Two new reports document the staggering growth of income inequality in the United States, which grew last year to records levels. Leading the list in pay and compensation were the nation’s top 20 private equity and hedge fund managers, who pocketed an average annual income of $657.5 million, or 22,255 times the pay of the average US worker. “Wages and Bonuses in Investment Banking,” a report issued by the US Bureau of Labor Statistics (BLS), concludes that average pay in the investment banking sector, which includes hedge funds and private equity firms, is ten times the average for all private sector jobs, even when the modest pay of clerks, secretaries and others in the investment banking field is included. A study by the Institute for Policy Studies (IPS) and United for a Fair Economy (UFE), “Executive Excess 2007: The Staggering Social Cost of US Business Leadership,” examines the earnings of top executives in publicly held US companies, as well as the astronomical wages for executives in businesses fueled by the private equity boom. Taken together, these two reports highlight the vast amounts of wealth being siphoned off by these corporate executives, while the income and conditions of life for the vast majority of working and poor Americans steadily deteriorate. The earnings of the managers of private equity and hedge funds account for a disproportionate and growing percentage of this wealth drained from the economy. The fact that executives in the investment banking sector are by far the most highly paid of all corporate executives speaks profoundly to the unprecedented level of parasitism that characterizes the US capitalist economy. The specific role of this sector, and the practical result of the operations of its leading personnel, is the extraction of the maximum return to the wealthiest layers at the direct expense of the productive base of society. The huge fortunes that are generated to hedge fund and private equity managers and the like are largely the outcome of speculative buyouts and takeovers of manufacturing and other companies that produce real goods and services, which are then overloaded with debt, downsized and carved up, at the cost of countless thousands of jobs. Immense sums are pocketed by bankers, in the form of fees, interest on loans, and the sale of so-called collateralized debt obligations to other big investors; hedge fund and private equity managers are paid huge sums by their rich stakeholders and they also rake in a percentage of the inflated values generated by their speculative operations; corporate lawyers, consultants and others on the gravy trains take their share as well.
The immense degeneration of American capitalism is expressed in the degree to which economic life is subordinated to precisely these, the most parasitic sections of the ruling elite. Today’s gilded age is dominated not by the “captains of industry” of the robber baron era—Rockefeller of Standard Oil, Carnegie of US Steel—but by those most removed from and inimical to production. The two studies cited above point to two parallel phenomena: the growing gap between worker and CEO pay, and the disparity within the executive ranks themselves, where top earnings have soared to stratospheric levels. The highest-paid CEO of a publicly held company, Terry Semel of Yahoo!, was paid $71,600,216 in total compensation in 2006. By comparison, during this same period, James Simons, president and CEO of Renaissance Technologies, a hedge fund management company, pulled in $1.5 billion. That breaks down to $28,846,154 a week, $721,154 an hour, $12,019 a minute—or $200 a second! (This assumes Mr. Simons puts in a 40-hour week, 52 weeks a year.) These fantastic levels of pay come as the average wages for all Americans declined for the third year in a row. The average hourly wage has been falling since February, when it stood at $17.42 an hour. The US Census Bureau reported on August 29 that household income grew by 0.7 percent in 2006.But while median income was also slightly up, this was because more people were working longer hours. The IPS/UFE report shows that CEOs of large, privately held US companies averaged $10.8 million in total compensation in 2006, or more than 364 times the pay of the average American worker. In other words, on average these executives earn in a day what an average US worker takes home in an entire year.