When the gods dance...

Monday, May 30, 2011

A Madison Avenue declaration



Feeling a little spooked when you fly at night? You’ve probably read one of those news stories about air traffic controllers nodding off on the job. What’s behind this snooze epidemic? Fatigue. Controllers are making so little, a U.S. Senate panel learned last week, that many are working “two or three jobs to compensate.”

Says Senator Jay Rockefeller: “That’s asking for trouble.” How true. We ask for trouble whenever we let the economic gaps among us widen — and sometimes that trouble can brew for years before we feel it. In this case, about 30 years.

Back in 1981, Ronald Reagan busted the air traffic controllers union by permanently “replacing” striking controllers. That move gave corporate execs, throughout the economy, a green light to replace strikers, a management behavior considered well beyond the pale in the 1950s and 1960s.

We know the rest. Unions grew weaker, corporations grew stronger. Wages stagnated, CEO pay soared. The United States became the world's most unequal industrial nation. And air traffic controllers ended up moonlighting at Applebee’s. Inequality, in short, has consequences. More on them in this week’s Too Much.


Top U.S. corporate execs may never have to fly commercial airline flights ever again. Chapman Freeborn, the world’s largest private jet charter broker, has just-released a mobile phone app that lets CEOs stranded on distant tarmacs rent a private jet right from their handsets. Google billionaires Larry Page and Sergey Brin won’t likely be needing this handy new service. The pair already own aBoeing 767 tricked out with personal staterooms, plus a more modest Gulfstream. Last summer, newly released federal records show, the 767 and the Gulfstream “burned an estimated 52,000 gallons of aviation fuel and $430,000” ferrying Page and Brin to Tahiti for an up-close look at a really nifty solar eclipse . . .

In Britain, chief executive pay at the country’s 100 largest corporations is currently running at about 145 times the average UK worker wage. That’s only half the U.S. CEO pay multiple, but way above chief exec-worker ratios elsewhere in Europe. Ruth Lister, an emeritus social scientist at Loughborough University and a peer in the UK House of Lords, wants to see that gap narrow, and she last week suggested “some form ofmaximum wage” for British corporations, not a fixed sum, “but a maximum pay differential” along the lines of the 20-to-1 ratiothe current prime minister, David Cameron, last year proposed for the public sector . . .

“Good” news for Apple Computer: The May 20 explosion that killed three workers at an Apple supplier factory in China is not going to delay iPad and iPhone production. Bad news for Apple: “Cool” products may no longer blind consumers to corporate arrogance. Activists with US Uncut, the grassroots anti-corporate tax cheat drive, will be staging protests this Saturday at Apple outlets nationwide. The issue: Apple is pushing Congress to let U.S. corporations “repatriate” profits they have sitting overseas at a tiny 5 percent tax rate. Dangerous working conditions at overseas factories have helped those profits soar. A Hong Kong group, two weeks before Apple's May 20 blow-up, released a report that detailed “alarming” safety problems at the explosion site. Apple CEO Steve Jobs currently holds an $8.3 billion fortune. He may not enjoy this cool-as-an-iPad US Uncut video . . .

You don’t have to go to China, of course, to find worksite explosions. Last year, right here in the United States, a Massey Energy blast in West Virginia left 29 miners dead. Earlier this month, an official state report blamed that loss of life on a Massey management “culture bent on production at the expense of safety.” Massey’s now-retired CEO, the report also charges, cowed local pols by spending “vast amounts of money to influence elections.” That CEO, Don Blankenship, had plenty of money to spend. He took home $34 million in 2005, pocketed another$38.2 million from 2007 through 2009, and retired this past December with a $5.7 million pension, $12 million in severance, another $27.2 million in deferred pay, title to a company-owned house, and a lush consulting agreement . . .

Great wealth, philosopher Philip Slater once observed, tends to leave the wealthy instinctively suspicious. Said Slater: “If you gain fame, power, or wealth, you won’t have any trouble finding lovers, but they will be people who love fame, power, or wealth.” Exhibit A for Slater’s wisdom: the long, sad life of Huguette Clark, the copper heiress who died Tuesday at age 104. Clark’s father, mining magnate William Andrews Clark, died in 1925, and the fortune he left his daughter would define — and distort — the rest of her life. Huguette married in 1928, then divorced two years later. She never had children and, after her mother’s 1963 death, lived as a recluse, first in her 42-room New York Park Avenue apartment, then, under a false name, in a hospital room for 22 years. She also owned, but never visited, a $100 million beach house in Santa Barbara and a $23 million Connecticut estate. Clark did have cousins, nephews, and nieces, but she refused to see them. Her closest friends, an acquaintance once noted, “have always been her dolls.” She paid servants to iron their clothes. Clark, who once called money “a menace to happiness,” leaves behind a fortune worth at least $500 million.




Madison Ave. Declares 'Mass Affluence' Over

The American middle class, concludes a new study from the ad industry's top trade journal, has essentially become irrelevant. In a deeply unequal America, if you don't make $200,000, you don't matter.

The chain-smoking ad agency account execs of Mad Men, the hit cable TV series set in the early 1960s, all want to be rich some day. But these execs, professionally, couldn’t care less about the rich. They spend their nine-to-fives marketing to average Americans, not rich ones.  

Mad Men’s real-life ad agency brethren, 50 years ago, behaved the exact same way — for an eminently common-sense reason: In mid-20th century America, the entire U.S. economy revolved around middle class households. The vast bulk of U.S. income sat in middle class pockets.

The rich back then, for ad execs, constituted an afterthought, a niche market.

Not anymore. Madison Avenue has now come full circle. The rich no longer rate as a niche. Marketing to the rich — and those about to gain that status — has become the only game that really counts.

“Mass affluence,” as a new white paper from Ad Age, the advertising industry’s top trade journal, has just declared, “is over.”

The Mad Men 1960s America — where average families dominated the consumer market — has totally disappeared, this Ad Age New Wave of Affluence study details. And Madison Avenue has moved on — to where the money sits.

And that money does not sit in average American pockets. The global economic recession, Ad Age relates, has thrown “a spotlight on the yawning divide between the richest Americans and everyone else.”

Taking inflation into account, Ad Age goes on to explain, the “incomes of most American workers have remained more or less static since the 1970s,” while “the income of the rich (and the very rich) has grown exponentially.”

The top 10 percent of American households, the trade journal adds, now account for nearly half of all consumer spending, and a disproportionate share of that spending comes from the top 10’s upper reaches.

“Simply put,” sums up Ad Age’s David Hirschman, “a small plutocracy of wealthy elites drives a larger and larger share of total consumer spending and has outsize purchasing influence — particularly in categories such as technology, financial services, travel, automotive, apparel, and personal care.”

America as a whole, the new Ad Age study pauses to note, hasn’t quite caught up with the reality of this steep inequality. Americans still “like to believe in an egalitarian ideal of affluence” where “everyone has an equal shot” at “amassing a great fortune through dint of hard work and ingenuity.”

In actual life, the new Ad Age study points out, “the odds of someone’s worth amounting to $1 million dollars” have shrunk to “1 in 22.”

The new Ad Age white paper makes no value judgments about any of this. The ad industry’s only vested interest: following the money, because that money determines who consumes.

“As the very rich become even richer,” as Ad Age observes, “they amass greater purchasing power, creating an increasingly concentrated market for luxury goods and services as well as consumer goods overall.”

In the future, if current trends continue, no one else but the rich will essentially matter — to Madison Avenue.

“More than ever before,” the new Ad Age paper bluntly sums up, “the wealthiest households will be the households with significant disposable income to spend.”

On the one hand, that makes things easy for Madison Avenue. To thrive in a top-heavy America, a marketer need only zero in on the rich. On the other hand, a real challenge remains: How can savvy Madison Avenue execs identify — and capture the consuming loyalties of — people on their way to wealth?

Before the Great Recession, the Madison Avenue conventional wisdom put great stock in the $100,000 to $200,000 income demographic, a consuming universe populated largely by men and women 35 years and older.

These “aspirational” households, ad men and women figured, could afford a taste of the good life. They rated as a worthwhile advertising target.

Targeting this $100,000 to $200,000 cohort, the new Ad Age report contends, no longer makes particularly good marketing sense. These consumers don’t “feel rich” today and won’t likely “graduate into affluence later on.”

Only under-35s who make between $100,000 and $200,000, says Ad Age, will likely make that graduation. This under-35 “emerging” tier will have “a far greater chance of eventually crossing the golden threshold of $200,000 than those who achieve household income of $100,000 later in life.”

So that’s it. If you want to be a successful advertising exec in a deeply unequal America, start studying up on 20-somethings making over $100,000 a year.

The ad industry, with this new affluence report, seems to have the future all figured out. And those of us who don’t make $200,000 a year, and don’t have much chance of ever making it, what about us? No need to worry. Who needs purchasing power? We have Mad Men reruns.


A 'Flip' Solution to Ending Budget Shortfalls

Karen Kraut, Shannon Moriarty, and Dave Shreve, Flip It to Fix It: An Immediate, Fair Solution to State Budget Shortfalls, United for a Fair Economy, May 25, 2011.

In this spring of mass layoffs and wage cutbacks, nobody can really blame local classroom teachers, firefighters, and police for wanting to turn back the clock a few decades or so, back to a time when America seemed to really value public services — and the people who provide them.

Unfortunately, we can’t go back in time. So we need, suggests this imaginative new report from the Boston-based United for a Fair Economy, to do the next best thing. We need to turn our state fiscal status quo upside-down.


If every state “inverted” its tax structure — that is, had the state’s most affluent pay the same share of their incomes in state and local taxes as the state’s least affluent, and vice versa — the current lake of budget red ink that covers the nation’s state capitals, the new UFE report documents, would totally evaporate.

In a “progressive” tax system, affluent people pay a greater share of their income in taxes than the less affluent. By this yardstick, notes UFE’s new Flip It to Fix It: An Immediate, Fair Solution to State Budget Shortfalls, no state tax system in the United States can currently lay claim to true “progressive” status.

In state after state, this new Flip It to Fix It report explains, low-income taxpayers bear a heavier tax burden than high-income taxpayers.

How much heavier? To dramatize the amazing depth of our state and local tax “regressivity,” United for a Fair Economy has calculated how much revenue state and local governments would raise if they flipped their current effective tax rates at the 50th income percentile — and had each state’s highest-income 20 percent pay taxes at the same rate the state’s poorest 20 percent pay today.

In this UFE exercise, the poorest 20 percent then pay their taxes at the current top 20 percent rate, and the next highest and lowest “quintiles” also trade places.

The result of this fiscal flip? States and localities, simply by turning effective tax rates upside-down, would raise an additional $490 billion, far more than enough revenue to wipe away this fiscal year's $112 billion combined state and local government budget shortfall, with plenty of cash to spare, observes UFE, for “economy-enhancing” investments in infrastructure and the like.

Actually making this flip would, of course, require changing current state tax systems — raising far less income from regressive sales taxes, for instance, and far more from income taxes “graduated” to levy higher tax rates on higher incomes.

United for a Fair Economy researchers are hoping their new Flip It to Fix It paper helps expose “the economically unsound and unfair regressive nature of existing state and local tax structures — and the extent to which simple, commonsense equity can produce significant benefits.”

Or, in other words, instead of cutting and gutting, let’s just flip.

Quote of the Week

“How about ending big handouts for Big Oil? How about making millionaires and billionaires pay their fair share? We can do all that and not decimate Medicare.”
Kathy Hochulupset winner in upstate New York congressional special election, May 24, 2011

Stat of the Week

The estates left behind by America super rich — those fortunes worth over $20 million — will pay, on average, $3.8 million each less in estate taxes in 2011 and 2012, thanks to the tax “compromise” enacted this past December. In all, theCenter on Budget and Policy Priorities reported last week, the December trim of the estate tax will save the wealthiest 0.25 percent of all estates $23 billion in 2011 and 2012.

New Wisdom
on Wealth

Mark Provost, Why the Rich Love High Unemployment. Truthout, May 24, 2011. For CEOs and wealthy bondholders alike, the more jobless, the merrier.

David Leonhardt, Top Colleges, Largely for the EliteNew York Times, May 24, 2011. On the most prestigious U.S. campuses, students from affluent families far outnumber students from low- and middle-income households.

Mark Engler, A Fair Tax on MillionairesNation, May 30, 2012. A solid survey of the current tax-the-rich landscape across the United States.

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