Thursday, December 10, 2009

Cutting CEO pay does nothing to help 'the poor'

The Financial Times has an interesting headline which captured my attention: GE chief attacks executive 'greed.'

It's the same as what we're seeing in other stories - executives are greedy because they make so much money. There is no relation to the tasks they perform or the skills needed to lead such large organizations - just a critique on the amount of money because so many others don't have the same income.

But that aside, a particular comment from the GE chief really set me off - because it's not true and isn't challenged in the article:

“The bottom 25 per cent of the American population is poorer than they were 25 years ago. That is just wrong,” he said.

Robert Rector, a leading authority on poverty, disputes this claim - and, unlike the GE chief, has data from the Census Bureau and other government agencies to back it up.

In his testimony before the Joint Economic Committee of the U.S. Senate on September 25, 2008, Rector said:

Point #2 Most "poor" Americans are not "poor" in any normally understood sense of the word.

For most Americans, the word "poverty" suggests destitution: an inability to provide a family with nutritious food, clothing, and reasonable shelter. But only a small number of the 37 million persons classified as "poor" by the Census Bureau fit that description. While real material hardship certainly does occur, it is limited in scope and severity. Most of America's "poor" live in material conditions that would be judged as comfortable or well-off just a few generations ago. Today, the expenditures per person of the lowest-income one-fifth (or quintile) of households equal those of the median American household in the early 1970s, after adjusting for inflation.[2]

For example, according to the government's own data, nearly two thirds of households defined by Census as "poor" have cable or satellite television. Eighty five percent have air conditioning.

Overall, the typical American defined as poor by the government has a car, air conditioning, a refrigerator, a stove, a clothes washer and dryer, and a microwave. He has two color televisions, and cable or satellite TV reception. He has a VCR, a DVD player, and a stereo. He is able to obtain medical care. His home is in good repair and is not overcrowded. By his own report, his family is not hungry and he had sufficient funds in the past year to meet his family's essential needs. While this individual's life is not opulent, it is equally far from the popular images of dire poverty conveyed by the press, liberal activists, and politicians.

He continues with specifics:

The following are facts about persons defined as "poor" by the Census Bureau, taken from various government reports:

* Forty-three percent of all poor households actually own their own homes. The average home owned by persons classified as poor by the Census Bureau is a three-bedroom house with one-and-a-half baths, a garage, and a porch or patio.
* Eighty five percent of poor households have air conditioning. By contrast, 35 years ago, only 36 percent of the entire U.S. population enjoyed air conditioning.
* Only 6 percent of poor households are overcrowded. More than two-thirds have more than two rooms per person.
* The average poor American has more living space than the average individual living in Paris, London, Vienna, Athens, and other cities throughout Europe. (These comparisons are to the average citizens in foreign countries, not to those classified as poor.)
* Nearly three-quarters of poor households own a car; 30 percent own two or more cars.
* Ninety-eight percent of poor households have a color television; two thirds own two or more color televisions
* Sixty four percent have cable or satellite TV reception.
* Nearly all have a VCR and a DVD player;
* Forty seven percent have a personal computer,
* Eighty two percent own microwave ovens,
* Sixty percent have a stereo,
* and a quarter have an automatic dishwasher.

As a group, America's poor are far from being chronically undernourished. The average consumption of protein, vitamins, and minerals is virtually the same for poor and middle-class children and, in most cases, is well above recommended norms. Poor children actually consume more meat than do higher-income children and have average protein intakes 100 percent above recommended levels. Most poor children today are, in fact, super-nourished and grow up to be, on average, one inch taller and 10 pounds heavier that the GIs who stormed the beaches of Normandy in World War II.

Obviously, they're better off now than they were 25 years ago because back then, DVD players and computers were not standard in American households. Note, too, the air conditioning statistic: Eighty five percent of poor households have air conditioning. By contrast, 35 years ago, only 36 percent of the entire U.S. population enjoyed air conditioning.

But let's assume, for the moment, that Jeffrey Immelt's point about executive pay is valid. How does reducing their own pay affect the plight of those who are designated as poor?

It doesn't.

Poverty in America is a result of many factors - primarily, a lack of working. Rector's research shows that in a typical year, poor families with children will only have about 16 hours of adult work per week. As Rector explains, having just one adult working full time would raise 75% of kids out of poverty.

Single parenthood is another major factor. His research shows that about 70% of children identified as being poor would immediately be raised out of poverty if their mothers married their fathers, because most of the fathers have jobs and an ability to support a family.

Reducing CEO pay is not going to address these two major causes of poverty.

Then there is the payoff for GE. The company, with Immelt's urging, is going after stimulus funding for itself and its clients. GE Capital, the lending arm of the company, got a $139 billion government guarantee for its debt. And earlier in the year, Immelt went on the record as saying President Barack Obama's stimulus plan would work.

Is it any wonder this executive is adopting the liberal perspective of the White House?

Both Rector and Immelt cannot be correct - so which one do you believe? The researcher who examined actual data from the Census Bureau or the self-serving CEO who thinks poor people today are worse off than they were in 1984?


James said...

It doesn't help the middle class, either. It's just a feel-good liberal doctrine.

Timothy W Higgins said...

And today the "Pay Czar" announced new salary guidelines for second tier executives.

This was never about those executives, about greed, or about the poor. It has always been about control, and how quickly we seem willing to let government take it.

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