Time for Wall Street and Main Street to get closer again

Big bonuses are back on Wall Street as the US economy roars back into life. But do big numbers mean big success or big trouble?

It is boom time again in the US. At least for some.

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Last year, as Wall Street roared back to life and corporate profits soared, America's bosses reaped the benefit with bigger bonuses, stock grants and higher wages.

The numbers are impressive. According to a survey conducted for The Wall Street Journal, the median value of compensation packages for the chief executives of 350 major US companies surged 11 per cent to US$9.3 million (Dh34.1m) last year. That is a tidy sum. But the breakdown for individuals is even more lucrative.

Top of the list was Viacom's chief executive Philippe Dauman, who doubled his 2009 pay to rake in $84.3m. .

Defenders of such vast payouts use a variety of arguments.

They point out that while US companies are doing well, it is natural that their top executives be amply rewarded. Indeed, the increase in executive pay was below the median rises of net income and shareholder returns at the 350 companies surveyed, which were 17 per cent and 18 per cent respectively.

So, on one hand, American executives could argue they are being rewarded less than they deserve.

In that light, these highly paid executives are being modest and still reflecting the hard reality of post-Great Recession America.

Except they are not.

While almost everyone accepts top executives should be paid more than their workers - a great deal more - it is a question of scale. And in the US the scales have become unbelievably unbalanced.

For as executive pay in the US has rocketed for years, pay for the workers lower down the management chain has remained largely static for decades. Real average hourly earnings have barely moved for almost half a century.

That has led to a growing inequality in a country that still prides itself culturally on the idea that anyone can join the American Dream.

There is actually a way of measuring this data. Called the Gini coefficient, it was developed by the Italian statistician Corrado Gini a century ago and tracks income equality. America's Gini coefficient is 45. That, according to the CIA's World Factbook, makes it the 42nd most unequal country in the world. Countries more equal than the US include Pakistan, Ethiopia, Ivory Coast and - more predictably - Norway and Sweden.

Other figures are equally disturbing.

The gap between the average income of the top 0.01 per cent of Americans and the bottom 90 per cent is now the highest since the 1920s. The top 1 per cent of Americans own 33.8 per cent of the nation's wealth; the bottom 50 per cent just 2.5 per cent.

This is not a healthy or just situation. Yet the body politic is not responsive to it.

Late last year President Barack Obama had the opportunity to narrow the gap slightly by letting tax breaks for America's wealthiest citizens expire, as they had been designed to do by his predecessor George W Bush. But, under attack from Republicans, Mr Obama instead extended them.

It was a staggering let-down and not just for liberals and the low paid.

Some of America's richest people - from the billionaire investor Warren Buffett to the Facebook founder Mark Zuckerberg - are now loudly asking for themselves and people like them to be taxed higher. But to no avail.

Meanwhile, unemployment has climbed again. The official rate, after dropping gradually for the past few months, has now moved back up to 9 per cent. For millions of Americans the Great Recession is not yet over, no matter what the official economic statistics say.

It runs on, destroying lives and prospects.

American business and political journalism frequently uses the words "Wall Street" and "Main Street" to discuss the complex interplay between the nation's wealthiest bankers and business executives and the legions of ordinary middle and working-class citizens.

Looking at the figures, it is almost impossible not to see that Wall Street has to some extent cut itself adrift from Main Street. Growing inequality amid increasing wealth for a tiny minority is not a good scenario in any country, let alone the world's only remaining superpower.

So, while America's top executives can enjoy their bumper year of 2010, they should perhaps moderate their celebrations.

They should look at the system that has brought them their renewed fortune and wonder if it can last. After all, if no other lesson has been learnt from the financial crisis, it is that boom times do not last. There is always a painful bust.