Measuring Economic Alternatives to the Current American Economy

If we look at the recent economic data, such as the distribution of incomes, or the Reagan/Bush era tax cuts, or the history of downsizing, we can tell that the American economy is currently based on promoting and preserving the wealth of the rich. Below we look at what could be done with our resources, if we change our focus to the work of the worker, or to the consumer.

This page gives numerical examples to support the discussion on Maximum Ratio.


Example 1: Microsoft Corporation CEO Bill Gates

Over the history of Microsoft, Bill Gates took over $80 billion in income, averaging over $2.1 Billion per year. As of the last check Microsoft had approximately 33,000 employees.

If the revenues given to Mr. Gates had been reduced to $70 million per year, he would still be superrich. Many experts in the field believe that at this income he still would have taken from the economy far more than he contributed. It is even arguable that this amount is far more than any human being is capable of contributing. This would have returned to Microsoft about $2.05 Billion per year to be used for other purposes.

1. As the employees would see it

Returning that $2.05 Billion per year to the employees who produced the products that made Mr. Gates rich would have given the typical employee a raise of about $62,000 per year. If we assume Microsoft employees had earned about $60,000 per year that would give them an income of about $122 thousand per year or a raise of over 100%. At this rate Mr. Gates would still be earning about 500 times the income of the workers who made him rich.

2. As the economy and software market would see it

An alternative would be to reinvest that money in the company by creating new jobs. That much money could easily create 17,000 new jobs at an income of about $60,000 per year. As it stands, Microsoft is notorious amongst software engineers for the low quality of their products. Imagine what 17,000 new software engineers and quality control engineers could have produced. Imagine how much farther the PC world would be if that money had been used to pay these engineers to produce!

3. As the customers would see it

If we assume that there are about 800 million users of Microsoft products in the world, then we can conclude that the average PC user has paid about $100 over and above the normal cost of the product, and necessary corporate profit, to turn one rich man into a superrich man. As a computer user how does that make you feel? Do you believe that the $100 you paid directly to Bill Gates on top of the value of the software you purchased was worth it? Remember this money did not improve the quality of the product you purchased, it was simply used to raise Gates' income over the billion dollar mark.

Note: All these number are based on CEO, Bill Gates' income alone. Remember that Microsoft turned 2 men into billionaires and a few other into multimillionaires. If we account for all of these excess salaries (still allowing each of them to remain rich) the numbers above would more than double. The workers could have had raises averaging more than $120,000, or Microsoft could have created over 34,000 new job producing higher quality products for the consumer, or each customer could have saved over $200. Obviously, some compromise between these possibilities would be nice.


Example 2: (draft) more to come

 


General Example: The United States as a whole

In 1999, only 0.5% of Americans grossed more than $500,000, and only 7.6% earned more $100,000. This top 7.6% took 40.5% of the income for 1999. Contrast this to the median income (adjusted gross income - AGI) which was about $28,000.

If we assume that the common people worked for the same companies as the rich, then those companies could have chosen to pay all their employees more rather than just a select few. What might the results have been if American corporations had used part of their funds to pay the workers that had worked to make their executives rich? They could still pay their executives high salaries. But they could invest more into those that are producing the real products.

The IRS Data for 1999:

Income Range
Percentile
Number
Typical Wages
Percent of Total Income
$100K to $200K
92.4
7,104,712
$ 131,570
16.0
$200 to $500K
98.0
1,876,561
$ 289,065
9.3
$500K to $1M
99.5
348,257
$ 676,802
4.0
over $1M
99.8
205,124
$ 3,184,339
11.2
     
Total:
40.5

Sample Alternatives:

Now what would happen if the companies that paid these high earners, still paid them well, but used some of those funds to pay workers to produce more.

Method 1: the aggressive change alternative

If the companies that pay each person earning in the top 7.6% (above $100K) kept their executive salaries in the same range but reduced them to the bottom of the range (e.g.: a person making $2M would make only $1M), that would return $900 Billion to the companies to use.

If these funds were used to increase the salaries of those already working, then typical worker would get a raise of about $8,000 per year.

If these funds were used to hire more workers, over 10 million new jobs could be created with wages averaging over $40,000 per year. (This assumes another $40,000 is spent on the costs of their employment.)

Those 10 million jobs could create $90 billion in tax revenue and save the social welfare expenditures more than $7 billion.

Method 2: less aggressive change

If the companies that pay each person earning in the top 7.6% (above $100K) kept their executive salaries in the same range but reduced them halfway in their range (e.g.: a person making $2M would make $1.5M), that would return $450 Billion to the companies to use.

If these funds were used to increase the salaries of those already working, then typical worker would get a raise of about $4,000 per year.

If these funds were used to hire more workers, over 5.5 million new jobs could be created with wages averaging over $40,000 per year. (This assumes another $40,000 is spent on the costs of their employment.)

Those 5.5 million jobs could create $45 billion in tax revenue and save the social welfare expenditures more than $3 billion.

Method 3: Mundane change - supporting the system

The tax rates could be returned to what they were from 1968 through 1980. If that were done the federal government would have taxed the top 7.6% $450 billion more than they actually did. This would have balanced the federal budget - even during the high deficit Reagan - Bush years.

Conclusion: The United States could easily have both full employment, and a balanced (peace time) budget, simply by changing its economic focus from promoting the wealth of the rich, to promoting the work of the worker.


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