PBS News Hour, recently arranged an interview with two top economic experts on declining
middle class income that resulted in a revealing chart that reveals a lot.
 |
| Shayne |
reputation for making spot-on stock picks, questioned British economist Andrew Smithers, who formerly ran an asset management business and now heads up his own consulting firm, Smithers & Co., in London.
Income and Product Accounts, or NIPA, which tracks income data for the U.S.
Bureau of Economic Analysis of the Department of Commerce.
What immediately strikes me is that employment costs as a percentage of business output is way down, yet the corporate world keeps pushing for layoffs, concessions and right-to-work laws.
Here’s a small portion of the interview:
JON SHAYNE: What do you think has caused labor’s share to
fall below its average to a new historical low, and capital’s share to rise to
the higher highest peak ever?
 |
| Smithers |
ANDREW SMITHERS: The change in the way company managements
are remunerated has been dramatic in this century. Salaries have ceased to be
the main source of income to senior management, with bonuses and options taking
over. There has been major change in management incentives and it should not
cause surprise, though it evidently has to most economists, that management
behavior has changed. The current incentives discourage investment and
encourage high profit margins.
This is dangerous for companies’ long-term
prospects as it increases their risk of losing market share and reduces their
ability to reduce costs. It is very damaging for the economy, but it maximizes
the income of managements. Senior management positions change frequently, so if
management wish to get rich, they have to get rich quickly. I am not alone in
this diagnosis. A recent
report from the Federal Reserve Bank of New York comes to the same
conclusion from a theoretical analysis as I have come from data analysis.
