DANCING NEBULA

DANCING NEBULA
When the gods dance...

Tuesday, June 25, 2013

A Congress only CEOs could love

   
June 24, 2013
THIS WEEK


The justices of the U.S. Supreme Court have just released their annual financial disclosures. The disclosure forms don’t require the justices to be particularly specific. The best we can tell, counting residences, all nine justices hold a good bit over $1 million in personal net worth.

All nine justices, in other words, sit comfortably within America’s richest 2 percent, a little statistical tidbit that doesn’t seem to interest our chattering class. This latest round of financial disclosures has garnered next to no commentary.

But think about this for a moment. Our current Supreme Court has more gender and ethnic diversity than any high court in American history. We proudly celebrate this diversity as a welcome sign of social progress. Yet we give no attention at all to the Supreme Court’s absolute absence of class diversity.

On the nation’s highest bench, as almost everywhere else in America, the rich rule. Democracy runs a poor second. More on the race this week in Too Much.




GREED AT A GLANCE
Alan Krueger, the chair of President Obama’s Council of Economic Advisers, took the case for a more equal America into hostile territory last week. He told a Wall Street Journal-hosted gathering of corporate chief financial officers that the nation's growing income gap “threatens our economic stability.” The private sector, Krueger urged, needs to start attacking that gap. The private sector, as represented by the assembled CFOs, doesn’t seem to agree. Conference organizers polled the execs on whether they believe that “decreasing the income gap between workers and top executives would improve productivity and efficiency in American business.” Exactly 69 percent replied they do not . . .

Harvard’s Gregory Mankiw would no doubt receive a much warmer reception from America’s CFOs than Alan Krueger. Mankiw, the chair of George W. Bush's Council of Economic Advisers, has just authored a paper that explicitly defends — and even exalts — the wealthy and their wealth. Mankiw's “Defending the One Percent” argues that “most of the very wealthy get that way by making substantial economic contributions, not by gaming the system.” Mankiw, analyst Lynn Parramore deadpans in one detailed riposte, does not quite rate as “a reality-based economist.” Another counter to Mankiw's apologia, by the Economic Policy Institute's Larry Mishel and Josh Bivens, reviews the “voluminous” research on just how much pay for corporate execs and Wall Streeters “exceeds the contribution they make to economic output.”

Kalos, a North Carolina company that runs luxury golf excursions, recently offered a 22-day tour that would open in Maui and fly vacationers to world-class golf courses on five different continents. The tour company put a $74,450 price tag on each tour ticket and expected, at best, a dozen sign-ups. But Kalos sold out all 78 available spaces and ended up with a waiting list, just another sign, says Elite Travel magazine editor Doug Gollan, that ultra luxury travel is “booming” in an austerity-wracked world. Tours along the order of the new Kalos offering, notes Gollan, appeal to elite vacationers in the $10 million asset neighborhood. These deep pockets, the luxury expert points out, don’t really rate as truly “uber-rich.” Still, he adds, they do have more than “chump change.”







Quote of the Week

“The fundamental law of capitalism is that if workers have no money, businesses have no customers. That’s why the extreme, and widening, wealth gap in our economy presents not just a moral challenge, but an economic one, too. In a capitalist system, rising inequality creates a death spiral of falling demand that ultimately takes everyone down.”
Nick Hanauer, The Capitalist’s Case for a $15 Minimum Wage, Bloomberg, June 19, 2013

PETULANT PLUTOCRAT OF THE WEEK

No one is relishing the bad press the IRS has received of late more than Wall Streeter Peter Kellogg. Five years ago, the IRS revoked a tax exemption Kellogg enjoyed, and the 70-year-old ended up paying $186 million in taxes and interest. Now Kellogg wants his money back. He's calling the IRS “unduly prejudiced” against him — and suing. What really happened: Kellogg, back in 1986, created a faux insurance operation to shelter hundreds of millions in investments. The IRS ignored the scam for years. But reporters didn't, and the IRS, with the spotlight on, finally started some serious audits. The reporters, Kellogg’s lawsuit charges, created a “politically charged atmosphere” and “adversely influenced” the IRS. Kellogg seems to have recovered from the terrible injustice done him. Forbes puts his current net worth at $2.7 billion.





Web Gem

Inequality.Is/ An imaginative new Economic Policy Institute site that focuses in on income inequality in the United States — what this inequality means for working people and how, together, we can fix it.

 


PROGRESS AND PROMISE
The massive bank fraud that helped crash the U.S. economy, a federal lawsuit in Massachusetts is demonstrating, has still not played out. After the 2008 crash, new evidence shows, Bank of America execs rewarded managers for lying to homeowners and “deliberately pushing people into foreclosure.” Maybe now, says Home Defenders League organizer Peggy Mears, America’s courts will “prosecute, and then lock up, these criminals.” Over in the UK, meanwhile, an official commission on banking standards that includes the archbishop of Canterbury has released a new report that asks Parliament to make “reckless misconduct” by top bank officials a criminal offense — with jail terms. The report also urges an up-to-10-year deferral on all bank executive bonuses and the cancellation of all bonuses if a bank “requires direct taxpayer support.”

INEQUALITY BY THE NUMBERS




Stat of the Week

The other CEO pay gap: Back in the 1990s, DuPont CEO Edgar Woolard limited his compensation to 1.5 times the pay of fellow DuPont execs. In 2012, CBS CEO Leslie Moonves took home five times the average pay of his next four highest-ranking execs. In all, a dozen CEOs in New York alone last year pocketed over five times more than their fellow top executives.

 
IN FOCUS
Once Again, a Congress Only CEOs Could Love
House Republicans, with help from some Wall Street-friendly Democrats, are rushing to repeal the most promising Dodd-Frank Act check on excessive executive pay. You won't believe their rationale.

Only 10 percent of Americans now have confidence in Congress, Gallup has just informed us. No other major institution in American life today has this low an approval rating. In fact, adds Gallup, no major American institution has ever had an approval rating this low.

The most amazing aspect of all this? Public confidence in Congress would likely be running even lower if average Americans knew more, day to day, about what Congress is actually doing. The latest case in point: last week’s congressional committee action on H.R. 1135, the “Burdensome Data Collection Relief Act.”

This particular piece of legislation speaks to an ongoing frustration in America's body politic: the supersized paychecks that go to America’s top corporate executives. Average Americans, in overwhelming numbers, want something done to bring some common-sense back to CEO pay.

But the House Financial Services Committee, this past Wednesday, opted to do the exact reverse. By a 36-21 margin, committee members voted to repeal the only statutory provision now on the books that puts real heat on overpaid CEOs. The full House, observers expect, will shortly endorse this repeal.

The specific provision 31 Republicans and five Democrats voted to repeal — section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act — imposes a new disclosure mandate on America’s major corporations. Under Dodd-Frank, corporations must annually reveal the ratio between what they pay their CEO and what they pay their median — most typical — workers.

Corporations have had to disclose what they pay their CEOs ever since the Great Depression. But they’ve never had to disclose, until Dodd-Frank became law in 2010, their CEO pay as a multiple of what their average workers are earning.

Executive pay reformers consider this ratio information crucial to the struggle against executive excess. If Americans could see — and compare — the exact CEO-worker pay ratio from one corporation to another, the resulting negative publicity on those corporations with the widest pay gaps might help discourage excessive executive compensation in the future.

And if corporations should choose to ignore this negative publicity — and charge ahead with lavish executive compensation — the Dodd-Frank pay ratio disclosure mandate could serve as a stepping stone to tougher reform action.

Lawmakers could, for instance, set a specific CEO-worker pay multiple as the nation’s preferred corporate compensation standard and deny government contracts, tax breaks, and subsidies to any corporations that pay their execs over and above that standard.

The Dodd-Frank pay ratio disclosure mandate has the potential, in other words, to help extinguish what Forbes magazine recently dubbed “the out of control wildfire” that executive pay has become. But the mandate hasn’t extinguished anything yet because the mandate hasn’t yet gone into effect.

Corporate lobbyists have seen to that. They've been pressuring the Securities and Exchange Commission, the top federal watchdog over Corporate America, to gut the Dodd-Frank pay ratio provision.

This lobbying blitz has paid off. The SEC has to issue regulations before any newly legislated mandate over corporate behavior can be enforced. The agency has so far issued no regulations on CEO-worker pay disclosure — and nearly three years have gone by since Dodd-Frank initially worked its way into law.

But America’s corporate leaders don’t want to have to rely solely on their ability to intimidate the SEC. They’ve also orchestrated a congressional drive to simply repeal the Dodd-Frank pay disclosure mandate outright.

How can lawmakers who carry Corporate America's water possibly defend repealing a measure as publicly popular as pay ratio disclosure? Easy. They simply paint corporations as the victims of overzealous government bureaucrats who want to drown them in burdensome — and meaningless — paperwork.

In last week's committee deliberations over 953(b), repealers did their best to trivialize the intent of the Dodd-Frank pay ratio mandate.

Today, joked House Financial Services chair Jeb Hensarling from Texas, CEO-worker pay disclosure, tomorrow a mandate that companies calculate the ratio of office supplies they get from national big box retailers to the goods they get from locals — or the ratio of healthy to unhealthy drinks in company soda machines.

“I assume,” Hensarling smirked, “there is an infinite number of ratios some investors would find helpful to their decisions.”

Serious business analysts, of course, see executive-worker pay ratios as anything but trivial. Peter Drucker, the father of modern management science, believed that any corporations that had executives making over 20 or 25 times worker pay were putting employee morale and productivity at risk.

The current director of the Drucker Institute at the Claremont Graduate University just outside Los Angeles, Rick Wartzman, has stressed that point repeatedly, both in the nation’s business press and in comments backing pay-ratio disclosure filed with the Securities and Exchange Commission.

And a host of public interest groups, organized in and around Americans for Financial Reform, have been making a similar case for pay gap disclosure.

The lawmakers backing the repeal of the current Dodd-Frank disclosure mandate don't yet have a Senate majority. But repeal could still slip through Congress, most likely via some future House-Senate conference “compromise” on “reforming” the original Dodd-Frank legislation.

So what can we learn from the sad, still-unfolding tale of Dodd-Frank's section 953(b), a piece of legislation duly enacted into law, then ignored and never enforced, and now in jeopardy of getting repealed into oblivion?

Maybe this. In a democracy, elected leaders represent the people. In a plutocracy, elected leaders represent the people — and listen to the rich. America today, tells the 953(b) tale, matches up with the latter definition.



New Wisdom
on Wealth


Leo Gerard, America Feeds the Rich, Campaign for America's Future, June 18, 2013. Why the Farm Bill the U.S. House debated last week explains income inequality in America.

Jon Geeting, Fighting Wealth Inequality with Land Taxes and Severance Taxes, Keystone Politics, June 18, 2013. An idea that stirred progressive souls over a century ago is gaining new momentum.

Matthew O'Brien, RIP, American Dream? Why It's So Hard for the Poor to Get Ahead Today, Atlantic, June 18, 2013. High-income kids who don't graduate from college turn out to be 2.5 times more likely to end up rich than low-income kids who do get a degree.

Les Leopold, Big Lie: America Doesn't Have #1 Richest Middle-Class in the World . . . We're Ranked 27th! AlterNet, June 8, 2013. America, the richest country on Earth, has the most millionaires and a increasingly poor middle.

Ezra Klein, Who Killed Equality? Bloomberg, June 19, 2013. Three suspects, two bear watching.

Dean Baker and David Rosnick, Do Wall Street and the 1 Percent Thrive at the Expense of Our Kids? CEPR, June 19, 2013. Societies that let wealth concentrate appear less willing to ensure children a decent shot in life.

George Packer, Decline and fall: how American society unravelled, Guardian, June 19, 2013. Self-interested elites have engineered a process that has sacrificed social cohesion to greed.

Bob Lord and Sam Pizzigati, A tax system that targets workers, Los Angeles Times, June 20, 2013. America's unsustainable tax system: Tax rates on wealth sink, tax rates on labor rise.





Need an inspirational summer read? This new history of the struggle against plutocracy could be it. Read an excerpt to see.



NEW AND NOTABLE
A Census of Grand Fortunes
World Wealth Report 2013, Capgemini and RBC Wealth Management, 46 pp., June 18, 2013.

For the global economy, notes the just-released 17th annual World Wealth Report from the Capgemini wealth consultancy and the Royal Bank of Canada, 2012 turned out to be one real downer.

“The myriad crises of 2011 cast a shadow into 2012,” the study relates, “and widespread fiscal austerity exerted a palpable drag, resulting in sluggish GDP growth for the global economy throughout the year.”

But the world’s wealthy —the “high net worth individuals” among us — didn’t let this “palpable drag” get them down in the least. Their fortunes soared in 2012.

The analysts at the Capgemini and RBC count anyone with $1 million in investable assets as “high net worth.” They don’t include in this $1 million tally the value of primary personal residences, automobiles and other consumable durables, or jewelry, art, and other collectibles.

By this definition, the new World Wealth Report calculates, global millionaires ended 2012 holding $46.2 trillion in net worth, 10 percent more than the year before — and 14 percent more than the total wealth of the world’s millionaires in 2007, right before the global economic meltdown.

Two key points about this mammoth mountain of assets. The first: The wealthiest of the wealthy — those individuals with over $30 million — make up less than 1 percent of the global high-net-worth population. But they hold over a third, 35.2 percent, of the high-net-worth population’s wealth.

The second: America’s rich continue to outpace the rich anywhere else in the rest of the world. The United States has, for starters, many more high-net-worth individuals than any other country, over three times more than Germany, over five times more than China, over a dozen times more than Switzerland.

The U.S. millionaire population is also growing at a faster pace than millionaire populations elsewhere, with a growth rate nearly triple Japan’s.

And, oh, yes, one more thing: All these numbers on wealth holdings, Capgemini and RBC researchers acknowledge, understate the fortunes of the world’s most financially fortunate. The reason: The wealth the wealthy have stashed in offshore tax havens does not all show up in the new World Wealth Report.

The data in the report, the authors note, do “theoretically” account for offshore investments, “but only insofar” as countries can accurately estimate “relative flows of property and investment in and out of their jurisdictions.”

And the world’s offshore tax havens would rather not do that estimating.




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