Let's Stop Talking About Inequality

From the president on down, everyone from the center to the left has been decrying the inequality of American incomes.

But guess what? American incomes have never been equal, and never will be. In this land of opportunity, you're free to earn as much as you can -- even if it's two hundred times more than your neighbor makes.

The point was driven home last week by New Jersey Governor Chris Christie, on leave from his day job as a highway cone placer. Speaking to the Economics Club of Chicago, Christie ridiculed the foes of income inequality. "You want income equality?" he said. "That's mediocrity. Everybody can have an equal mediocre salary. That's what we can afford."

Of course the Governor is not playing fair, because nobody out there -- not even on the farthest fringes of the left -- is saying that all incomes should be equal. On the battlefield of politics, fighters like Christie love nothing so much as a straw man, an enemy they can stuff with their own absurdities. But Christie is no fool. He has cleverly exploited the ambiguity of the word "equal," which often denotes just one or two points of similarity. When the Declaration of Independence states that "all men are created equal," for instance, it does not mean that they are all born equally smart, handsome, athletic, or rich, but only that they are all deserve the same political rights.

One of which is the right to scramble for what Christie calls "a little more" than the next guy is getting. If you attack "income inequality," therefore, you can be accused of seeking income equality. For what is the alternative? And how can any two incomes that differ by even "a little" be equal? Mathematically, $10.00 an hour does not equal even $10.01 an hour.

So let's scrap the word "inequality" in debates about economic fairness -- and start using the word "polarization."

Company executives and rank-and-file workers in this country might as well be living on opposite poles. In the 1950s, according to Bloomberg News (http://www.bloomberg.com/news/2013-04-30/ceo-pay-1-795-to-1-multiple-of-workers-skirts-law-as-sec-delays.html), the average CEO of a company in the S&P 500 earned 20 times the pay of an ordinary worker. As of 2012, that ratio is 204, which means that since the fifties, the income gap has grown more than ten times.

Also, according to AFL-CIO EXECUTIVE PAYWATCH (http://www.aflcio.org/Corporate-Watch/CEO-Pay-and-You), the best-paid 1% of Americans have been earning far more than ever before while the other 99% are struggling for Christie's "little more." Adjusted for inflation since 1982, the top 1% of all incomes have grown by 125% while the other 99% have grown by just 10%--in thirty years!--even though productivity has grown by 88%.

So what's to be done? Besides occupying Wall Street, which has so far failed to halt or even slow the ever-widening income gap, can we do anything besides wringing our hands?

The answer is a qualified yes: we can start by demanding -- through our senators and congressional representatives -- that the Securities and Exchange Commission enforce the three-year-old Dodd-Frank law, which requires public companies to reveal CEO-to-worker pay ratios. Unsurprisingly, the SEC is dragging its feet, and American corporations are doing all they can to step on them.

Since many corporations don't even want to say what their pay ratios are, it is folly to think that the ratios can be trimmed by any new law or rule. We can't cap pay in this country, no matter how high. On the other hand, now that President Obama has raised the minimum wage for employees of federal government contractors, he might also set a maximum CEO-to-worker ratio for government officials and government contractors, as Douglas K. Smith has recently proposed.

Beyond that, company shareholders should start asking themselves if a CEO-to-worker ratio of more than 200 is actually good for the company they own. Anyone who thinks it is, or who thinks that shackling the pay of a CEO is a recipe for corporate disaster, should weigh the words of the late Peter Drucker, widely considered the man who invented modern management (http://www.businessweek.com/stories/2005-11-27/the-man-who-invented-management). According to the Drucker Institute at Claremont University (http://www.washingtonpost.com/blogs/on-leadership/wp/2013/09/19/whats-the-right-ratio-for-ceo-to-worker-pay/), Drucker "often advised managers that a 20-to-one salary ratio is the limit beyond which they cannot go if they don't want resentment and falling morale to hit their companies."

Twenty and one are hardly equal numbers. But they're a lot closer -- and much less polarizing -- than one and two hundred.