As I continue to contemplate
the increase in inequality that has occurred over the last twenty five years (which everyone
has been blogging about lately) I have become increasingly certain that the process is driven primarily by the increase in power of CEOs relative to shareholders. This has the dual effects of skewing the wage income distribution as well as possibly causing a flight of capital from equities to debt (which also seems present in the eighties and nineties in the top fractions of a percentile in table A7 on page 80
) in order to finance these enterprises that eliminate the principal-agent problem by not having shareholders.
It may be entirely possible that CEO power was influenced by the lowered marginal rates, but I suspect some more direct method was at work. Possibly some sort of change in regulation over corporate boards enacted by Nixon or Reagan. No matter what cause has allowed corporate executives to take advantage of the shareholders, this certainly represents a disturbing breakdown in our business institutions.