There are several questions, here.  What caused the huge increases to top-earner incomes?  Is it a pattern which will continue?  Should we care?

Back in the '60s John Kenneth Galbraith observed that managers had taken over "ownership" of corporations from their sharehoders and were operating them for the benefit of the managers.

The "Equity Premium Puzzle":  It has long puzzled economists that investors value bond returns (1% over the very long term) so much higher than stock returns (7% over that term).  Managers have recognized that there is, expressed as the market value of the stock, a large amount of unrecognized value in their corporations.

In the past twenty years managers have learned how to express this hidden value through buy-outs, raids, and accounting devices.  As lawyers know you make your money by putting your hand out as money passes across the table (God Bless You, Mr. Rosewater), managers have learned to put their hands out every time they're able to reduce the size of the  "Equity Premium."

In the past twenty years managers have learned how to express this hidden value through buy-outs, raids, and accounting devices.  

Ah, yes, Ellen, this is a good point too and it it reminds me of what it was like in the late 80's. I recall a lot of pop culture reacted to the excesses resulting from the Reagan era, the corporate buyout artists et. al. flaunting their wealth by both seeing this as "unfair," and by ridiculing it. Bush pere's campaign tried to heal this by doing the "a kinder, gentler nation" thing, asking, in essence, for people to make up for their borderline criminal activity as to the system by being charitable, while not making those guys playing with the old system. Clinton won by saying "everyone's got to play by the rules," not just the bottom guys. But then there was this campaign ginned up by the GOP message machine that damaged that, to prove that Clinton didn't play by the rules, either, using power to smear "common folk" like Paula Jones, selling the Lincoln bedroom, pardoning Marc Rich types....the majority didn't fall for that, supporting Clinton for his actual results with high approval ratings, but it probably did plant more seeds of cynicism about the possibility of actuality having a fair playing ground provided by Federal regulation.

I don't think that executive salaries are really caused by a superstar effect.  Sure, that's some of the answer, but it isn't hard to randomly search through the Edgar database and find five companies you've never heard of, run by people you've never heard of, who are commanding huge salaries and bonuses.

The problem is, I think, that corporate boards approve executive compensation packages.  A director is independent if they don't work for the company and if they're not related to somebody who is an executive with that company.  I've seen board members described as independent who have taken loans from the comanies they oversee and who have had those loans forgiven!

Who are these boards, really?  Well, they tend to be the executives of other public companies where they rely on boards to approve their lavish compensation packages.  If a board tells you that you deserve $300k as a salary, a bunch of perks, and stock options worth millions or more, why would you, as a board member, deny that to some other executive?  You wouldn't.  You'd have nothing to gain by standing up and saying, "this is absurd," because, when you went back to your own board, they would throw that right back in your face.

The superstars do set the aspirations and they are part of the reason that executive wages have risen, but I think the problem is more systemic -- the supposedly independent board members who approve comp packages are people who want their own boards to give them the same or better. 

Isn't it a simple fact of math that the more money you have the more you can earn using that money? So, it must also be a simple fact of math that the wealthy get wealthier, and, since the total wealth of our country is a finite number, the wealthier the wealthy get, the poorer the non-wealthy get. With no outside interference our economic system just about guarantees that in the end our country will be made up of a small class of the super wealthy and a huge mass of the poor. That surely isn't what we want, so it is essential that we have some pretty strong interference with the shift of wealth to the wealthy. A very progressive income tax system will dampen the shift. A system of readily available higher education at minimal cost will do the same, as will a strong labor union system.

Ellen argues:

Since the managers and the owners are responsible for the increase in wealth, why should they, alone, not enjoy that wealth?

An orchestra conductor may have star value, or be responsible for a daring choice of repertoire, or be a good fundraiser, but his stick doesn't make any sound.

Remember that labor is essentially required to work, since it is not legal in most communities to sleep in the street, and all food sources are privately owned, whether store or farm. If labor had a choice and refused to work there would be none of that wealth supposedly created by managers.

That said, with more wealth the greater dynamic range naturally allows more room at the top. Whether this is good for society is arguable, but in past situations of great wealth disparity revolution has been the result.

We might want to consider that. 

A major issue is whether the reward systems at public corporations really reward success. Too many managers reap huge pay checks as their companies shrink in value. Workers, meanwhile, pay the price for their managers' failures in lost pay, benefits, and jobs. Investors also suffer as company stock values fall and loans go into default. Something's not working like it should. Shareholders are starting to raise serious objections and demand action. Workers, unfortunately, are pretty much powerless in the current system and therefore are the last to have their grievances redressed.

Clever people make lots of money because they can.  Foolish people have great trouble stopping them.  That's why clever is an advantage.

In theory it's certainly desireable to moderate winner-take-all, to guarantee all of us a more or less decent existance.  But in practice that's very difficult to do.  A lot of people are thoroughly worthless, a drag on society.  Why should the rest of us help them?  Then there's the question of who controls the redistribution, who passes out the goodies?  All of history says that giving individuals such power invites corruption, nepotism, economic disarray. Then there's the question of determining how much redistribution is enough, how much is too much.

So it's a struggle with no help from theory.  Trial and error. 

Your analysis doesn't quite hold water because wealth is not like energy: it isn't a conserved quantity. Over time it increases (probably because knowledge also increases with time, and wealth is to some extent based on knowledge). However it is certainly true that wealth does not increase infinitely fast and if the rich are getting richer faster than the entire society is getting richer then obviously the rich will be impoverishing others. Ideally (though I can conceive of no way to force this to happen) the rich should not become richer any faster than the whole society does.

.  .  .  [doesn't it] take a lot of people doing their jobs well before that productivity improvement actually takes place .  . .  .  HoppyCalif

1.  I was referring to company "X", the company that purchased the productivity enhancing capital goods.  You're referring to company "Y", the company that produced the capital goods.

2.  There's no reason to assume that company "Y" experienced increased productivity (In fact whatever profit it made on those capital goods it may have spent on wages, bonuses, and dividends)

3.  All of the employees at company "Y" were paid what they "deserved."  We know that, because otherwise they'd have gone off to greener pastures --especially, that engineer you mentioned.

I think the real issue is why the managers who are only doing the jobs they were hired for seem -- and it's not clear it's the case -- to be taking a portion of the increased wealth generated by increased productivity.  Perhaps, they're not; perhaps, they're taking something else.

If so, what "economic rent" are they taking and from whom?

How about the point that in European countries and Japan, their corporations, which often outcompete our corporations, pay their executives many times less?  frankly0

The fact that some corporation "outcompetes" some other doesn't tell us whether it has increased its or society's wealth.  It may simply be demanding a smaller profit or as in Japan for many years, no profit at all.  And when there are few profits, managers don't get paid much.

Or the company may be reinvesting "bonuses" and "dividends" as again, Japan -- looking out 40 years -- did for decades.

The issue is how to "fairly" divide/distribute among the members of the company/society the increased wealth generated by increased productivity.

It may be, as you say, a simple matter of who has the power to work its will, but are you sure that there can be "no help from theory."

Is it not possible, in view of the marked change in the worker-manager pay ratios over the last 25 years or so, that managers have found some soft spot in the system and are taking what is not theirs by right of thebrilliance of their management?

If so, we might not have to talk about "redistribution" but could talk about "fair compensation." 

Selfinterest, I'm in the top few percentage points of income earners. I don't have too much to fear.

Well, if you got there on your merits you must know that those who didn't succeed GENERALLY had less merit. 

There are lots of caveats, of course.  Kepler was one of humanity's greatest scientists but always had to struggle for money.  There are lots of similar examples. 

But it's mostly not like that.  There are talent scouts hunting for almost all desireable talents...and they're good.  Money is thrown at the gifted.  There's a certain amount of nepotism and confusion about the relative roles of genes and environment but children of the favored who are not themselves favored often descend the social and economic ladders. 

Selfinterest, I've been in business for a long while and have been quite successful in my career. I've spent time with very wealthy people and I've spent time with very poor people. All I can say is the wealthy people got wealthy (or stayed wealthy) for lots of different reasons and the poor people stayed poor (or in some cases got poor) for lots of different reasons too. Individual talents (or lack thereof) certainly play a role in economic success or failure. But so do many external factors (having wealthy parents, for instance, is really, really helpful). And luck is important too. Merit is a subjective word--I know plenty of people who got rich doing things that seem immoral to me and some who got rich doing things that were clearly illegal. They certainly had individual talents. Being a good thief is a special skill, after all. But is it merit? I also know incredibly smart talented people who chose to do things that didn't pay well. Do they lack merit? The whole term is problematic to me. It seems to equate making money with being good--and not making money with being bad. From my experience with real people, that's just not something that makes sense to me. There are plenty of people who I know who are extremely talented and capable but aren't making much money. I also know far too many idiots making tons of cash. I know the opposite too--people who are making money specifically because they're talented and hard-working and people who are not making money because they can't get off their lazy asses. What I don't see is a consistent straight line from individual skills or action to reward. There's too much noise in such a complex multivariate system to draw such simple correlations.

As I said in my original post, I'm not outraged by disparities in wealth caused by the market. I think concentrations of wealth serve a good purpose in society--and I'd argue it doesn't really matter if the concentrations accumulate from merit, chance, or even venality. I do think, however, that concentrations also have their dangers that we need to watch out for--and that some redistribution of wealth is useful to give more people a chance of succeeding. You know, providing public education is a way of redistributing wealth, since many people could not afford an education otherwise. I think that sort of redistribution is a great American innovation that has helped spur our economy. I'm all for continuing it.  A basic safety net also promotes peace and stability--another positive for our economy. I'm for that too. The Darwinian approach leads eventually to social unrest and violence. That's not good for anyone.

Baseball, basketball, and football in this country make a lot of money.

They do today. But, the price increase rate is not sustainable, and without that price increase rate the salary increase rate is also not sustainable. Plus, the willingness of taxpayers to subsidize the whole endeavor will not be sustainable. When the golden goose is killed the egg supply will crash.

Over the past few years, productivity per worker-hour has increased even though the number of workers has fallen. This could be due to smart management, but it's just as likely to be due to workers working harder to hang onto their jobs in a punishing economy. And the workers haven't gotten much back for their efforts, either. Businesses have made record profits while wages have stagnated.

I know it's not worth mentioning in a thread about serious economic issues. (FWIW, I agree with those who feel that M.Y. loaded the dice by opposing meritocracy to stardom. The first says that the market or GOP handouts to business favor talent, hard work, and  innovation, while the second imagines executives are pulling in those bucks by awing shareholders rather than by stacking the rules and avoding accountability. In other words, he opposed two idiocies, asking us to choose.) But anyhow, I just wanted to say how I'm always in awe of the trolls for their willingness to post away with a straight face, just to assert the party line. And this one was particularly stunning reasoning:

"If you 'simply can't accept it' then you probably fear it, and if you fear it then it certainly carries a great measure of truth...and you know it."

In other words, the stupider something is, the more truth it most hold? Wow. I simply can't accept arguments that awful, but I guess that must mean they're true, right?

A simple way to put this is that liberals too often see the market as immoral, believing that the rich get rich by exploiting the poor, while conservatives too often see it as moral, with financial success always the result of personal "merit." I much prefer to see the market as amoral, rewarding and punishing a diverse set of factors (including individual talents, accidents of birth, luck, etc.) without making any judgments about the goodness or badness of those factors. It's much like nature: you may be the most successful group of animals ever to walk the Earth, but when a huge asteroid crashes in from outerspace, you become a dinosaur. Oh well, the lord giveth and the lord taketh away. Blessed be the name of the lord.