalized A.I.G., but after a government
commitment of $150 billion, the company’s losses continue to mount, and
there is no simple way to either manage it or split it up. If the
government cannot run that bailout very well, how can it run major
banks and nurse them back to profitability?
Nationalization
also puts bank debts on the balance sheet of the government without
restoring bank solvency. Once the government takes over, it is hard to
reorganize the debts of these companies without damaging the
government’s own creditworthiness and spreading the insolvency to bank
creditors. Yet if the banks are insolvent, paying off the creditors may
cost trillions.
It is becoming increasingly clear that the question is not whether to nationalize but rather whether we can afford to make whole long-term bank creditors. Megan McArdle has some thoughts. How much do we gain by transferring the losses away from banks and toward Europeans, insurance companies, and pension funds? If the worst-case scenarios really are true — and they may be — that is the next question on tap. It is of course a very ugly question.
Understanding Fiscal Policy During the Great Depression
My little spat with with Rauchway regarding unemployment during the Great Depression draws in Paul Krugman. Krugman doesn’t respond to any of my arguments but he does give us the old line that fiscal policy didn’t fail during the Great Depression it wasn’t tried.
Now, you might say that the incomplete recovery shows that “pump-priming”, Keynesian fiscal policy doesn’t work. Except that the New Deal didn’t pursue Keynesian policies. Properly measured, that is, by using the cyclically adjusted deficit, fiscal policy was only modestly expansionary, at least compared with the depth of the slump. Here’s the Cary Brown estimates, from Brad DeLong…Net stimulus of around 3 percent of GDP – not much, when you’ve got a 42 percent output gap.
Now there is actually a lot of truth to this but the way in which Krugman, Rauchway, DeLong and others present this point is esoteric and likely to mislead even many economists. What Krugman seems to be saying is that the government didn’t spend enough during the thirties (Rauchway, who also cites Cary Brown, says directly "there was never enough spending to achieve the desired effect.") Yet federal spending during this time increased tremendously. So what is really going on? The answer is actually quite simple.
During the Great Depression federal expenditures increased tremendously but so did taxes. Thus, the reason spending was not stimulative was not that spending wasn’t tried it’s that taxes were also raised to prohibitive levels. But don’t take my word for it. Read Cary Brown (JSTOR) whom Krugman, Rauchway, DeLong all cite but none of whom quote at length. Here is Brown:
The primary failure of fiscal policy to be expansive in this period is attributable to the sharp increases in tax structures enacted at all levels of government. Total government purchases of goods and services expanded virtually every year, with federal expansion especially marked in 1933 and 1934. [But] the federal Revenue Act of 1932 virtually doubled full employment tax yields…
…the highly deflationary impact of this tax law has not been fully appreciated…The Revenue Act of 1932 pushed up rates virtually across the board, but notably on the lower and middle income groups….Personal income tax exemptions were slashed, the normal-tax as well as surtax rates were sharply raised, and the earned-income credit equal to 25 percent of taxes on low income was repealed. Less drastic changes were made in the corporate income tax, but its rate was raised slightly and a $3000 exemption eliminated. Estates tax rates were pushed up, exemptions sharply reduced, and a gift tax was provided. Congress toyed with a manufacturers’ sales tax, but finally rejected it in favor of a broad new list of excise taxes and substantially higher rates for old ones….
The Revenue Act of 1932 was followed by many further tax increases (e.g. Brown notes "…social security taxes began in 1937 to exert a pronounced effect…") many of them, under pressure from the Huey Long wing, designed to "Share our Wealth." Here is a graph of the highest marginal income tax rate which went from 25% to 79% between 1929 and 1940 and here is a graph of the lowest marginal income tax rate which (from a low base) increased by a factor of 10. (Hat tip to Carpe Diem).
Thus, an accurate portrayal of fiscal policy during the Great Depression – entirely consistent with Krugman – is that we had much greater spending, much greater taxes and not much economic stimulus. And if supporters of the New Deal argue that fiscal policy was only "modestly expansionary" then it’s quite reasonable to think that once we take into account the supply side effect of taxes and the increase in regime uncertainty then the net effect might even have been contractionary.
Paulson plan vs. Dodd plan: my email to Eric Posner
I thought the original Paulson plan was terrible with regard to rule of law, and in that sense I thought the equity stake idea of Dodd was better. A modified Paulson plan might be as good, it is hard to say.
[Eric now blogs that the Dodd plan gives the Treasury more power than current versions of the Paulson plan. His post is very important.]
In reality I expect that either the Paulson or the Dodd plan would have to move quickly to incorporate some aspects of the other. We’ll likely get some version of both loan-buying and equity shares, in any case.
The key factor is what kind of institutions are set up for making the next round of decisions. That’s not getting much attention but of course there is no reason to think this is the final step or the final change in conditions.
Think of a barrel of apples, some good, some less good. To oversimplify, the Paulson plan has the government buy some of the bad apples. The Dodd plan has the government buy a 20 percent share in the barrel. In both cases government buys something.
My intuitive rule of thumb is to want the government to be doing its buying in the better organized, more liquid market. They are less likely to screw that up. That tends to favor the Dodd plan in my view.
I like one other feature of the Dodd plan. Our government loves cash revenue. Furthermore the U.S. economy is set up so the "public choice" advantage of the government owning banks for the long haul is not so obvious. We don’t have "insider-based" capital markets, for instance, so owning a bank wouldn’t give a politician so much chance to dole out loan favors. I believe our government would be in a hurry to reprivatize those banks in return for the cash. The Paulson plan, as I understand it, does not have an equally clear end game.
I may put this email of mine, or an edited version of it, on MR, check there for reader comments…
Tyler
Night thoughts: How or whether do equity holdings give the government "upside" in eventual bank recovery? Holding equity yields nothing if the banks never recover. If the banks will recover, you would think a loan from the Fed would suffice. But we’ve already tried that. So what exactly are the assumptions here? Somehow it is the Fed/Treasury actions which *cause* the banks to recover. How does that happen? They overpay for the loans at mysterious prices? That just puts the Dodd plan back into all the problems of the Paulson plan. If the government ends up overpaying for loans in the Dodd plan, and then someday gets 20 percent of that overpayment back through its equity share, is not a huge positive advertisement. (Isn’t simply "knowing when to stop the subsidies" the best way to protect the taxpayers?) And in the meantime, what kind of credit guarantees is the government offering these banks and their creditors?
Don’t forget Mark Thoma’s good analysis: "So, by having the government take a share of any upside, the result may
be less willingness of the private sector to participate in
recapitalization."
It is easy to say that the Paulson plan is worse. (Oddly I think the Paulson plan makes most sense in Paul Krugman’s multiple equilibria model for asset values.) But you shouldn’t think that the Dodd plan is very good. Most of the Dodd plan boosterism I’ve seen doesn’t look very closely at how it actually going to work. There’s lots of talk about justice and the taxpayers getting upside and then a reference to the RFC from the New Deal.
Finally, in my view the Paulson plan makes (partial) sense if a) the major banks are in much worse shape than anyone is letting on, and b) you believe in multiple equilibria confidence models for these underlying asset markets. I’m not saying those assumptions are true, but it would be nice to start by confronting the exact assumptions under which each plan might prove better than the other.
Fannie Mae, Freddie Mac and the Peso Problem
A government bailout of the GSEs should not be a surprise. After all, for a long time the markets have been predicting that sooner or later there will be a very expensive bailout. What do I mean? According to Freddie Mac (quoting the OMB) "mortgage rates are 25 – 50 basis points lower because Fannie Mae and Freddie Mac exist in the form and size they do." Now, that is almost certainly an exaggeration but to the extent that interest rates are lower due to the GSEs some significant part of that is due to the market valuing the government’s implicit guarantee. In other words, interest rates are lower because the market is valuing the implied insurance. Now, the whole point of insurance is that sometimes the insurer must pay. Thus the market has been telling us all along that sooner or later the taxpayer was going to pay.
Maybe the taxpayers will have to pay today or maybe in some future tomorrow but the benefits of the GSEs are intimately tied to the costs – there is no such thing as a free lunch. The lunch may look free for a long time – as in the classic peso problem – but what that means is that when the bill comes due it will be big.
Grand New Party
The authors, Ross Douthat and Reihan Salam, invited me to their book party at Borders — and I wanted to meet them — but no I must stay home and read and blog their book! (I wrote this post last night.) If there was rush hour road pricing, as indeed they propose, I would have been there in a flash but no I am munching on cherries on my sofa.
The subtitle is "How Republicans Can Win the Working Class and Save the American Dream" and the Amazon link is here. Their favored policies include the following (with varying degrees of enthusiasm/utopianism on their part):
1. Family-friendly tax reform.
2. Sprawl is OK or at least it could be with rational traffic management policies.
3. Government reinsurance for catastrophic health care expenses, plus they consider the Brad DeLong health care plan.
4. Abolition of the payroll tax for many lower-income earners.
5. Allocate money to public schools on a student-weighted basis, as is done in San Francisco.
6. Reallocate funding toward lower-tier state universities and away from flagship schools.
7. Don’t expect old-style unions to come back.
That is only a sampling. The broader vision is that the Republicans can and must find a way to be more friendly to the non-rich. Personally I don’t see any reason to tie all of this to the Republican Party but I agree with most of their proposals. There’s a great deal of common sense here and it stands as one best general policy books in a long time.
The deep question is why something like this hasn’t already happened. You’ll find the superficial "Republicans are just pro-corporate crooks" answer from bloggers like Kathy G. Another possibility is that Republicans don’t get much electoral credit for pro-poor initiatives (just as many voters simply won’t believe that "Democrats can be tough"). The more competitive political messaging becomes, the more this constraint binds and so the policies of upward redistribution are more likely to be enacted by Republicans in the resulting political equilibrium. If the authors are to get their way somehow this dynamic must be reversed.
Addendum: I’ve met Reihan only in passing and I have not had substantive correspondence with either of the authors. Nonetheless the authors thank me in the conclusion for having saved them from "all manner of errors"; maybe this is another instance of the influence of blogs.
Second Addendum: You’ll find links to video and audio on the book at Ross’s blog.
Climate solutions and carbon dividends
Peter Barnes, Climate Solutions: A Citizen’s Guide is the full title. This simple book is written in the form of punchlines and cartoons but it’s still one of the more insightful treatments of the topic. He is skeptical of a carbon tax:
A carbon tax will never be high enough to do the job.
A low carbon tax would create the illusion of action without changing business as usual.
His alternative proposal has four steps:
1. Carbon cap is gradually lowered 80% by 2050.
2. Carbon permits are auctioned.
3. Clean energy becomes competitive.
4. You get an equal share in the form of permit income.
The "carbon dividends" of course are intended to make the tax politically palatable. Naturally I am worried by the idea of revenue addiction, not to mention the general practice of redistributing income from business to citizens simply because it is popular to do so. It might feel pretty good at first but we don’t want to encourage Chavez-like behavior on the part of our government.
A broader question is whether the carbon dividends in fact make the citizenry better off. First there is the question of the incidence of the initial carbon tax, which of course falls on individuals one way or another. Second, does just sending people money, collectively, make the populace better off? Aggregate demand effects aside, will the fiscal stimulus make the citizenry as a whole better off? No. Will printing up more money and sending it to everyone, even if that is popular, make people better off? No.
(As an aside, does the Humean quantity theory experiment redistribute wealth from corporations — which don’t sleep on pillows and thus cannot wake up in the morning to "more money" — to individuals, who do sleep on pillows? Or is the corporate veil fully pierced? Just wondering…)
I fear versions of this idea whose (possible) popularity rests on tricking voters. Being pro-science also means being pro-economic science.
The general point remains that most discussions of global warming focus on prices and technologies alone, without incorporating realistic models of politics. By the way, if you think John McCain is a straight talker, try this for yikes.
What if Paul Krugman were right about trade and wages?
For the sake of the world as a whole, I hope that we respond to the trouble with trade not by shutting trade down, but by doing things like strengthening the social safety net.
That is Paul Krugman, here is more. I have yet to see the evidence that trade has a significant negative impact on middle class wages, but for sake of argument assume it is true. However benevolent it may sound, strengthening the social safety net would not be my policy recommendation number one. After all, if Samuelson-Stolper factor price equalization is the main mechanism at work, wages would have a long way to fall downwards and if anyone in the middle class is to keep working, the safety net must eventually be cut, not increased. You might think we can fund all these trade-losers by taxing capital but of course the incidence of taxes on capital sometimes falls on labor, not to mention that at some point the Laffer Curve kicks in.
Is not the appropriate policy recommendation to create a budget surplus, create a U.S.A. Sovereign Wealth Fund, and invest the resulting capital in the corporate winners from this entire process? In other words, we would be giving the trade-losers a more direct share in capital. Since output is rising and wages are falling, the return to capital must be rising; let’s make money off of that.
You might not trust the government with such investments but it is awkward for Krugman to push that argument too hard. Alternatively, you might think that share prices already have capitalized these gains, but that is hard to square with the view that Krugman is reporting a new result about trade. Share prices are driven by liquidity to some extent, and if you know something about the returns to labor and capital that the rest of the world does not, there ought to be a way to make money. Why spend more on consumption (a stronger safety net today) if the rate of return on investment is rising so high and we are going to need even more of a safety net in the future?
Supercapitalism, by Robert Reich
Finally, I will come to some conclusions you may find surprising — among them, why the move toward improved corporate governance makes companies less likely to be socially responsible. Why the promise of corporate democracy is illusory. Why the corporate income tax should be abolished. Why companies should not be held criminally liable. And why shareholders should be protected from having their money used by corporations for political purposes without their consent.
That’s from Robert Reich’s Supercapitalism. I’m coming late to this party, but mostly I liked the book. It’s full of fresh thinking and most of all it is excellent on just how much invisible hand mechanisms shape an economy. It has the best explanation (and partial defense) of high CEO pay I’ve seen, namely supply and demand. If you think it is exploitation of shareholders, take a look at how much private equity pays its CEOs. And as the above quotation indicates, Reich is willing to rethink just about all the old left-wing shibboleths (what a biased word) about corporations. He separates the analysis from the moral narrative, so when you disagree with him, that point is an isolated one and it does not infect everything he says.
Reich recommends that we strengthen atrophied democratic constraints on capitalist outcomes; in his view special interest politics are just another form of capitalism and special interests are crushing voter influence. "Bryan Caplan, telephone!"
By the way, make sure you read this piece on the futility of campaign finance reform, which counts as one of the most overrated ideas.
Here is Greg Mankiw on the book. Here is another take on the book.
I’ve been waiting for a paper like this
Steve Kaplan and Joshua Rauh write:
We consider how much of the top end of the income distribution can be
attributed to four sectors — top executives of non-financial firms
(Main Street); financial service sector employees from investment
banks, hedge funds, private equity funds, and mutual funds (Wall
Street); corporate lawyers; and professional athletes and celebrities.
Non-financial public company CEOs and top executives do not represent
more than 6.5% of any of the top AGI brackets (the top 0.1%, 0.01%,
0.001%, and 0.0001%). Individuals in the Wall Street category comprise
at least as high a percentage of the top AGI brackets as non-financial
executives of public companies. While the representation of top
executives in the top AGI brackets has increased from 1994 to 2004, the
representation of Wall Street has likely increased even more. While the
groups we study represent a substantial portion of the top income
groups, they miss a large number of high-earning individuals. We
conclude by considering how our results inform different explanations
for the increased skewness at the top end of the distribution. We argue
the evidence is most consistent with theories of superstars, skill
biased technological change, greater scale and their interaction.
Here is the link, here is the non-gated version. How about this bit from the text?:
…the top 25 hedge fund managers combined appear to have earned more than all 500 S&P 500 CEOs combined (both realized and estimated).
This is important too:
…we do not find that the top brackets are dominated by CEOs and top executives who arguably have the greatest influence over their own pay. In fact, on an ex ante basis, we find that the representation of CEOs and top executives in the top brackets has remained constant since 1994. Our evidence, therefore, suggests that poor corporate governance or managerial power over shareholders cannot be more than a small part of the picture of increasing income inequality, even at the very upper end of the distribution. We also discuss the claim that CEOs and top executives are not paid for performance relative to other groups. Contrary to this claim, we find that realized CEO pay is highly related to firm industry-adjusted stock performance. Our evidence also is hard to reconcile with the arguments in Piketty and Saez (2006a) and Levy and Temin (2007) that the increase in pay at the top is driven by the recent removal of social norms regarding pay inequality. Levy and Temin (2007) emphasize the importance of Federal government policies towards unions, income taxation and the minimum wage. While top executive pay has increased, so has the pay of other groups, particularly Wall Street groups, who are and have been less subject to disclosure and social norms over a long period of time. In addition, the compensation arrangements at hedge funds, VC funds, and PE funds have not changed much, if at all, in the last twenty-five or thirty years (see Sahlman (1990) and Metrick and Yasuda (2007)). Furthermore, it is not clear how greater unionization would have suppressed the pay of those on Wall Street. In other words, there is no evidence of a change in social norms on Wall Street. What has changed is the amount of money managed and the concomitant amount of pay.
There is a great deal of analysis and information (though to me, not many surprises) in this important paper. The authors also find no link between higher pay and the relation of a sector to international trade.
Two steps backward
Remember the health care debates of the 1990s? Defenders of the status quo, or more market-oriented versions thereof, placed their hopes in HMOs and managed care. Managed care did show promise in lowering costs, but few people liked the idea that mainstream institutions would simply say "no" to patients.
Democrats pushed a plan for national health insurance, based on a Hillary-led modification of the German health care system. Health insurance would be detached from specific jobs, reorganized into regional cooperatives, and new taxes would finance universal or near-universal coverage. For all its flaws and complications (and no, I do not support the idea), this idea still makes more sense for the American context than do the single-payer plans. They put all those smart Democrats in a room way back when, and there is a reason why they came up with this. It not only had some chance of passing, but compared to the single payer model it was more consistent with America’s decentralized, federalistic, corporate interest-heavy ways of running government.
Sadly, current debates on health care have yet to reattain their status in the 1990s. I know full well why both ideas failed and lost popularity. But still, if we wish to debate health care today, we probably should be taking two steps backward.