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Second Fable: The Rich Are Different;
They Are Smarter and Better.

The Rise of the Super-Elf.

Thomas Piketty, in his attention-getting Wealth in the Twenty-First Century, makes it abundantly clear that both individual wealth and the income generated by that wealth (what we have been calling troll-tolls) are rising to Belle Epoch levels. But he demonstrates a new trend as well: a recent increase in inequality of income from labor as well as from capital. He calls it the rise of the Super Manager.

Executive Pay. These guys (well yes, there are some women) are the executives of large corporations. The CEOs and the suits that surround them. They are given (take?) enormous pay packages. This counts in the calculations of the economists as income from labor.

How much are we talking about? It is hard to know precisely because these folks are good at playing fancy games with figures if they are good at nothing else. But the AFL-CIO publishes a list of the 100 highest paid CEOs and the published amounts of their take-home packages. The median amount for those 100 elite executives in 2013 was $23,629,622.00. That is for one year.

Now it is quite possible to blow $24 million a year and have nothing to show for it. It has been done. You and I may have a hard time imagining that, but it is true.

Super-Elves Become Trolls. But it is also true that one can live in ease and comfort on one hundredth of that. One can live a life of complete luxury with one tenth such a sum. After all, how many Learjets and Lamborghinis does a family really need? One of Piketty's main points is that people with such enormous incomes can live quite luxuriously and still put away a substantial portion of their loot. They thus accumulate enormous wealth. Such wealth then will generate enormous unearned income. So even if such compensation is truly “earned,” even if these individuals have added that much real value to the enterprises which they head, they end up with additional income which is merely the result of being rich.

Worth It? Well? Do they truly earn it? That is hard to believe in light of the evidence. The compensation packages of CEOs remain enormous even when their companies take a nose dive under their control. More to the point is that they indirectly hold the purse strings. Corporations are supposedly under the control of the shareholders, but except for those who hold enormous amounts of stock, the shareholders have little real power. Decisions about executive pay are generally made by boards of directors. And these guys all belong to the same club; they all sit on each others boards of directors. They scratch each others backs.

Growth of Executive Suites. The CEOs (and sometimes CFOs) get all the attention, but they preside over humongous armies of suits. They do not surround themselves with folks making minimum wage. The prestige of an executive is not just his or her income, but also the number high-paid yes-men/women at her or his command. And each of those suits works to expand her own fiefdom. So the executive suites grow.

It is impossible to know how much good these flocks of potentates actually do. They throw their weight around, of course. They have the power to influence the success of their various enterprises, but whether the net effect of their activity is positive or negative is really impossible to determine. But more and more of the corporation's expense that is chalked up to salary goes to them, not the people who actually make and sell products and services. Their salaries are possible because the corporations they control are successful regardless of any contribution they may have made to that success.

Proxy-Trolls. In other words, even without being the actual owners of corporations, they control them and their income is the result of that control. They pose as Super-Elves, but they are in fact Proxy-Trolls.

So What? How does this brief introduction to the foundations of economics (and some of the things wrong with the present system) help us to devise a better system?

[Next: A Sensible Economic System.]