Tuesday, December 27, 2011

Beat that (class warfare) drum!

An article in yesterday's Washington Post informs us that members of Congress having been getting richer, while average Americans have been getting...nowhere:
Between 1984 and 2009, the median net worth of a member of the House more than doubled, according to the analysis of financial disclosures, from $280,000 to $725,000 in inflation-adjusted 2009 dollars, excluding home ­equity. 
Over the same period, the wealth of an American family has declined slightly, with the comparable median figure sliding from $20,600 to $20,500, according to the Panel Study of Income Dynamics from the University of Michigan.
And of course, the obvious conclusion follows:
The growing disparity between the representatives and the represented means that there is a greater distance between the economic experience of Americans and those of lawmakers.
Amy Bingham at ABC News pipes in today with a similar piece:
The average American’s net worth has dropped 8 percent during the past six years, while members of Congress got, on average, 15 percent richer, according to a New York Times analysis of financial disclosure. The median net worth of members of Congress is about $913,000, compared with about $100,000 for the country at large, the Times’ analysis found.
Scary stuff, right? The bastards in DC are sucking up all of the money, as everyone else struggles to get buy. And this kind of rhetoric has the added bonus of playing well to people on a the left and on the right.

But how accurate, how meaningful is this kind of analysis? There are five hundred and thirty five members of Congress: one hundred Senators and four hundred and thirty five Representatives. How much does it take to skew theses results? The same question can also be asked for the oft-cited numbers of CEO pay, as compared to the average worker. The ratio here is usually in the 400+ to 1 range, but as PolitiFact notes, it's highly inflated, at the very least:

But on the specific comparison of CEO pay and average-worker pay, we found two liberal groups -- the Economic Policy Institute and the Institute for Policy Studies -- that have produced long-running studies of this question. 
The most recent chart from the Economic Policy Institute shows a ratio of 185 to 1 for 2009. According to the group’s calculations, the peak since the mid 1960s was almost 299 to 1. But it was never as high as high as 475 to 1. 
Meanwhile, the most recent ratio from the Institute for Policy Studies is also smaller -- for 2010, it was 325 to 1. In previous years the ratio on two occasions has exceeded 475 to 1 -- to be specific, 516 to 1 in 1999 and 525 to 1 in 2000. 
The Institute for Policy Studies’ ratios are higher than the Economic Policy Institute’s due to methodological differences. Sarah Anderson, who has co-authored the Institute for Policy Studies reports, said the figures can vary depending on several factors, including which CEOs are sampled and what types of compensation for both the CEO and the worker are used in the calculation.
Note the qualifications at the end: which CEOs are sampled is critical. If the right group is used--for instance, CEOs of the twenty most profitable corporations--I have no doubt that a severe ratio, perhaps even greater than 500 to 1, could be demonstrated. But that's a far cry from all CEOs. Let's remember that the typical company is not ExxonMobil or AT&T. Many, actually most, companies with CEOs are relatively small. Their CEOs make more than the average worker, it is true, but not hundreds of times more.

But even with a larger sampling, the big dogs at the top can skew the numbers. Consider 100 companies, wherein the CEOs all make $500K a year. Good money, to be sure, but not even 100 times the salary of an average worker. Now, add in one behemoth with a CEO making $84 million--the 2010 compensation package of the Viacom CEO--and what does the average salary become for the group? Over $1.3 million. Add in a few more super salaries and the average can easily get near the two or three million a year mark, pushing the ratio past 100 to 1.

There is no question that wealth creation has--over the course of the past thirty years--proceeded at breakneck speed, even with downturns. Thus, there are yearly salaries available now that exceed those in the past by very wide margins. But what does this mean for our Congress and the average American comparison? Well, look at the fifty wealthiest members of Congress, as reported by Roll Call for 2011. That's some big money. And a look at past lists would show even bigger money, as some of the wealthiest Congresspersons of all time are no longer in office.

So, how much skewing is going on here? Did either the Washington Post or ABC News bother to do the analysis? Of course not. Why ruin perfectly good class warfare pieces?

Cheers, all.

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