| ||April 30, 2012|
Earlier this year, the exceedingly wealthy Mitt Romney told an interviewer that “envy” was driving those poor misguided non-wealthy souls who rail against America’s ever more concentrated distribution of income and wealth.
Wealthy people like Mitt tend to whip out this “envy card” whenever Americans of modest means start opining about inequality. And the envy card usually works fairly well, so well, in fact, that some wealthy are now playing the envy card against their fellow rich. Last week, for instance, we saw that play just outside Washington, D.C., in an exclusive wooded enclave of five-acre estates.
The rich in that enclave are feuding. One couple wants to raze trees and build a massive $20-million mansion modeled after the Palace of Versailles. Neighbors are suing to stop the project. Retorts the lawyer for Versailles-by-the-Potomac: “I wonder whether it might be envy motivating the neighbors’ complaints.”
In this week’s Too Much, we have plenty more complaints about grand accumulations of private wealth. All driven by envy? You be the judge.
|GREED AT A GLANCE|
The top new frustration facing the world’s super rich? That may be, suggests the Wall Street Journal, “too many giant yachts and not enough places to park them.” In Asia, Reuters reported last week, “the region's nascent yachting class” is facing “trouble finding a berth in overcrowded marinas.” In Barcelona, a private investment fund has bought up dockside real estate in a working-class neighborhood and now wants a license to build a marina big enough to handle yachts that run up to nearly 200 yards long. Local residents are opposing the license bid. The proposed luxury marina, says 68-year-old pensioner Antonio Garcia “will price us out, turning the port into a place only for the very rich.”In Ontario, Canada’s most populous province, lawmakers have just adopted a new 2 percent surtax on income over $500,000. The increase will bring the top combined federal and provincial tax rate on Ontario’s rich to 48.5 percent. In the United States, the top combined federal-state income tax rate runs as low as 35 percent. In Washington last week, House Majority Leader Eric Cantor came out in favor of considering a tax increase — on poor people. We’ve “got to discuss that issue,” the Virginia Republican told reporters. Cantor remains opposed to any tax hike on Americans of ample means. Explains the GOP leader: “I’ve never believed that you go raise taxes on those that have been successful.”
U.S. CEOs have a new headache: how to handle increasingly robust protests at corporate annual meetings. Thousands of activists last week descended on the shareholder meetings of General Electric and Wells Fargo. In San Francisco, protestors at the Wells Fargo session contrasted “the bank’s leading role in the loss of millions of American homes to foreclosure” with CEO John Stumpf’s $19.8 million in 2011 compensation. Wells Fargo and other big U.S. banks, the New York Times noted last Thursday, are now bombarding poor neighborhoods with “payday loans” and other new financial “services” that carry predatory loan-level fees and remain “largely untouched” by new federal regulations.
Quote of the Week
“I have clients who wake up in the morning and say, ‘Let’s go to Venice for lunch.’”
|PETULANT PLUTOCRAT OF THE WEEK|
|complained that Massachusetts taxpayers “are paying excess taxes to support government workers who get high salaries and very rich benefits.’’ That chief exec, Ted Kelly, turns out to have been — at that very moment — halfway through a four-year stretch that had him taking home an average $50 million per year. In 2010, Liberty Mutual also pocketed a $46.5 million taxpayer subsidy to build a new office building in Boston while maintaining a private fleet of five corporate jets that, notes the Boston Globe’s Brian McGrory, made “an unusual number of stops at airports near Kelly’s vacation homes.” Liberty Mutual PR staff refused earlier this month to comment on Kelly’s travel. They cite “security reasons.”Back in 2010, the CEO of Boston’s Liberty Mutual insurance company loudly|| |
Stat of the Week
Since 2000, 21 U.S. CEOs have walked off into the sunset with “golden parachutes” worth over $100 million, notes the GMI Ratings Report. Some 60 percent of U.S. workers 55 or older, the Employee Benefit Research Institute points out, now have less than $100,000 in their retirement accounts.
|inequality by the numbers|
Join a local action planned to mark this May 1 as “A Day Without the 99%.”
Move your money to send a message against big bank CEO profiteering.
Urge the SEC to require companies to report their CEO-to-worker pay ratios.
Start a Resilience Circle
Gadgetopia: Chasing After an Elusive Dream
Bits and bytes would be doing a lot more to help make our lives less nasty, brutish, and short if we shared wealth as routinely as bandwidth. From San Francisco, a new lesson in that reality.
Better living through chemistry. So promised the flacks for DuPont over a generation ago. Our corporate flacks today have a much jazzier message. Better living through gadgets — the smart phones and tablets and whatevers that almost all of us obsess over.
These gadgets certainly can perform wonders. In San Francisco, for instance, a small band of volunteers last summer created an Apple iPad app that can track the whereabouts of every city bus in “real time.”
Imagine that. No more wasted minutes waiting endlessly at bus stops. Smoother commutes for passengers, easier trouble-shooting for bus system managers. Better living indeed.
The folks at San Francisco’s Municipal Transportation Agency couldn't agree more. They can’t wait to put the new app into operation. Unfortunately, they can’t afford to put the new app into operation. The agency, an official explains, is running millions over budget and can’t come up with enough dollars “to buy the iPads required to run the software.”
Why the shortfall? The short answer you'll never hear a bureaucrat give: class war. The long answer: Our world’s incredibly unequal distribution of wealth and power is keeping us from enjoying better lives through gadgets, chemistry, and just about everything else that ought to be improving our human condition.
Let’s start our San Francisco transit backstory with that Apple iPad. At the end of last year, notes Economic Policy Institute analyst Ross Eisenbrey, Apple was selling the iPad to wireless carriers for an average $630 per unit.
What made the gadget so costly? Not labor costs. Apple’s Chinese manufacturing supplier, the notorious Foxconn high-tech factory colossus, was shelling out only $15 per unit to the workers who were actually making the iPads. An additional $296 per unit was going for components and other costs.
That left Apple, back in the United States, with a profit of $319 per every $630 iPad sold. Profits this ample have made Apple’s executive brass enormously rich.
Apple top dog Steve Jobs passed away last year with a fortune estimated at $8.3 billion. His successor, Timothy Cook, inked a pay deal last summer worth $378 million. Cook “makes in 2 hours and 12 minutes,” the Pittsburgh Post-Gazette noted last week, “what the president of the United States makes in a year.”
Apple, of course, hardly stands alone in the high-tech world. Most all America's high-tech giants are exploiting workers and fleecing consumers — and handsomely rewarding those execs who do the exploiting and fleecing.
We don’t have overall high-tech industry executive pay figures in yet for 2011. In 2010, Silicon Valley’s top execs pocketed paychecks up an average 37 percent.
But exploiting and fleecing, we need to keep in mind, haven’t just made high-tech execs exceedingly rich. The wealth this exploiting and fleecing have generated has left high-tech movers and shakers extraordinarily powerful in the political sphere as well, powerful enough to carve mammoth loopholes into the tax code.
How deep do those loopholes go? The California-based Greenlining Institute last week revealed that America’s top 30 tech companies paid on average only 16 percent of their 2011 profits in federal income tax, less than half the 35 percent tax rate that corporations are supposed to be paying.
Apple paid out even less. The company pulled in over $34 billion in 2011 profits and paid federal corporate income tax at just a 9.8 percent rate.
High-tech giants are doggedly dodging local taxes as well. In San Francisco last May, elected officials saw fit to exempt the city’s big high-tech players — Twitter and gaming giant Zynga among them — from the full bite of a 1.5 payroll tax supposed to apply to all income, windfall cashouts from stock options included.
The impact of that decision? Zynga’s initial public stock sale took place last December and made the company’s CEO a billionaire two times over. On the Zynga stock compensation windfall alone, the high-tech tax break adopted last year cost the San Francisco city treasury at least $6 million.
The revenue this tax break is costing San Francisco’s treasury will rise appreciably higher next year. Twitter, an online goliath that dwarfs Zynga in size, will likely start hawking shares on Wall Street in 2012. The resulting stock option windfalls will be immense.
And that brings us all the way back to the San Francisco Municipal Transportation Agency, the underfunded public transit operation that can’t afford to buy enough iPads to start using that nifty app that would make life so much easier for every city bus rider.
In our contemporary United States, these bus riders simply do not rate. Modern societies, their story reminds us, needs more than great gadgets. We need less inequality. Much less.
Peter Diamond and Emmanuel Saez, High Tax Rates Won’t Slow Growth, Wall Street Journal, April 24, 2012. Two top economists make the case for doubling the top tax rate on U.S. income, from the current 35 percent to the 70 percent in effect as late as 1980.
Jim Hightower, Romney's Economic Fix and the Inequity of Private-Equity Hustlers, Common Dreams, April 25, 2012. A good primer on how private equity firms create wealth — for their partners.
Zachary Mider and Jeff Green, How to Get a Pay Raise (If You're a CEO), Bloomberg Businessweek, April 26, 2012. A delightful analysis that skewers the games corporate boards play to rig executive pay.
David Malone, The Midas Touch: Swiss style, Golem XIV, April 26, 2012. How playing to the super rich has undermined the quality of everyday life in Switzerland.
Why So Few Celebrate Our Rising Productivity
Lawrence Mishel, The wedges between productivity and median compensation growth, Economic Policy Institute Issue Brief, April 26, 2012.
A brick factory makes 10,000 bricks a day. But then the factory happens on a new brick-making technique, reorganizes production, and starts making 15,000 bricks a day, with the same workers working the same hours.
Those workers have, in economic terms, become more “productive.” Who should benefit from this increased productivity? Should the benefits flow to the factory owner, as higher profits, or to the workers themselves, as higher wages? Or should that increased productivity translate into lower prices for consumers?
Or should all of the above — owner, workers, and consumers — benefit?
America's answer in the decades right after World War II: all of the above.
Corporations did just fine in the immediate postwar decades as the nation’s productivity rose steadily. But so did average Americans, as both workers and consumers. Over the course of the postwar years, Americans shared the wealth that higher productivity created. The nation would experience the greatest epoch of middle class prosperity the world had ever seen.
What happened next? That’s the story that Lawrence Mishel, the president of the Washington, D.C.-based Economic Policy Institute, tells in his just-released preview on productivity from the upcoming new edition of EPI’s biannual economic factbook series, The State of Working America.
Mishel tells his story with lots of useful numbers. But we can sum up his data in just three quick words. The sharing stopped. Since 1973, average Americans have realized little benefit from rising U.S. economic productivity.
Between 1973 and 2011, that productivity most certainly did rise substantially, by 80.4 percent. That increase, EPI's Mishel notes, would have easily been “enough to generate large advances in living standards and wages if productivity gains were broadly shared.”
But those gains would not be shared. Average hourly compensation in the United States increased by just 39.2 percent between 1973 and 2011, less than half the increase in productivity.
This 39.2 percent figure actually overstates the increase in compensation average Americans realized — because this hourly compensation total includes the pay of all “employees,” from CEOs to day laborers.
Median U.S. workers — the nation's most typical workers — didn’t come close to that 39.2 percent. Their pay increased only 10.7 percent from 1973 to 2011.
We have, Mishel explains, two different dynamics at play here. That “wedge” between productivity (up 80.4 percent) and overall hourly compensation (up 39.2 percent) reflects “an overall shift in how much of the income in the economy is received in wages by workers and how much is received by owners of capital.”
Between 1973 and 2011, owners clearly won. Much more of the gains from productivity went to profits and dividends than to wages and salaries.
The second wedge — the gap between “average” hourly earnings (up 39.2 percent) and median hourly earnings (up 10.7 percent) — reflects the exploding gap between executive pay and typical worker pay. Between 1973 and 2011, CEOs clearly won. Their sky-high rewards jacked up our “average” pay figures.
And what about consumers? Average Americans as consumers, like average Americans as workers, haven’t done so well since 1973. Workers have suffered, Mishel relates, as “the prices of things they buy (i.e., consumer goods and services) have risen faster than the items they produce.”
What accounts for all these “wedges” since 1973? Average American working people simply no longer have the economic and political clout they held back in the middle of the 20th century. The shrinking percentage of Americans who belong to trade unions has left collective bargaining a rarity in the private sector.
And without strong unions on the nation’s political stage, basic labor standards — like the minimum wage — have lost much of their capacity to guarantee workers a fair share of the wealth that increasing productivity creates.
What does the future hold? Probably continued higher productivity. But that higher productivity will never translate into better lives for all Americans — unless we share the wealth that higher productivity creates.