Kathleen Geier asks why there is not more outrage about growing inequality. Her starting point is an excellent piece by Justin Fox, in which he recounts the history of class warfare in the U.S. To quote:
“What’s been unique, or at least highly unusual, has been the environment in which entrepreneurs and business executives were able to operate from the late 1970s through the early 2000s. Taxes dropped, high-end incomes exploded, and hardly anybody complained at all. Far from complaining, in fact, the news media for the most part celebrated the recipients of those exploding incomes for their boldness, creativity, and economic importance.”
On this side of the pond there may be more awareness of past class conflict. Yet I suspect there is even less outrage in the UK than in the US, and there is just as much to be outraged about. Anyone who thinks what has happened over the last few decades to executive pay just represent increasing marginal products should read Will Hutton today on recent pay deals at the Co-op. As those in the UK will know, this company has not been doing too well of late, which means no performance related bonuses. So instead the Co-op’s executives are to receive ‘retention payments’ equal to their base salary. This ‘retention bonus’ is also being paid to a director who is leaving the company!
Remuneration committees, who fix these salaries, always say that they are just aligning pay ‘to the market’. But this is a market without supply and demand! What these committees invariably do is fix pay to somewhere in the upper half of ‘market rates’, because their particular company faces ‘unusually difficult challenges’ and wants to retain the ‘best talent’. It does not take an economist to see that this process will generate over time steady increases in executive pay relative to the pay of everyone else, which is of course exactly what we have seen. (For one possible story of why this process goes on at some times and countries but not others, see here.) Even David Cameron calls this market failure.
So why no outrage? Geier gives two explanations. The first is the welfare state, which reduces poverty and therefore takes the edge off outrage. I’m not sure I buy this. In the UK a third of a million people received a minimum of three days emergency food from Trussell Trust food banks in 2012-13, compared to 26,000 in 2008-09. Plenty of potential scope for outrage there. The second is the media, which I certainly do buy. But what I found interesting was how she ended her piece. She felt that the media could only “explain a part of the public’s eerie underreaction to the skyrocketing economic inequality we’ve seen over the past several decades. There’s got to be more to the voters’ lack of outrage.”
I’m sure there are other potential explanations, such as the decline of trade union influence. I know that Geier is not alone in feeling that any explanation that focuses on the role of the media is somehow inadequate. Yet why is this? We know that the public significantly underestimates the extent of inequality in both the US and UK. The image that most people have of the super rich is movie stars or the likes of Bill Gates, not common or garden executives doing managerial jobs. How can people be outraged, when they do not have the outrageous information? I think the decline of trade unionism in the US and UK is important partly because unions provided an alternative source of information from the mass media, and because they were a resource which - once upon a time - media that wanted to be unbiased felt they should draw upon.