Ninety-nine percent of the top 20 percent of households earn their income through employment.
An annual income of just more than $101,500 is required to enter the ranks of the richest 20 percent of American households. Think of a married dental hygienist and a police officer, for example. These are working households in the sense that 76 percent of income in this category comes directly from wages or salary.
The most recent IRS data reveal that earnings from capital (primarily dividends) don’t reach half of total earnings until a household earns more than $5 million per year. Even at that rarified income, one-third of earnings come directly from wages or salary.
The plain fact is, of the households with earnings in the top one-fifth, only 0.0016 percent earn more than half their income from stock dividends. Simply put, most rich households work.
It is also plainly true that someone else’s riches don’t come at the expense of the rest of us. There is not a finite amount of income. Earnings growth comes from economic growth, and those who cause growth keep a disproportionate share. That is simply how any successful economy works, though unsuccessful economies have tried other models.
Even supposing a corporate CEO can persuade the board to overpay him, the payment comes not from the company’s workers or customers, where wages and prices are disciplined by markets. No, any overpayment to a CEO comes from the shareholders.
This is mostly a transfer from one rich person to another.
Though I think most anger at the rich is simply greed borne of ignorance, there are some better reasons to think poorly of some. Many of us (me included) feel disdain for a corporate executive earning huge salaries while the company flounders.
Some of us even feel that way about highly paid athletes or plainly bad pop musicians. This is human nature. If we think Justin Bieber is rich at our expense and we are angry, then the human nature at work is ignorance and greed. But there can be another explanation for anger at great riches.
Many of us were raised in a culture of personal responsibility. Watching a failed CEO rake in tens of millions of dollars is distasteful even if we feel no pain from it. I think most of us would be ashamed to do so, as it would appear selfish and diminish us in the eyes of our friends and family.
As always, Adam Smith said it better: “The man of the most perfect virtue ... is he who joins, to the most perfect command of his own original and selfish feelings, the most exquisite sensibility ... (to the) feelings of others.”
Perhaps resentment toward some rich people is not because they are rich but because their wealth appears undeserved through effort or talent. This brings us back to the basics on the income inequality debate. It is human nature to dislike selfish choices, whether it is an executive pilfering his failing company or a teenager fathering a child he cannot afford to nurture.
Michael J. Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University. Send comments to email@example.com.