Chris Tomlinson on CEOs and inequality

 Here is something I sent to The San Antonio Express-News.

I disagree with Chris Tomlinson views on the rich-poor divide (“Wanted: CEO who will fight income inequality,” July 20).

First, he does not explain why we should care about inequality other than to cite an opinion poll. That is not a basis for making policy.

He gives statistics on a growing gap between the rich and poor. But since he does not explain why inequality is bad, why not look at poverty statistics instead if we want to see how the least well off are doing?

Let’s say I am poor and you are not. If your income triples while mine merely doubles, inequality grows yet I am clearly better off and may no longer be poor.

The poverty rate has fallen recently. It was11.8% in 2018, the lowest rate since 2001 and ninth lowest ever. It will probably be even lower for 2019 in the next Census Bureau report.

He mentions that “the wage gap between white and Black Americans has grown.” But again, what about poverty?

The Black poverty rate fell from 27.6% in 2011 to 20.8% in 2018. It was well above 30% every year of the 1970s and 1980s.

Even though the current rate is still too high, there has been clear progress. But you would not know this from Tomlinson’s article.

If we are discussing racial income gaps, we should also look at the Asian-White income gap. That has been growing, too.

Census Bureau data shows that median Asian household income in 2018 was $87,194 while for Whites it was $66,943, a $20,251 gap. That is the second highest gap ever, just about $200 less than the record in 2016.

Prior to 2005, it averaged about $11,000 per year (in 2018 dollars). Does Tomlinson think this growing gap is the result of some disturbing trend or unfair policies?

He blames growing inequality on crony capitalism (where the government grants special favors to certain companies) and lower tax rates on high incomes. I agree that crony capitalism is never a good policy but there may be other causes besides lower taxes.

Economists at the Federal Reserve Bank of Minneapolis found that better technology has lowered communication costs to make certain workers like those in management, finance and information technology more valuable. Between 1980 and 2015 this accounted for "30 percent of the overall increase in wage inequality between the top 10 percent and the median wage earner."

Another cause of rising inequality over about the same time period is what economists call “assortative mating.” That is when people tend to marry someone who has a similar income which widens income gaps between households.

It is much more likely now for one high income person to marry another than it was fifty or sixty years ago. Economists Koen Decancq, Andreas Peichl and Philippe Van Kerm found that one-third of the increase in inequality stems from this growing preference to marry someone in the same income bracket.

So, there are two causes that possibly combine to explain over 60% of the rise in inequality. Lower tax rates might not be as significant as Tomlinson believes.

CEO pay, another issue he mentions, isn’t necessarily the problem, either. Economist Tyler Cowan said “CEOs capture only about 68–73 percent of the value they bring to their firms” and economist Steven Kaplan says “CEO pay is largely determined by market forces.”

CEOs don’t need to fight inequality. To help the poor we need better training and education and a growing economy.