The Wage Gap

If Nancy Pelosi’s post-coronation comments are a useful indicator, then one of the Democrats’ 2019 priorities will be to reduce the pay gap between lower-income workers and America’s CEOs, hedge-fund managers, famous entertainers, and cosmetic surgeons (to name a few). In all fairness, reducing the pay gap sounds like a fine idea, but we on The Other Side are loath to jump on any bandwagon until we test the thesis.

For illustrative purposes, let’s assume that our low-end wage earner is a retail salesperson who makes $20 per hour (circa twice the minimum wage depending on the state), and our high-end wage earner is a large-company CEO who makes $100 million per year.  (See Notes below.)  If our exemplary CEO works 80 hours per week 50 weeks per year, then he or she makes $25,000 per hour.

That’s a pretty big gap, so let’s grow a conscience and fix it. Because we’re politically aware, therefore incrementalists, let’s increase the retail salesperson’s hourly wage by 6% per year, or about two times inflation, and the CEO’s by 1.5% per year, or about half the rate of inflation. (That seems awfully unfair to the CEO and is contrary to recent history, but let’s run the numbers anyway, just to see what happens.)

In the first year, the salesperson’s wage increases by $1.20 per hour. The CEO’s income increases by $375 per hour, so the wage gap increases by $373.80 per hour.

Lest we forget, though, we’re raising the salesperson’s wage four times faster than the CEO’s, so the gap will eventually begin to close. In this instance, it takes 134 years.

Fortunately, there are other ways to close the gap. We could, for instance:

  • Pay everyone the same wage, which sounds a lot like communism before the usual corruption sets in.
  • Freeze CEO wages until retail salespeople catch up, or for about 123 years (using same-case assumptions).
  • Replace inflation with deflation. (Ask your local economist about that idea!)
  • Increase taxes on the one percent, which has been politically impossible in this country since the rich were rebranded the “Donor Class.”
  • Declare war on a well-armed sh*thole country, draft the rich, and send them to the front lines in orange jump suits.

The bottom line: In the absence of draconian measures, we’re not going to close the wage gap. It’s math.

So… Let’s stop raging about the wage gap and focus on what matters, which is raising the incomes of workers on the lower rungs of the ladder. If we can find a workable solution, they’ll be healthier, more productive, and less dependent on Medicaid, SNAP, and other government programs––and a handful of CEOs may feel less guilty about the fact that they earn 2,000 times more than some of their less fortunate employees.

Notes:  

1) The top 200 hundred wage earners in the US had an average income of slightly less than $97 million in 2017.

2) Also in 2017, top 1% incomes grew 4 times faster than bottom 90% incomes. That’s not counting the tax break.

3) We checked the dictionary. Incrementalist is not a word, but it seemed to fit the bill, so to speak.

4) SNAP stands for Supplemental Nutritional Assistance Program, formerly known as food stamps. About 1 in 8 American workers qualify for the program.

The GOP v. Democrats, Round 1 – The National Debt

Believe it or not, there was a time in the not-too-distant past when moderates walked the halls of Congress and the policies of the the two parties overlapped—which meant that the passage of legislation was not only possible, it was commonplace. Then the Civil Rights Act was signed into law by President Lyndon Johnson, and that was the tipping point. Conservative Southern Democrats began to cross the aisle, the Southern Democrats who didn’t were beaten, and once-fertile legislative ground was displaced by a yawning, barren gap.  (See Notes below.)

It now appears that representatives from the two parties can barely speak to each other, and the passage of an actual bill is a media-worthy event. On the other side of the coin, to borrow a phrase, it’s easier to tell the parties apart, or rather it’s easier for the two parties to distinguish themselves in the minds of voters.

In particular, we’re often told that Republican administrations are better at stimulating the economy and cutting the deficit. If punditry and campaign rhetoric are indicators, the Democrats appear to have turned the cheek on both accounts, but they claim they’re better job creators. Who are voters to believe? Are the Republican better at stimulating the economy (see “Trickle Down: The Lost Alternative”) and cutting the deficit, and are the Democrats better “job creators,” or not?

The Other Side of Obvious is like a foster home for skeptics; we’re not inclined to believe anything we’re told by politicians or pundits or pedicurists or anybody else. If the assertion appears to be nonsensical, then we try to make sense of it. If it’s testable, then we use simple, commonly accepted metrics to test it.

This is the first article of three that compares the relative economic performance of the last three Republican administrations against the last three Democratic administrations. Each article uses a single criterion––in this case the reduction or containment of the federal budget deficit. The next two articles measure relative stock-market and job performance over the same period of time.

For the purpose of this first comparison, we researched the growth of the national debt during each presidential administration since fiscal year 1978, when Jimmy Carter approved his first federal budget. The comparison ends on September 30, 2018, which was the last day of the last fiscal budget approved by Barack Obama.

The incoming and outgoing national debts by administration over the forty-year period were as follows (in rounded billions):

President Party Years Entry Debt Exit Debt Increase Percent
J Carter Dem 1977-81 $772 $1,142 $370 48%
R Reagan GOP 1981-89 $1,142 $3,233 $2,091 183%
GHW Bush GOP 1989-93 $3,233 $4,693 $1,459 45%
B Clinton Dem 1993-01 $4,693 $6,228 $1,535 33%
GW Bush GOP 2001-09 $6,228 $13,562 $7,333 118%
B Obama Dem 2009-17 $13,562 $21,735 $7,813 58%

Reading across the top line, the chart shows that President Carter inherited a national debt of $772 billion. The debt had reached $1.142 trillion (that’s trillions, with a “t”) by the end his last fiscal year, which was an increase of $370 billion, or 48% more than the debt he inherited.

In aggregate, the data tell us that the national debt increased by $10.884 trillion during the last three Republican administrations and by $9.719 trillion during the last three Democratic administrations. In other words, Republican presidents increased the national debt by $1.16 trillion more than Democratic presidents, or a paltry $51 billion per fiscal year.

If that’s not clear enough: The average Republican administration increased the national debt by 115%, and the average Democratic administration increased the national debt by 46%.

Draw your own conclusions.

Unless the moon is indeed made of cheese, the Republicans will yell foul and produce their own “unbiased” analysis. That’s not to say that Democrats use agnostic, statistically valid data and Republicans get theirs from a twelve-year-old “statistician” who flunked math and who happens to be the daughter of an NRA lobbyist. Sadly, the politicians in both parties appear to be equally skilled in the dark arts of exaggeration, data manipulation, and use of third-grade logical fallacies. If, however, you have qualms about the outcome, then change the dates, find a better barometer, and run your own numbers. The Republicans will doubtless be grateful––if you can produce a different result.

It can also be argued that White House occupancy is a poor basis for comparison because Congress passes the budget and the president merely approves it. In fact, the executive branch creates the budget at the president’s direction, he and Congress negotiate it, the president signs the final bill, and then he manages federal expenditures for the entirety of the fiscal year.

Update: On June 26, 2018, the Congressional Budget Office released its latest report on the growth of the national debt. According to their projections, the national debt will exceed the size of the US economy in 2031 and double by 2048. Their assumption, by the way, is that the Trump tax cuts will be rescinded in 2026, according to current law. The bad news: Congress is considering a bill that will make Trump’s tax cuts permanent—which means that the deficit will increase more rapidly.

Notes:

1) According to The Economist, only one Congressional legislator from the great state of Georgia was a Republican in 1981, a promising young man named Newt Gingrich. As of this writing, the Georgia delegation is 100% Republican.

2) The forty-year period beginning with the Carter presidency in 1977 and ending with the Obama presidency was not chosen at random. The first use of the term “post-industrial society” was attributed to Alain Touraine in 1969. A comparable analysis of the Second Industrial Age would begin circa 1850 and end circa 1970.

3) Between 1977 and 2017, Republican presidents occupied the White House for twenty years and Democratic presidents occupied the White House for twenty years. In both cases, two presidents served two terms and one president served one.

4) The sources for the budget deficits and other data are the US government and Statista. Nothing in this article came from Cambridge Analytica.

5) Their claims notwithstanding, neither party produced an annual budget surplus except for the last two fiscal years of the Clinton administration. That’s 38 years of deficits versus two years of surpluses.

The GOP v. Democrats, Round 2 – The Stock Market

This is the second article in a series of three which examines the relative economic performance of Republican and Democratic administrations over the last forty years. If you haven’t already done so, start with the first article, which compares management of the federal debt—a contest the underdog Democrats won, and not by a small margin.

In this article, we determine which party has been the better steward of economic growth, also from 1977 to 2017. There are a lot of ways to gauge economic growth, but most are arguable or complicated or both. (See Notes below.) For the purpose of this comparison, we’ve chosen yet another simple, agnostic, and numeric yardstick: relative stock market performance during each party’s administrations.

The three major market indices are the Dow Jones Industrial Average, the Standard and Poor 500 Index, and the Russell 2000 Index. The markets tend to move together, thus any one would be a fair measure, but, to misquote Goldilocks, “The Dow is too small, and the Russell 2000 is too big, but the S&P 500 is just right.”

Forthwith, the incoming and outgoing S&P 500 indices by Republican and Democratic administration were as follows:

President Party In Office  S&P Open S&P Close Change
Jimmy  Carter Dem 1977-81  101.00  128.40 27.1%
Ronald Reagan GOP 1981-89  128.40  294.00 129.0%
George HW Bush GOP 1989-93  294.00  441.70 50.2%
Bill  Clinton Dem 1993-01  441.70  1,305.75 195.6%
George W Bush GOP 2001-09  1,305.75  805.22 -61.7%
Barrack  Obama Dem 2009-17  805.22  2,329.91 189.4%

On average, the S&P 500 index increased by 13.6% during the last three Republican administrations. In comparison, the average S&P 500 index increased by 137.4% during the last three Democratic administrations.

Using the S&P 500 as a benchmark, the last three Democratic administrations beat the last three Republican administrations––by a factor of ten.  

The next time someone tells you that the Republicans are better stewards of the economy than the Democrats, ask, “By what measure?”

Full disclosure: From February 1, 2017 to February 1, 2018, the S&P 500 Index increased from 2329.91 to 2816.45, or 20.9%, but that’s one year on the Trumpian calendar. The performance of the last three Republican administrations suggests that the index will close at 2648 on February 1, 2021 or 2025, or 225 points below the market peak of 2873 reached on January 26 of this year. Fortunately, and by that I refer to the value of our fortunes, past isn’t always prologue.

Notes:

1) The comparison begins on February 1, 1977, twelve days after Jimmy Carter was inaugurated, and continues through February 1, 2017, twelve days after Barack Obama left office.

It could be argued that the impact of each incoming president’s policies is not reflected in the indices until a year or so after his inauguration, although Donald Trump would disagree. In this (rare) instance, it’s probably fairer to agree with The Donald because: a) market performance anticipates the policies of the incoming administration, and b) the numbers reflect the impact of the president’s policies at different therefore debatable times after his inauguration. If, however, you feel the need, then by all means change the dates and/or indices and run your own comparison.  It’s unlikely though that the pendulum will swing more than a few degrees, and it may swing in either direction.

2) Common metrics we might have chosen but didn’t were per capita income and gross domestic product (GDP) growth. Since 1977, per capita income has increased every year except 1991, 2002, and 2009, but the majority of that growth favored the wealthy––which may make it the Republican party’s favorite benchmark but not ours.  The other candidate was GDP growth, but this measure by its nature has a long policy tail. There’s no reasonable way to approximate the beginning of each administration’s influence, and the length of the tails will vary.

The bottom line is that every measure has its plusses and minuses. We chose what we chose; choose what you will.