A new study of CEO pay today found that the leaders of the companies in the S&P500 had their total compensation go up 28% over last year—a large part of it fueled by increased bonuses, the median of which was $9 million. Those guys seem pretty rich. But if you think the top 1% of the country is "rich," you have yet to enter the rarefied air of America's real upper class. Just a few top hedge fund managers out-earn all these fat-cat CEOs combined.
This echelon of the economy was explored by a pair of economists at the University of Chicago. Their analysis begins with America's best-compensated 0.1%, and goes all the way to the 0.0001% of Americans who are paid more than any others. Those well-heeled CEOs can't even hope to get invites to that party.
Their initial research was conducted before the latest economic crash, but according to Steve Kaplan, a professor of entrepreneurship and finance at the University of Chicago, the inequality they discovered then is still true today, in a world of record Wall Street paydays.
"The top 25 hedge fund managers combined appear to have earned more than all 500 S&P 500 CEOs combined (both realized and ex ante)," Kaplan and colleague Joshua Rauh wrote in their original paper. This is the percentage of the total income of the top 1% of American wealthiest is made up of those CEOs. Not even a single percentage point:
More broadly, what Kaplan and Rauh discovered is that the exponential trend of income inequality—where the proportion of income and wealth accrued by the tiniest sliver at the top of America's income pyramid is disproportionately larger than what's controlled by everyone below—goes all the way to the top.
And the gap between the mere rich and the ultra rich is only getting worse: This year's uptick notwithstanding, since its peak in 2000, average CEO pay is down 50 percent in real terms.
Kaplan and Rauh's findings are borne out by other trends: If you look at which states have the greatest income inequality, the usual suspects show up. States beset by poverty, like Georgia, Texas and Louisiana all make the top 10. But the top 2 are rich states: Connecticut and New York. How to explain these seeming outliers? They're where people connected to Wall Street live.
But why should we care if a handful of America's richest can't afford one more ivory back-scratcher? Because inequality at the very top of the income ladder mirrors what's happening to the entire spectrum of American workers, from rich to poor, and more inequality is not good for the national mood. As Princeton University professor of history and public affairs Julian Zelizer puts it, "Much of this economic insecurity has driven the kind of populist politics that has threatened both [political] parties, and left voters profoundly unhappy." Except for the hedge fund guys at the very top—they are probably happily having a bunga bunga party with Silvio Burlusconi on their megayachts about now.