Special report: Greed became good! PART 2—IS THERE ANYTHING WRONG WITH IT (permalink): By now, it’s a fairly well-known fact. Over the past forty years, inequality of income has soared in the United States. On the front page of Sunday’s Washington Post, Peter Whoriskey examined various aspects of this dramatic societal change. At one point, he offered a rather striking fact:

WHORISKEY (6/19/11): Whatever people think of it, the gap between the very highest earners and everyone else has been widening significantly.

Income inequality has been on the rise for decades in several nations, including Britain, China and India, but it has been most pronounced in the United States, economists say.

In 1975, for example, the top 0.1 percent of earners garnered about 2.5 percent of the nation's income, including capital gains, according to data collected by University of California economist Emmanuel Saez. By 2008, that share had quadrupled and stood at 10.4 percent.

The phenomenon is even more pronounced at even higher levels of income. The share of the income commanded by the top 0.01 percent rose from 0.85 percent to 5.03 percent over that period. For the 15,000 families in that group, average income now stands at $27 million.

In world rankings of income inequality, the United States now falls among some of the world's less-developed economies.

According to the CIA's World Factbook, which uses the so-called "Gini coefficient," a common economic indicator of inequality, the United States ranks as far more unequal than the European Union and Britain. The United States is in the company of developing countries—just behind Cameroon and Ivory Coast and just ahead of Uganda and Jamaica.

Not that there’s anything wrong with it! According to that so-called Gini coefficient, the U.S. now ranks behind Cameroon and the Ivory Coast! And no, we aren’t talking World Cup soccer!

From 1975 to 2008, the top 0.1 percent of American earners quadrupled their share of the nation’s income. In his detailed, instructive piece, Whoriskey examines the possible reasons for that change in our national culture. According to Whoriskey, research has established that the bulk of folk in that top one-tenth of one percent are corporate executives or financial managers. In the case of those corporate execs, their compensation has massively risen even as compensation for their companies’ workers has stagnated or even slipped.

What explains this change in our national culture? At one point, Whoriskey hits upon an unflattering term as some analysts explain this cultural change. Uh-oh! Could this change in income distribution reflect a triumph of “greed?” In this passage, Whoriskey introduces that impolite term into his discussion:

WHORISKEY: Acceptable greed

Defenders of executive pay argue, among other things, that the rising compensation is deserved because firms are larger today. Moreover, this group says, more packages today are based on stock and options, which pay more when the chief executive is successful.

Critics, on other hand, argue that executive salaries have jumped because corporate boards were simply too generous, or more broadly, because greed became more socially acceptable.

[…]

What the research showed is that while executive pay at the largest U.S. companies was relatively flat in the '50s and '60s, it began a rapid ascent sometime in the '70s.

As it happens, this was about the same time that income inequality began to widen in the United States, according to the Saez figures.

More important, however, the finding that executive pay was flat in the '50s and '60s, when firms were growing, appears to contradict the idea that executive pay should naturally rise when companies grow.

This is a "challenge for the market story," Frydman said.

Executive pay remained flat in the 1950s and 1960s, even as firms were growing. Whoriskey offers anecdotal evidence about the reasons for the more modest pay structure of this long-gone era. In this passage, he quote a high-flying CEO of that earlier era—and he cites Kenneth Douglas, CEO of the little-known Dean Foods (see THE DAILY HOWLER, 6/21/11):

WHORISKEY: [B]ack in the '70s, something was holding executive salaries back.

Harold Geneen, the president of ITT, then one of the nation's largest companies, told Forbes in 1975 that while he might be worth six times as much to the company as he was making, he hadn't sought a raise.

"No one moved up there, and I didn't dare do it alone," he explained.

Over at Dean Foods, Kenneth Douglas was likewise resistant to making more. Most years, board members at Dean Foods wanted to give Douglas a raise. But more than once, Douglas, a former FBI agent who literally married the girl next door, refused.

"He would object to the pay we gave him sometimes—not because he thought it was too little; he thought it was too much," said Alexander J. Vogl, a member of the Dean Foods board at the time and the chair of its compensation committee. "He was afraid it would be bad for morale, him getting a big bump like that."

This is anecdotal evidence, but it suggests that a different culture may have obtained in American firms surrounding issues of pay at this time. In the following passage, Whoriskey uses that unpleasant term once again, suggesting that we’re now dealing with a changed culture—with a new culture of greed:

WHORISKEY: The case of Dean Foods appears to bolster the argument that executive compensation moves with company size: Dean Foods' profit in 2009 was roughly 10 times what it was in 1979, adjusted for constant dollars. Engles's compensation has averaged 10 times that of Douglas.

"It's a different company today," company spokesman Jamaison Schuler said. He declined to comment further.

But some economists have offered an alternative, difficult-to-quantify explanation: that the social norms that once reined in executive pay have disappeared.

This new attitude, according to this view, was reflected in epigrammatic form by the 1987 movie "Wall Street," which made famous the phrase "greed, for lack of a better word, is good."

Are we closing in on Uganda because of a culture of “greed?”

Most liberals will disapprove of this rise in income inequality. Liberals and progressives will be inclined to see this growing inequality as a major political problem—a problem which should be addressed by political action. But how will voters respond to these issues? More specifically, what is the politics of this new culture of “greed?”

Gordon Gekko got a rise from the crowd when he announced that greed was good. “Greed” sounds like a very bad thing. That was the point of his statement.

But as a simple political matter, is there anything wrong with this “greed?” How do these issues of compensation play within our American politics? Beyond that, how do these basic issues play within the American press?

Are voters disturbed by a culture of “greed?” In our view, you can feel fairly sure that your “journalists” aren’t.

Tomorrow: Will voters listen? What will they hear?

Friday: Greed and the press