I am reading a book, The Conscience of a Liberal, by Paul Krugman. I recommend it to everyone here. In the book, Krugman discusses the forces that have caused such income inequality in this country. For example, in the early 1970s, the average CEO of a large company made 30 times what the average worker in that company made. Today, the average CEO makes over 300 times what the average worker makes. And while other executive managers don't tend to make as much as the CEO, often they don't make much less. Krugman discusses the history of this phenomena, starting with the robber barons of the 1920s. He progresses through the New Deal, and how what he calls "movement conservatism" has dismantled much of that New Deal. The result is that market forces have done what they naturally would do when unconstrained by the government: reverted to forms of gross inequality. One of the policies of movement conservatism that has allowed this has been the systemic assault on unions. This demonstrates how critical it is that the next democratic president passes the Employee Free Choice Act, and starts to roll back the devastation inflicted on this country by people like Richard Nixon, Ronald Reagan, and Bush.
In the 1920s, income inequality was much like what it is now. The rich were really rich, while everyone else was stagnating. Adjusted for inflation, the average American in the bottom 90% of the income bracket today actually makes less than they did 40 years ago. And this has occurred while productivity has reached unprecedented levels, and the rich have achieved levels of wealth unheard of in human history.
Conservatives like to call this the "invisible hand." It is really more of an invisible foot.
The inequality of the 1920s was the result of multiple factors. While unionization spiked around World War 1 (partly due to short-term policies of the Wilson administration), by the 1920s, the increase had reversed. This reverse was aided by the low taxation rate of rich individuals, as well as the lack of meaningful regulations.
By the time that the Great Depression started, and FDR became president, this changed. FDR increased the tax rate on the rich to levels that sound excessive today. FDR, as well as later presidents, increased the tax rate on the rich to a level upwards of 70%. The estate tax had reached a level approaching 90% for a time. FDR created a minimum wage, and he passed laws that strengthened unions. During WW2, he actually instituted price and wage controls, requiring employees working for private companies to have their wages set by the federal government. Since FDR made it easier for lower-income employees to have increases in wages, relative to higher-income employees, the result was a narrowing gap between high income workers and lower income workers.
Certainly, any conservative today would say that wide reaching price and wage controls, a tax rate approaching 90% on some individuals and corporations, and unions that have a large degree of control over their companies, would devastate the economy. And yet the economic policies of the New Deal didn't do that. And when the war ended, the great compression of equality didn't reverse. Unions remained strong, the tax rates remained high, and people overwhelmingly approved of maintaining these policies.
But by the 1970s and 1980s, this equality began reversing. Union laws were becoming outdated, as conservatives refused to modernize them. Ronald Reagan's crackdown of the air traffic controller unions signaled to every corporation that it was open season on unions. Tax rates on the rich were lowered, the minimum wage continued to fall behind where it had been in prior decades, and business regulations were being dismantled.
One of the reasons why CEO pay is so high today is because there are no viable unions to oppose that pay. Unions were important factors in the income equality from the 1930s through the early 1970s. If management raised the wages of management, the unions would become outraged and demand that they pull back. At the same time, unions were able to demand higher wages and better benefits for their members. The affect spread throughout the economy, compressing wage differences in both unionized industries, as well as non-unionized industries.
By the early 1980s, it became increasingly easy to destroy unions. The Fair Labor Standards Board, which is the federal board that oversees unionization across the country, became stuffed with pro-industry conservatives. The union laws had not been modernized for several decades by this point. Therefore, companies had spent a large amount of time developing strategies for busting unions given the current laws.
Another reason why executive pay became so out of control was the rolling back of the tax rate on the rich. When the rich are taxed at a rate of 70% or higher, a company has less incentive to pay their CEOs massive amounts of money. But when the tax rate is only 30%, it becomes far easier to pay them large salaries. The trickle down supply side economics was largely a junk science. It turned out to do what its proponents likely intended: make the rich even richer.
Back in the 1920s and 1930s, people who were rich were usually rich because they owned certain assets. They may have owned oil fields, factories, corporations, or various investments. Today, in contrast, the rich become rich through their employment. Yesterday's rich owned profitable companies. Today's rich are CEOs and CFOs with golden parachutes and stock options.
This all points to the need to strengthen unions. Europeans have far smaller gaps between their poor and their rich. Companies in Europe and Canada have been subject to the same forces that some claim cause the inequality. They are as affected by globalization, international trade, and a job market that requires increasing amounts of education. But they have maintained many of the laws that we once had that caused income equality. Their unions are strong, their regulations are strong, their CEO pay is low, the wages of their workers are high, and their tax rates are high.
Since the 1980s, companies have been union busting time and time again. Tens of thousands of people have been illegally fired over the last two decades simply because they wanted to form a union. Penalties for such illegal firings have become meaningless as the laws have aged. Wal-Mart is the worst. Wal-Mart actually indoctrinates its employees on the evils of unions, and how unions would (get this) actually drive down wages and benefits of Wal-Mart employees.
Why are companies so hostile to unions? Simply, it means lower wages for the CEO and other executive managers. True, it can mean lower profitability through higher costs. However, if wages went up and thus costs went up, people would have more money with which to buy things. In addition, lower salaries for executive management would offset much of this wage-related cost increase. The ultimately effect would be a restoring of the higher profitability levels. Ultimately, unions are a threat to the looting that CEOs, CFOs, other managers and board members partake in on a regular basis.
For example, the CEO of Home Depot recently left the company. His time as CEO was considered unsuccessful. And yet, he still left with a $200 million golden parachute. Unions were not there to prevent that looting. Home Depot also indoctrinates its employees on the evils of unions. Imagine how many of the $7/hour workers at Home Depot could have had a pay increase, if this unsuccessful CEO didn't have his bonus. Or look at health insurance companies, who routinely pay their CEOs huge bonuses while increasing health insurance premiums and cutting back coverage.
Conservative economic policies, their hostility to anything that gets in the way of the "free market", as well as all of the union busting going on, simply amount to the ultra-rich refusing to allow their looting to stop. They simply want more money, and they will be damned if the commoners prevent them. Executive management takes advantage of its workers, and abuses its power, simply because it can. For the workers to stand in managements' way of higher and higher salaries is unacceptable, and that they will do anything to stop.