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To the victor belong the spoils

from David Ruccio 

The phrase, which was used in the early nineteenth century to describe the the spoils system of appointing government workers, accurately describes the American economy today.* And it’s pretty clear who the victor is, and it’s not the working-class.

Instead, a small group at the top have come out as the victor—and that’s been true for decades now.

How do we know?

Well, all we have to do is look at the growing gap between the amount produced by American workers and what they received in their wages. Gross Domestic Product (the green line in the chart above) grew by a factor of almost 16 from 1973 onward while workers’ wages increased by a bit more than 5 before the COVID Depression.

So, American workers only received back in the form of wages a small percentage of the increased amount they produced. The rest went to their employers.

The result has been an enormous rise in U.S. corporate profits (before tax, without inventory valuation and capital consumption adjustments)—particularly evident in the trendline fitted to the data in the chart above.

The employers, in turn, transferred a portion of those profits to the Chief Executive Officers of their corporations.

According to the latest report from the Economic Policy Institute, in 2019, a CEO at one of the top 350 firms in the United States was paid $21.3 million on average (using a “realized” measure of CEO pay that counts stock awards when vested and stock options when cashed in rather than when granted). The ratio of CEO-to-typical-worker compensation was therefore 320-to-1 (222.8-to-1 using a different, “granted” measure of CEO pay). That is up from 293-to-1 in 2018 and a gigantic increase from 61.4-to-1 in 1989 and, even more, 21.1-to-1 in 1965.

Exorbitant CEO pay is a major contributor to rising inequality that we could safely do away with. CEOs are getting more because of their power to set pay—and because so much of their pay (about three-fourths) is stock-related, not because they are increasing productivity or possess specific, high-demand skills. This escalation of CEO compensation, and of executive compensation more generally, has fueled the growth of top 1.0% and top 0.1% incomes, leaving less of the fruits of economic growth for ordinary workers and widening the gap between very high earners and the bottom 90%. The economy would suffer no harm if CEOs were paid less (or were taxed more).

An even large—and growing—distribution of the surplus that is the basis of corporate profits has taken the form of dividends, paid to owners of corporate equities. In 1965, dividends were about 26 (25.8) percent of corporate profits; by the beginning of this year they were almost 70 (69.2) percent.

And according to my calculations, the top 1 percent in the United States owns (as of 2014, the last year for which data are available) 62 percent of corporate equities, which has been climbing since the late 1970s. Meanwhile, the share of the entire bottom 90 percent has been falling, and is now only 11 percent.

So, it’s really only the small group at the top that is in a position to “share in the booty” by receiving a cut of corporate profits in the form of CEO pay and stock dividends. They’ve occupied the position of victor for decades now, and to them belong the economic spoils.**

Everyone else is forced to have the freedom to try to get by on their slowly rising wages—and to watch with both fascination and horror the ongoing spectacles in corporate boardrooms and the stock market.


*”To the victor belong the spoils” is attributed to Senator William Learned Marcy of New York who, in 1832, defended Andrew Jackson, whose campaign against President John Quincy Adams was seen partly as a vendetta against Adams, and whose conduct and remarks when taking office seemed to justify the association of Jackson with the spoils system.

**Just yesterday, in the midst of the pandemic and the worst economic downturn since the Great Depression of the 1930s, the U.S. stock market reached a new high (according to the Standard & Poor’s 500 index).

  1. Alonso Kihano
    August 22, 2020 at 6:38 am

    I would like to look at the same problem from a more general point of view. Looking for household debt I found this data https://www.imf.org/external/datamapper/HH_LS@GDD/CAN/GBR/USA/DEU/ITA/FRA/JPN from the IMF DataMapper. It shows the household debt as a percent of GDP for many countries. Surprisingly, the households in developed countries have much higher debt than less developed or underdeveloped.
    That is highly perplexing. The more the country produces, the higher productivity, the higher GDP per capita – the higher the household debt. It looks as the more you produce the more indebted you are. How this happens?
    It looks as if the society can not buy the products and services it produces. This speaks of highly mismanaged price-income system. All is cheap for the few top incomes and all is expensive for low incomes. Prices are systematically higher than most people can afford. It seems, that market equilibrium either does not exist, or is highly distorted by credits.

  2. Ken Zimmerman
    September 8, 2020 at 4:10 pm

    None of this is new or surprising, in the context of the last 200 years of American history. When George Washington entered the Presidency, the US was just a collection of many interests, nationalities, religions, etc., all looking for a direction, even if not a common one. By the time Washington left office eight years later, the US was a nascent nation. And deliberately so. How exactly did a group of lawyers and politicians become founding fathers in the first place, heroes to be venerated by generations of Americans? Answering that question draws our attention beyond the small, famous band of founding brothers to other, unsung founders — men who, if they did not create the American nation, did create American nationalism.

    Born in 1759, and with no arsenal but his wit and charm, Parson Weems traversed the country selling schoolbooks, almanacs, biographies and other popular literature in towns and villages from New York to Georgia. Not a great man, perhaps, but a maker of great men; not counted among the popular sages, but certainly among those who made them popular. In 1799, Weems was composing a brief pamphlet on George Washington — enumerating his virtues and encouraging Americans to emulate them — when he heard that the great man had just died.

    “I have something to whisper in your lug,” he wrote Mathew Carey, a Philadelphia publisher and Weems’ partner in the Southern book trade. “Washington, you know, is gone! Millions are gaping to read something about him. I am very nearly primed and cocked for ’em.”

    Weems went on to write one of the most important works of American history: a popularizing, largely fictionalized account of Washington’s life that turned him into a down-home, evangelical hero for a rural and increasingly religious nation. Ever hear of Washington and the cherry tree — of Washington who could not tell a lie? Weems’s biography gave birth to this popular image.

    In the process, Weems helped make Washington into the nation’s common father. “Our children,” he predicted, “and our children’s children, hearing the great name of Washington re-echoed from every lip with such veneration and delight, shall ask their fathers, ‘What was it that raised Washington to this godlike height of glory?’ “His writings would provide the answer. Indeed, in many respects, the national symbols Americans revere today — the Declaration of Independence, the Constitution, the founding fathers — entered our sacred cultural tenets not through the work of men like Thomas Jefferson, James Madison or Washington, but through the work of far less celebrated figures like Weems.

    One other such figure was Weems’s partner, Mathew Carey, an Irish Catholic who was born in 1760 and immigrated to Philadelphia after the Revolution. Carey published a monthly magazine called the American Museum, which printed patriotic works. His efforts to encourage nationalism through popular literature earned him praise from some of the most eminent figures of the era, including Washington. Carey dedicated his life to publishing texts that promoted American nationalism. He would eventually acquire the copyright for Weems’s biography of Washington, which taught hundreds of thousands of Americans to honor the nation’s “father.”

    Add to Weems and Carey dozens of others creating American nationalism, if not an American nation. With heroes, villains, good people, and bad people.

    By 1820 a new stage of this building process began. With new heroes, villains, good and bad redefined. This was the creation of the ‘common man.’ In this course change for democracy the modern American party system took form; adult white male suffrage became almost universal; the chief means of educating and of agitating or informing the common man–free public schools and a cheap press–became widely available; politics, once the prerogative of selected leaders, became a career open to talents–and to demagoguery; the modern system of popular election campaigning came into practice; and the spoils system for the distribution of public offices, though foreshadowed earlier, finally took hold and received official sanction.

    But the movement which, for want of a better term, we call “Jacksonian Democracy,” went far beyond changes in political institutions alone. The new democracy revered military heroes and chose Andrew Jackson, a popular general, as its leader: democracy walked hand in hand with nationalism.
    The new democracy esteemed individualism and enterprise; and although it began by attacking political privileges, it ended by attacking economic privileges in the interest of broader business opportunities for the enterprising common man. Nor did democracy stop with politics and economics; it affected education and the professions, literature, and religion. It spoke on behalf of breaking down “artificial” distinctions between persons, of increasing opportunities, of gaining, or regaining, what was distinctly and natively American. It committed many excesses, but it helped to make modern American life what it is and to underline its differences from English and European politics and social relations.

    The election of Andrew Jackson in 1824 set the tone for the next twenty years of the “era of the common man,” US isolationism, economic tariffs, and ignoring the issues that would 35 years later tear the US apart in a Civil War. It is no secret that Donald Trump’s favorite President is Andrew Jackson. And following Jackson, Trump is not only making the same mistakes as Jackson but is implementing policies that in the context of 1820s American made some sense but in the context of 21st century America are silly and counterproductive, and often criminal on a scale equal to or even exceeding that of Jackson.

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