European Tribune - Community, Politics & Progress.

The Anglo Disease: regulation vs pay

by Jerome a Paris
Thu Apr 9th, 2009 at 09:10:33 AM EST

Via Krugman, this fantastic graph which shows the simultaneity over decades of deregulation and higher incomes in the financial sector (where, of course, averages hide vast differences between the majority of employees which are probably not paid much more than elsewhere, and the top layer).

People with higher incomes are interested in lower taxes, and are able to fund political campaigns, which suggests this has all the makings of a self-reinforcing cycle:

Fair warning:

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The Anglo Disease: regulation vs pay | 23 comments (23 topical, 0 editorial, 0 hidden)

Re: The Anglo Disease: regulation vs pay (none / 0)

This graph is even better:

"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char

by Melanchthon on Thu Apr 9th, 2009 at 10:02:40 AM EST

Re: The Anglo Disease: regulation vs pay (4.00 / 4)

"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char

by Melanchthon on Thu Apr 9th, 2009 at 10:07:31 AM EST
[ Parent ]

Re: The Anglo Disease: regulation vs pay (none / 1)

The most significant feature in the graph is the drop in tax rates for the top earners during the Carter years.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Thu Apr 9th, 2009 at 01:37:46 PM EST
[ Parent ]

Re: The Anglo Disease: regulation vs pay (4.00 / 2)

That was a capital gains cut which was rammed through the Senate. Carter didn't have veto power on it, so he was forced to let it pass.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Apr 9th, 2009 at 02:12:22 PM EST
[ Parent ]

Re: The Anglo Disease: regulation vs pay (none / 0)

And the "Clinton 1 bump"...

"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char

by Melanchthon on Fri Apr 10th, 2009 at 04:30:12 AM EST
[ Parent ]

Re: The Anglo Disease: regulation vs pay (none / 1)

Interesting that the US's huge, off-the-charts economic expansion coincided with the era in which tax rates on the wealthy were highest.

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Thu Apr 9th, 2009 at 10:02:40 AM EST

Re: The Anglo Disease: regulation vs pay (4.00 / 2)

That was in no small measure because of enforced savings and price controls during the WWII years.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Thu Apr 9th, 2009 at 01:36:37 PM EST
[ Parent ]

Re: The Anglo Disease: regulation vs pay (none / 0)

Having the world's only intact industrial base didn't hurt either. Nonetheless, while not implying causality, it illustrates that economic growth can occur in a high tax environment.

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Fri Apr 10th, 2009 at 07:11:09 AM EST
[ Parent ]

Re: The Anglo Disease: regulation vs pay (4.00 / 2)

Haha! What we need is a Gini curve for those suckers employed in financial services... That could be really fun.

by jayjay (jeremy [at] will-hier-weg.de) on Thu Apr 9th, 2009 at 10:18:30 AM EST

Re: The Anglo Disease: regulation vs pay (4.00 / 2)

What an Omygosh! graph, the one from Krugman.

He took it from Philippon and Reshef, Wages and Human Capital in the U.S. Financial Industry: 1909-2006, that you can download for free here. Graphs at the end.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Apr 9th, 2009 at 10:50:23 AM EST

Re: The Anglo Disease: regulation vs pay (4.00 / 2)

Correlation doesn't imply causation, but a commenter on Krugman finds they often occur together.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Apr 9th, 2009 at 10:53:49 AM EST

democracy (4.00 / 4)

First one needs to find out how degree of "regulation" is measured. For example the anti-trust laws are still on the books in the US, but are not enforced. There has been only one successful case over the past 30 years - AT&T.

Even that was only a temporary improvement as the seven sisters that were spun off merged back into just a handful of survivor firms. During the period when there was actual competition we had a burst of innovation, everything from modems to cell phones. Since the consolidation innovation has slackened off and all that is happened is that some internet type services have migrated to phones as well. The infrastructure is poor compared to other countries. In my neighborhood we have a choice of two providers, the phone company and the cable TV company. Their offerings are almost identical

So, while there has been "something" going on I'm not sure it is directly connected to regulation.

What I see as the fundamental problem is the weakening of democratic mechanisms. The trend in the US has been towards more and more expensive electoral campaigns with fewer and fewer restrictions on spending. Recent attempts (McCain - Feingold) were quickly bypassed.

Elections are now measured by how much money a candidate raises, not by how popular they are or their positions on key issues. Obama was supposed to prove that this wasn't so because he got lots of small donations, but the bulk of his funds still came from the big money interests.

The effect is more pernicious in legislative races where even a seat in an unimportant district can have a campaign costing $1 million per candidate.

What this means is that only the wealthy or those beholding to the wealthy get elected. Since they are wholly owned subsidiaries of big business and the super wealthy they pass legislation which benefits their funders.

Democracy in the US is barely functioning. This is why there has been a rise in wealth inequality and the associated distortions in social welfare. It seems that things are different in most of Europe (UK excepted) where restrictions on buying elections are stronger.

He who pays the piper choses the tune.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Thu Apr 9th, 2009 at 11:35:24 AM EST

Re: democracy (none / 1)

The elder Galbraith wrote over 40 years ago about how antitrust laws were used only against mid-sized companies which would become large, and not against the companies which were already large, therefore protecting the existing oligopolists in the name of preventing monopoly.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Fri Apr 10th, 2009 at 04:38:32 AM EST
[ Parent ]

Re: The Anglo Disease: regulation vs pay (none / 1)

This graph is also telling:

What is interesting to notice is the difference between the 20s/30s and the recent period: in the 20s, the top 0,01% had a small share of the salaries, whereas in the 90s, they had a much bigger share of the salaries...

"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char

by Melanchthon on Thu Apr 9th, 2009 at 12:03:21 PM EST

Re: The Anglo Disease: regulation vs pay (none / 0)

That's because in the 1920's they were owners while in the 1990's they were CEOs.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Thu Apr 9th, 2009 at 01:33:06 PM EST
[ Parent ]

Re: The Anglo Disease: regulation vs pay (none / 1)

Yes, but the high level of wages inequality means the capital/labour ratio is not as relevant as it used to be, because the CEOs high salaries are include in the labour part.

"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char

by Melanchthon on Fri Apr 10th, 2009 at 04:36:44 AM EST
[ Parent ]

Re: The Anglo Disease: regulation vs pay (none / 0)

My theory is that, after shareholder power was eroded in the post-WWII years, eventually "the wealthy" (pace Colman) realised the control of the corporations had passed to the management and decided to become management. Hence, MBA programs and "executive compensation".

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Fri Apr 10th, 2009 at 04:41:23 AM EST
[ Parent ]

Re: The Anglo Disease: regulation vs pay (none / 0)

True. See Alfred D. Chandler's "The Visible Hand"

"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char

by Melanchthon on Fri Apr 10th, 2009 at 04:51:43 AM EST
[ Parent ]

Re: The Anglo Disease: regulation vs pay (none / 0)

But The Visible Hand refers to the period before the 1930's, not after the 1970's.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Fri Apr 10th, 2009 at 05:02:00 AM EST
[ Parent ]

Re: The Anglo Disease: regulation vs pay (none / 0)

Yes, but the model developed by a few big companies before the 30's was extended to all the economic sectors/ sizes of companies during and following WWII, together with a huge development of modern manufacturing.

"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char

by Melanchthon on Fri Apr 10th, 2009 at 05:49:10 AM EST
[ Parent ]

Re: The Anglo Disease: regulation vs pay (none / 0)

Today's CEOs are employees in drag. John Raulston Saul wrote about this at length in the early 1990s: Voltaire's Bastards.

by PIGL on Fri Apr 10th, 2009 at 01:35:03 PM EST
[ Parent ]

Re: The Anglo Disease: regulation vs pay (none / 1)

this fantastic graph which shows the simultaneity over decades of deregulation and higher incomes in the financial sector

I don't see simultaneity, I see finance incomes following deregulation with a 10-year lag.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Thu Apr 9th, 2009 at 01:34:44 PM EST

Re: The Anglo Disease: regulation vs pay (none / 1)

True. It is because it's the average wage. The effect shows as the workforce demography evolves: progressively, new highly-skilled employees are recruited and the old less skilled (and less payed) ones retire or leave.

"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char

by Melanchthon on Fri Apr 10th, 2009 at 04:47:13 AM EST
[ Parent ]

The Anglo Disease: regulation vs pay | 23 comments (23 topical, 0 editorial, 0 hidden)

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