The Rich Get Richer

Harold Meyerson
“Follow the money,” “Deep Throat” famously tells Bob Woodward, hot on the trail of The Post’s most celebrated story, in the film “All the President’s Men.” In more recent decades, following the money has yielded a tale quite as calamitous as Watergate: the evisceration of the American middle class at the hands of the American rich.

A Pew Research Center study released in December documents this shift. In 1970, middle-income households claimed 62 percent of all personal income, while upper-income households received 29 percent. In 2014, the share going to middle-income households had declined to 43 percent, while that going to the top had soared to 49 percent. (While many on the right insist that the poor are somehow draining the middle class’s pocketbooks, that malignant myth is completely belied by Pew’s figures.

The shift at the very top of the income ladder is the most dramatic. In the early 1970s, as Watergate unfolded, the wealthiest 0.1 percent of U.S. households commanded 3 percent of the nation’s personal income. In recent years, their share has risen to 12 percent.

The declining fortunes of the middle class are due in part to globalization and technological change, but those phenomena can hardly account for so shattering an upward redistribution of income and wealth. To solve that riddle, we need to look to the fundamental redefinition of the corporate mission that has transformed U.S. business over the past 35 years. 

Time was when corporations invested their retained earnings in expansion, research, even higher wages. Now, even the most profitable companies are left with little to no retained earnings once they pay off their shareholders and top executives, whose incomes derive more from stock than salary. As University of Massachusetts economics professor William Lazonick has documented, the 500 highest-paid U.S. corporate executives received 76 percent of their income in stock-based compensation between 2006 and 2014.

Taking one’s pay in stock has been the smart move in recent decades, because the primary purpose of corporations has shifted from growing the company to rewarding shareholders. While there are obvious exceptions to this rule (none more so than Amazon, whose chief executive, Jeffrey P. Bezos, also owns The Post), it has clearly become the norm. The 458 corporations listed on the S&P 500 index in each year from 2005 to 2014 devoted 36 percent of their profits to dividends during that time, and another 53 percent to share buybacks, a means of enriching shareholders that had been negligible before 1982. In that year, Ronald Reagan’s appointees on the Securities and Exchange Commission adopted a rule (10b-18) that effectively holds corporations harmless from allegations of stock-price ma­nipu­la­tion through share buybacks.
Have a pleasant new year.