Saturday, March 8, 2008

Rich Get Richer, Even in Recessions

A pair of articles published on Friday (March 7, 2008) nationally and in Michigan illustrate a problem that has been growing in our economy in recent decades -- the widening gap in pay between executives at the top of American corporations and workers at the bottom.

Rep. Henry Waxman, D-California, held a hearing in Washington to quiz the heads of the nation's large mortgage companies about their multi-million-dollar pay packages at a time when their firms are losing billions of dollars.

Meanwhile, the Detroit Free Press reported that General Motors restored the pay cuts and even raised the salaries of some of its executives, despite layoffs for workers and continuing losses for the company.

GM's CEO, Rick Wagoner, had his pay cut in recent years when the company was going through the worst of its downsizing. Yet even though the company still lost $23 million (not counting one-time accounting changes)in 2007 , Wagoner not only had his pay restored but also given a potential $3.52 million bonus and potentially hundreds of thousands of shares of GM stock and stock options.

Granted, that's not as much as the head of Countrwide Financial Corp., who got $120 million while the company lost billions.

But isn't the bonus package still a little premature, given that GM has yet to come out of the red? Shouldn't he have to produce better results before being rewarded?

Unfortunately, such big pay packages for executives have become commonplace. Waxman is not the only person complaining about them nationally. Paul Krugman, an economist and columnist for The New York Times, warns inhis book, "Conscience of a Liberal," that the pay gap in the U.S. between workers and CEOs has widened dramatically since the 1970s.

In fact, Krugman says, the gap between rich and poor is now as wide as it was in the period from the 1890s to the 1920s, a time when many working Americans lived in grinding poverty.

Such inequality affects not only our economy, but also our politics, Krugman argues. People with enormous wealth have disproportionate impact on government through their political contributions. Meanwhile, the middle class is weakened as their salaries stagnate, no matter how hard they work.

Conservatives today have no problems with this income disparity. Yet if they really paid attention to the nation's founders (as they claim to when trying to narrowly interpret the U.S. Constitution) they would know that such income disparities are exactly what the founders wanted to avoid.

Thomas Jefferson especially warned against a social structure such as that of Europe's at the time, with a few super rich and masses of poor. His vision of democracy included a relatively even distribution of income with few social distinctions.

We're a long way from Jeffersonian democracy today, as Krugman notes. We need lots more hearings like Waxman's to get us back on that path.

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