Recently, in an interview for a biography, Pope Leo worried about widening inequality in the world. The Pope said,
"Add on top of that a couple of other factors, one which I think is very significant is the continuously wider gap between the income levels of the working class and the money that the wealthiest receive. For example, CEOs that 60 years ago might have been making four to six times more than what the workers are receiving, the last figure I saw, it’s 600 times more than what average workers are receiving. Yesterday the news that Elon Musk is going to be the first trillionaire in the world. What does that mean and what’s that about? If that is the only thing that has value anymore, then we’re in big trouble."
To begin with his comment on Musk, the Pope should consider that he is a trillionaire only because of the massive destruction of the U.S. dollar by the government through the Federal Reserve. The price of gold is the best indicator of the eroding value of paper money. In 1900, the price of gold was $20/ounce. Today, it's over $3,600/ounce, an increase of 180 times the 1900 price. That means a trillion dollars today would have been worth just $5.5 billion a century ago. In the value of dollars in 1900, Musk is merely a billionaire.
Still, that's a lot of money! But does it mean we're in real trouble? Only if the Pope clings to medieval economics that says one can grow rich only at the expense of others. From prehistory until the advent of capitalism, the "honorable" ways to gain wealth were from looting in war, kidnapping for ransom and taking bribes as a government official. In other words, people grew rich by theft. So, medieval people had good reason to think that wealth is zero sum and a form of theft.
However, the Dutch Republic, the first capitalist nation, outlawed the old "honorable" ways of gaining wealth and sanctified commerce for the first time since Venice did so. Those small changes launched the great enrichment of the West that continues today and has made the West 30 times richer. Nothing was stolen from others. Since then, gaining wealth has required businessmen to provide value to consumers. Capitalism is the only system that takes "Thou shalt not steal" seriously.
The wealth of the West came from productivity increases in the production of food, clothing, transportation and other goods that created new wealth. Even socialist countries have benefited by importing Western technology to improve productivity.
The CEO-to-worker compensation ratio for S&P 500 companies is about 196-to-1 and has grown over the years. Does that mean executives are taking wages from workers. No. A large part of CEO compensation comes from stock options and as with Musk, it means the Federal Reserve has counterfeited a tsunami of new money, most of which goes into the stock market.
Another reason for the rising CEO pay is that many U.S. firms have grown internationally. It should be obvious that a manager of a Walmart in Broken Arrow, OK will earn less than a CEO of a company that sells world-wide because the CEO is responsible for billions more dollars of revenue and expenses. The greater the responsibility, the more rare is the talent to handle it. As with rare diamonds, rare skills earn higher compensation.
But laborers do all the work. Shouldn't they get the money instead? No, because boards of directors don't pay CEOs to work hard; they pay for the knowledge a CEO possesses. No one hires a football coach to block, tackle and throw passes. They hire coaches for what they know about the game, directing players, and drawing up plays. No one hires a CEO to weld or hammer nails. They hire him for his expertise in finance, managing people, and understanding the market.
I frequently remember Thomas E. Woods' book The Church and the Market: A Catholic Defense of the Free Economy. Dr. Woods, a devout Catholic, reminds fellow believers that the Pope enjoys infallibility only in theology and morals. Scientific issues, such as economics, aren't included. Even Popes must bow to science.
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