Brookings dude Jonathan Rothwell largely explains where the money is going these days—hint: not always to the people who deserve it—and suggests some ways to make things more equal.
First off, Jon says that things aren’t as bad as some folks are saying. The share of the national economic pie going to “labor” hasn’t been shrinking. Claims that it has are due to a misleading focus on income:
Wages and salaries have declined as a share of total income, largely for two reasons. First, total national income includes government transfer payments, which are rising because of an aging population (e.g., Social Security and Medicare). Second, companies have greatly increased non-salary compensation (e.g., healthcare and retirement benefits). Total worker compensation plus transfer payments have actually slightly increased as a share of total national income, from 79 percent between 1951 and 1979, to 81 percent for the years from 1980 to 2015.
So, while labor may be (and is) suffering from the general economic malaise of the past fifteen years, leftist fantasies of capitalist plots are, as usual, just that. Furthermore, the old conventional wisdom that more education means better pay is still correct, at all levels. Still, says Rothwell, some people are over paid, to wit:
Using microdata from the Census Bureau, I find that the “gratuitous pay” premium in certain industries has increased dramatically since 1980. Workers in securities and investment saw their excess pay rise from 41 percent to 60 percent between 1980 and 2013. Legal services went from 27 percent to 37 percent. Hospitals went from 21 percent to 39 percent. Meanwhile, those working in eating and drinking establishments consistently hovered around negative 20 percent.
So, be a doctor, not a waiter! Yeah, it is good advice. But, as Jon points out—and, as anyone who knows what “rent-seeking” means is aware—doctors, lawyers, and dentists all know how to work that “learned profession” thing to cut down the competition and kick up the profits. What America needs is more Adam Smith and less deference!
Which is all well and good, but according to Jon it’s the securities and investment boys (and girls) who are most overpaid. What’s their racket? Strangely, Jon doesn’t say. Isn’t that a question worth asking?
Afterwords
Jon says that folks at the top are benefiting from the (relatively) new phenomenon of loosely regulated hedge funds—loosely regulated because they’re only open to the wealthy. “These regulatory advantages have allowed hedge funds to consistently outperform stocks and other assets by roughly 2 percentage points each year,” a statement that a lot of people, including both Warren Buffet and George Soros would disagree with and which Rothwell buttresses with a single citation, to a report issued by KPMG International, folks who may, or may not be, honest brokers in this matter.
But even if hedge funds do work wonders—which, obviously, I doubt—is that why workers in securities and investment are making, on average, 60% more than they “deserve”? I strongly doubt that as well, and Rothwell makes no attempt to prove it.1 A strange hole in an otherwise impressive piece.
Oh, and a “hat tip” (I guess we’re still doing those) to the American Conservative for this one.
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Futhermore, these funds are open to anyone who’s rich, not just the folks on the Street. ↩︎
