At Work

Davos Makes Inequality Its Business as Political Backlash Seen – Bloomberg

2014

How ironic is this, the very people who have been cutting pensions and other benefits for years are now worried about the ability of average people to be consumers. I take great delight in saying “I told you so.” However, the problem is not as they describe, inequality.

Inequality implies that generating equality solves the problem. Equality can be accomplished by lowering the income of the higher income folks which accomplishes nothing in terms of the spending power of others. The problem is all those things that inhibit the majority from earning more. The success of others is not one of those things. Complacency by individuals caused in part by lack of the need to do more may be.

Reducing inequality is usually the business of protesters at the World Economic Forum in Davos. This year, it’s the buzzword for the business elite worried about their bottom lines.

As widening income disparity becomes a dominant theme at the annual meeting in the Swiss ski resort, business and financial leaders are making the case that a reversal of that multi-decade trend is needed as much for business and economic interests as for social and moral reasons.

Failure to narrow the gap risks robbing economies of demand and threatens banks and big businesses with political and regulatory backlashes if voters rebel at squeezed wages. A poll of Bloomberg subscribers released this week found 58 percent view income disparity as a brake on economic growth, with 68 percent urging governments to confront the problem.

via Davos Makes Inequality Its Business as Political Backlash Seen – Bloomberg.

Employers so worried about the spending power of workers should have shared the savings from pension and other benefit cuts with workers in the form of cash compensation which of course is the theory held by many economists of what would happen. On the other hand, the fear of political backlash is quite valid. Populist causes garner votes while practical problem solving does not.

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2 replies »

  1. No one ever made a pie bigger by stealing a slice from one person and giving to someone else. However, we have a president who infamously told Charlie Gibson he would, even if it wouldn’t bring in more revenue, increase taxes “for purposes of fairness.” That sure hasn’t helped the masses. Inequality is worse than it was when Barack Obama was elected.

    I agree that cutting off benefits hurts employees’ purchasing power, but I will disagree with “cash compensation.” The best way to share in the prosperity is to pay the workers bonuses in company stock. It serves a double duty: it lets everyone share a slice of the pie, but it also gives employees a clear incentive to work to make the company successful, that is to say, expand the pie.

    If the workers want to share in the prosperity, they should buy company stock. I sometimes tell people who complain about corporations making too much money: “If you think they are making too much money, buy their stock.”

    Like

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