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CEO Compensation Doesn't Trickle Down

March 22, 1992

Among the troubling issues about executive pay raised by Tom Petruno's column "Investors Seeking Voice on Execs' Pay May Get It" (Feb. 7) is the failure of CEOs to pump their huge incomes back into the economy.

The underlying assumption of "supply side" Reaganomics is that incentives favoring the wealthy (tax breaks, deregulation and an anti-labor posture) will trickle down as increased investment to benefit those who work on assembly lines.

But instead of investing in a consumer-driven demand pool, the rich have simply kept their money. While wealthy investors do perform a vital function in the administration of economic resources, their contribution is primarily one of "paper" transactions, not a directly productive role.

Real "supply side" production is created by the mass of front-line workers who, by their sheer numbers, also provide a domestic market ("demand side") for the goods and services they create.

When economic incentives for the real producers are cut back, in reduced income or lost jobs, the economy stagnates. It happened in 1929, and it is happening now. Economic incentives favoring the elite are counterproductive.

Incentives for workers and consumers lead to real recovery and long-term prosperity, as we saw from the 1930s through the 1960s.

Petruno claims that a typical CEO in the United States earns 25 times the amount of a typical manufacturing worker, while a CEO in Japan earns only 11 times the amount of a worker. That's a differential of 14 times between the U.S. and Japan. If we divided just the differential among the workers, that would allow a mere 5% wage increase for 280 workers.

Multiplied among managers, executives and workers throughout the economy, such a massive infusion of consumer spending would go a long way toward reversing this recession.



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