Raid The Rich

Me in March on Why Track Trends?:

Tyler’s thesis is that the US has slower growth than decades ago because we’ve used up the low hanging fruits. … My grad school (Caltech) didn’t teach macro … so I’ll stay agnostic for now. But what I can speak to is how little such trend analysis or projection matters, at least for most economic policy.  … The question of which institutions will most increase economic welfare rarely depends much on the exact values of the sorts of parameters social scientists and the media track with such enthusiasm and concern.

Me 1.4 years ago on Enable Raiders!:

A robust, properly functioning market for corporate control is vital to the performance of a free-enterprise economy. …

It is hard to exaggerate how very important this is – we’d be so much richer now if it it had long been easier for raiders to take over public firms. We now put many inexcusable obstacles (listed below) before such raiders, including disclosure, super-majority, poison pill, and merging delay rules.

Today’s Post:

Growing income disparity in the United States … has reached levels not seen since the Great Depression. In 2008, … the [140,000 member] top 0.1 percent of earners make about $1.7 million or more, including capital gains. Of those, 41 percent were executives, managers and supervisors at non-financial companies, … with nearly half of them deriving most of their income from their ownership in privately-held firms. An additional 18 percent were managers at financial firms or financial professionals at any sort of firm. …

In 1975 … the top 0.1 percent of earners garnered about 2.5 percent of the nation’s income, including capital gains. …. By 2008, that share had quadrupled and stood at 10.4 percent. … The share of the income commanded by the top 0.01 percent rose from 0.85 percent to 5.03 percent over that period. For the 15,000 families in that group, average income now stands at $27 million.

The inquiring mind is surely curious to know who exactly are today’s super-rich, and how much richer they are now than before. But good policy is mostly about good institutions, which just shouldn’t depend much on such parameters. If you worry that managers get paid more than they contribute to firm value, a robust solution is to strengthen competition for corporate control, so raiders can takeover and then fire overpaid managers. Trying to independently determine manager contribution is far far harder.

If you worry instead about how much managers respond to taxes by reducing their efforts or moving to other jurisdictions, that also probably doesn’t depend much on just how rich they are or how much that has changed in recent decades. Wanting to tax managers more because you learned that they made more money than you thought seems much more like envy than neutral efficiency analysis.

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