Alan Reynolds

Since President Bush's State of the Union Address quickly garnered a generous share of criticism, it seems more useful to take a look at the economic comments offered in rebuttal by Virginia's new Democratic senator, Jim Webb. The Democrats are in charge, and they picked Webb to explain their party's Jacksonian vision thing.

He began by repackaging John Edwards' Two Americas: "When one looks at the health of our economy, it's almost as if we are living in two different countries. Some say that things have never been better. The stock market is at an all-time high, and so are corporate profits. But these benefits are not being fairly shared."

The benefits from stock market gains (and the losses from stock market downturns) go to people who invest their own money in corporate stock, often through retirement plans. What is unfair about that? When many homeowners banked huge tax-free capital gains in recent years by selling their homes, did politicians suggest those gains ought to be fairly shared?

It is equally senseless to speak of corporate profits "not being fairly shared." Profits are a residual -- whatever is left over from the money collected from customers after subtracting the costs of production. Companies can use profits to pay dividends or expand the business.

Grants of stock options, a fourth of which go to corporate executives and three-fourths to other employees according to a Fed study, have some impact on how stock market gains are shared among those who own stock. But those gains do not come out of corporate budgets or profits and do not affect the amount of revenue available to pay wages and benefits.

"When I graduated from college," says the senator, "the average corporate CEO made 20 times what the average worker did; today, it's nearly 400 times." The latest Economist says, "If you look back 20 years, the total pay of the typical top American manager has increased from roughly 40 times the average ... to 110 times the average now." Pick a number. Nobody tells you where they come from because the less you know, the more likely you'll be fooled.

Webb's estimates were surely from the Economic Policy Institute (EPI), which claims the average CEO earned 262 times as much as the average worker in 2005. He might as well call that 110 or "nearly 400" because it's mostly guesswork. There are no statistics on what an "average" CEO makes, because most companies are too small to be counted in the flawed surveys of newspapers and magazines.

Alan Reynolds

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