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Begin New Search Topic Income Inequality Political Geography United States of America

11. Subnational Economic Freedom and Performance in the United States and Canada

Author:
Daniel L. Bennett
Publication Date:
01-2016
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
During his illustrious career spanning more than half a century, Richard Vedder has tirelessly advocated for limited government and free enterprise. Much of his scholarship has focused on examining how fiscal and labor market policies consistent with the principles of economic freedom are associated with economic and social benefits such as stronger economic performance (Vedder 1981, 1990), lower unemployment (Vedder and Gallaway 1996, 1997), and poverty alleviation (Vedder and Gallaway 2002). Vedder has also examined the impact of government policy on income inequality (Vedder 2006; Vedder and Gallaway 1986, 1999; Vedder, Gallaway, and Sollars 1988), an area that he and I have collaborated to study (Bennett and Vedder 2013, 2015). Thus, Vedder’s scholarship has contributed to our understanding of the impact that economic freedom exerts on economic outcomes.
Topic:
Government, Income Inequality, Economy, and Free Trade
Political Geography:
Canada, North America, and United States of America

12. The Mismeasure of Mammon: Uses and Abuses of Executive Pay Data

Author:
Matt Hopkins and William Lazonick
Publication Date:
10-2016
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
On April 7, 2016, the Wall Street Journal ran an article headlined “CEO pay shrank most since financial crisis,” while on May 27, 2016, a similar New York Times story declared “Top CEO pay fell – yes, fell – in 2015.” Unfortunately, both the Journal and the Times mismeasured the actual take-home pay of each and every one of these CEOs in 2014 and 2015. The reason for this mismeasure is that both articles relied on “fair value” estimates of the stock-based pay of these CEOs as reported in the Summary Compensation Table of the definitive proxy statement (Form DEF 14A) that each publicly listed company files annually with the U.S. Securities and Exchange Commission (SEC). Yet the very same proxy statements also report the actual realized gains of these CEOs in the Option Exercises and Stock Vested Table. It is the realized gains on stock-based pay, not fair-value estimates, that enter into the total compensation that a CEO actually takes home and reports as income in his or her income-tax return. Moreover, including actual realized gains instead of estimated fair value of stock– based pay in the measure of total executive compensation can make a big difference. In 2014 average total compensation of the 500 highest-paid executives named on corporate proxy statements based on actual realized gains was $34.3 million, with 81 percent coming from stock-based pay. But average total compensation of the 500 highest paid based on estimated fair value was $19.3 million, with 62 percent attributable to stock- based pay. The excess of total actual realized-gains compensation over total estimated fair-value compensation was greatest in those years when the stock market was booming. Why would the Wall Street Journal and the New York Times report estimates of executive pay when they could be reporting the CEOs’ actual pay? In this paper, we answer this question by explaining the origins of the “fair value” estimates of stock-based pay and how the obsession with these estimates by the SEC, relying on the business-run Financial Accounting Standards Board (FASB), has relegated to statistical obscurity executives’ readily available, accurate, and actual realized gains from stock-based pay. We use Standard & Poor’s ExecuComp database to document that a) stock-based pay, in the forms of realized gains from stock options and stock awards, dominates both the size of and the changes over time in the total compensation of the highest-paid senior executives; and b) the fair-value estimates of stock-based pay tend to understate, often substantially, the realized gains from stock-based pay that these executives actually receive. An irony is that even critics of excessive executive pay, most notably the AFL-CIO on its Executive Paywatch website, use the fair-value estimates when the actual CEO compensation numbers would reveal a much larger ratio of CEO pay to the earnings of the average worker. Indeed, as we discuss in the conclusion to this paper, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, this mismeasure of executive pay has become institutionalized in U.S. government policy in the SEC’s Pay Ratio Disclosure Rule, which beginning in 2017 requires every company to publish the ratio of CEO to median-worker pay. Under this rule, the SEC requires companies to use the fair-value measure of CEO pay. The Pay Ratio Disclosure Rule is supposed to provide the public with a company-level indicator of income inequality. Instead it will tend to underestimate inequality, substituting fictitious estimates for actual known amounts of income that CEOs put into their bank accounts and declare in their income-tax returns.
Topic:
Financial Crisis, Inequality, Income Inequality, Stock Markets, and Wage Growth
Political Geography:
North America and United States of America

13. Veiled Repression: Mainstream Economics, Capital Theory, and the Distributions of Income and Wealth

Author:
Lance Taylor
Publication Date:
12-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The Cambridge UK vs USA capital theory debates of the 1960s showed that the workhorse mainstream growth model relies on unsustainable assumptions. Its standard interpretation is not consistent with the last four decades of data. Part of an estimated increase in the ratio of personal wealth to income in recent years is due to higher asset prices. The other side of the accounts reveals that financialization and growing business debt partially offset the greater net worth of households. Attempts to interpret growth in wealth principally as a consequence of capitalization of rents are misleading. An alternative growth model based on Cambridge ideas can help correct these misinterpretations.
Topic:
Economics, Income Inequality, Economic Theory, Repression, Capital, Redistribution, and Wealth
Political Geography:
North America and United States of America

14. Did Quantitative Easing Increase Income Inequality?

Author:
Juan Montecino and Gerald Epstein
Publication Date:
10-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The impact of the post-meltdown Federal Reserve policy of ultra-low interest rates and Quantitative Easing (QE) on income and wealth inequality has become an important policy and political issue. Critics have argued that by raising asset prices, near-zero interest rates and QE have significantly contributed to increases in inequality, while practitioners of central banking, counter that the distributional impact have probably been either neutral or even egalitarian in nature due to its employment impacts. Yet there has been little academic research that addresses empirically this important question. We use data from the Federal Reserve’s Tri-Annual Survey of Consumer Finances (SCF) and look at the evolution of income by quintile between the “Pre- QE period” and the “QE period” analyzing three key impact channels of QE policy on income distribution: 1) the employment channel 2) the asset appreciation and return channel, and 3) the mortgage refinancing channel. Using recentered influence function (RIF) regressions pioneered by Firpo et. al (2007) in conjunction with the well-known Oaxaca-Blinder decomposition technique, we find that while employment changes and mortgage refinancing were equalizing, these impacts were nonetheless swamped by the large dis-equalizing effects of equity price appreciations. Reductions in returns to short term assets added further to dis-equalizing processes between the periods. Bond price appreciations, surprisingly, had little distributional impact. We cannot know precisely how much of these changes are due to QE as opposed to other influences, but to assess potential causal effects we utilize a counter-factual exercise to assess the quantitative range of impacts of QE on the main channels. We conclude that, most likely, QE was modestly dis-equalizing, despite having some positive impacts on employment and mortgage refinancing. The modestly dis-equalizing impacts were due to both policy choices and deep seated structural problems, such as the long-term deterioration in labor market opportunities for many workers due to globalization and legal and political reductions in labor bargaining power that have contributed to long term wage stagnation. Finally, there is no support in our analysis, for the proposition that raising interest rates would be an efficient mechanism for improving income distribution, because of the likely costs in terms of employment and debt refinancing opportunities.
Topic:
Federal Reserve, Inequality, Income Inequality, Fiscal Policy, and Wage Growth
Political Geography:
North America and United States of America

15. Wealth Concentration, Income Distribution, and Alternatives for the USA

Author:
Lance Taylor, Özlem Ömer, and Armon Rezai
Publication Date:
09-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
US household wealth concentration is not likely to decline in response to fiscal interventions alone. Creation of an independent public wealth fund could lead to greater equality. Similarly, once-off tax/transfer packages or wage increases will not reduce income inequality significantly; on-going wage increases in excess of productivity growth would be needed. These results come from the accounting in a simulation model based on national income and financial data. The theory behind the model borrows from ideas that originated in Cambridge UK (especially from Luigi Pasinetti and Richard Goodwin).
Topic:
Inequality, Income Inequality, Tax Systems, Redistribution, and Wealth
Political Geography:
North America and United States of America

16. Wealth Concentration, Income Distribution, and Alternatives for the USA

Author:
Lance Taylor, Özlem Ömer, and Armon Rezai
Publication Date:
09-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
US household wealth concentration is not likely to decline in response to fiscal interventions alone. Creation of an independent public wealth fund could lead to greater equality. Similarly, once-off tax/transfer packages or wage increases will not reduce income inequality significantly; on-going wage increases in excess of productivity growth would be needed. These results come from the accounting in a simulation model based on national income and financial data. The theory behind the model borrows from ideas that originated in Cambridge UK (especially from Luigi Pasinetti and Richard Goodwin).
Topic:
Inequality, Income Inequality, Tax Systems, Redistribution, and Wealth
Political Geography:
North America and United States of America