Reinhart-Rogoff and the Austerians

 

April 29, 2013

THIS WEEK

Ed Stack, the CEO of Dick’s Sporting Goods, has a rather unique claim to fame. A few years back, Stack invented “the stupid list.” He asked his managers and employees to list the three things Dick’s does “that make no sense.”

We have a suggestion for the Dick’s “stupid list”: the windfalls Dick's is stuffing into the pockets of Ed Stack. In 2012, news reports last week informed us, CEO Stack grabbed an astonishing $137 million cashing out stock options, on top of $10.7 million in his regular annual compensation.

How much more did Stack take home last year than his workers? We don’t know. Under the 2010 Dodd-Frank Act, firms like Dick’s must reveal the gap between their CEO and median worker pay. But the Securities and Exchange Commission has so far made no move to enforce the Dodd-Frank mandate.

Two dozen national citizen groups have just asked the new SEC chair, Mary Jo White, to stop the foot-dragging and start requiring CEO-worker pay disclosure. We need her to listen. More on the reasons why in this week’s Too Much.

GREED AT A GLANCE

America’s fourth- and ninth-biggest dailies, the Los Angeles Times and Chicago Tribune, may soon become the property of Koch Industries, the privately held corporation that fuels the fortune of America's two most notorious right-wing billionaires, Charles and David Koch. The two papers stand as the crown jewels of an eight-daily chain that also includes high-profile papers in Baltimore and Orlando. The likely cost of the total package: $623 million, pocket change for the Koch brothers. Their personal net worths now total, Bloomberg estimates, $45 billion each. A Koch Industries flack is telling reporters that the Kochs would not mettle with the “independence” of any media that might fall into the Koch camp. But a new Columbia Journalism Review analysis of a media property already under Koch control shows a tendency to “blur reporting and opinion.”

Caterpillar CEO Doug Oberhelman has spent billions the last few years buying up heavy equipment rivals. But that buy-up spree hasn't juiced up company earnings. So Oberhelman has tried squeezing a closer-to-home asset: his workers. He threw 700 employees out of work at a Cat plant in Canada after workers there rejected a 50 percent wage cut. Then, charges the United Steelworkers, Oberhelman bullied 800 workers at an Illinois plant into major pay concessions. In Wisconsin, the company threatened to axe 40 percent of one plant's workforce just days before bargaining began on a new contract. Oberhelman’s strategy appears to be working — for Oberhelman. His take-home last year jumped by $5.5 million. Oberhelman's 2012 $22.4 million, Caterpillar noted last week, reflects the company’s “pay-for-performance philosophy.”

Cara David, the top marketing exec at American Express, has some great news to report — for the businesses that service America’s rich. The latest Amex Survey of Affluence and Wealth in America, co-authored with the Harrison Group, is estimating that luxury sales will grow 3.4 percent this year, over twice the growth forecast for national GDP. America’s top 1 percent, says David, have maneuvered themselves into “a better position to spend on luxury.” Gushes Harrison's Jim Taylor: “Lessons learned from the recession — resourcefulness, self-reliance, and a deep sense of financial responsibility — continue to dominate purchasing strategies in the country’s most successful households.”

Quote of the Week

“We used to be a country with a rich heart. Now we’re the land of the heartless rich.”
Pam Martens, Koch Brothers' Wealth Grew By $33 Billion . . . as America’s Schools Report 1 Million Homeless Kids, Wall Street on Parade, April 24, 2013

PETULANT PLUTOCRAT OF THE WEEK

Mark Bertolini, the CEO at health insurer giant Aetna, has been loudly warning Americans to beware next January 1, the date Obamacare finally goes into near full effect. Consumers, says Bertolini, will be facing “rate shock” when they see how much their insurance premiums are going to be costing. But he’s not saying why. Aetna and other insurers, industry whistle-blower Wendell Potter points out, have been making big bucks selling low-premium policies that lead consumers to believe they’re buying much more coverage than they actually get. Obamacare bans this junk insurance, and firms like Aetna will have to offer policies that provide real coverage. Expect Aetna to charge dearly for these policies. How else will the insurer be able to continue paying Bertolini his going rate? He pulled in $36.4 million last year.

Share Too Much with your friends! They can sign up here to have Too Much delivered to their inboxes every Monday afternoon.

PROGRESS AND PROMISE

Know Where Your Premiums Are Going?

Only one state in America, Vermont, has so far moved to shove giant health insurers and their lavishly paid execs out of their central role in American health care. Vermont lawmakers two years passed legislation that puts the state on track to creating a “single-payer” health care system. But single-payer remains years away. In the meantime, Vermont is moving to up the heat on health insurer CEOs. State legislation enacted last year requires insurers to reveal to consumers exactly how much they spend on lobbying and advertising, how often they deny consumer claims, and how much they pay their CEOs.

Take Action
on Inequality

Urge your rep in Congress to back the Inclusive Prosperity Act, the new bill that would set a financial transactions tax on Wall Street speculation. More at the Robin Hood campaign.

IMAGES OF INEQUALITY

The property in London’s 10 most exclusive boroughs, we learned earlier this year, now holds more value than all the property combined in Scotland, Wales, and Northern Ireland. Insatiable global billionaire demand for London addresses now appears poised to drive that gap even wider. The second largest manse in London has just gone on the market for €250 million, about $382 million. The sale, if completed at the asking price, will make the “palatial Regency mansion” at 18 Carlton House Terrace the developed world’s most expensive abode.

Web Gem

Global Rich List/ See where you rate in the worldwide distribution of income.

inequality by the numbers

Stat of the Week

In the world’s top four financial hubs — New York, London, Hong Kong, and Singapore — over 300 residential properties sold for over $15.5 million in 2012, says a new report co-produced by Deutsche Bank. The total outlay for the 300 properties: over $10 billion, for an average over $33 million each.

IN FOCUS

From a Sloppy Spreadsheet, an Eternal Truth

If we let wealth continue to concentrate — and corrupt every element of our contemporary societies — we'll all end up crying '96 tears.'

Aging baby boomers may remember, from way back in 1966, a one-hit-wonder rock band that sported an all-time great of a name. That band — Question Mark and the Mysterians — may now have a worthy rival on the name front. Make way for Reinhart-Rogoff and the Austerians.

Harvard economists Carmen Reinhart and Kenneth Rogoff don’t make smash records. They write learned economic papers that make austerians happy — and help smash the life prospects of average working families.

Austerians preach the absolute necessity of whacking away at government spending for public services. We must, these champions of austerity solemnly intone, discipline ourselves to reduce government deficit and debt, no matter the pain austerity may bring us.

And austerity does bring pain. People lose access to basic services. People lose jobs. People even go hungry. But some people — extremely affluent people — don’t mind austerity at all.

These affluents don’t send their kids to public schools. They don’t spend weekend afternoons at public parks. They never step aboard public transit. These wealthy don’t need public services and resent having to pay taxes to support them.

Austerity works for these affluents. Cutbacks in public services won’t, by and large, bring any discomfort to their daily lives.

And if austerity should create some unanticipated discomfort, they can always get their friends in high places to intervene — as Americans saw last week when lawmakers rushed to undo recent austerity cutbacks in the Federal Aviation Administration budget that had affluent people cooling their heels in airports.

Austerity cutbacks, notes Center for Economic and Policy Research economist Dean Baker, promise even greater payoffs — for the rich — down the road. The austerity push for cuts in programs like Social Security, he points out, “opens the door for lowering tax rates on the wealthy in the future.”

“If these sorts of social commitments can be reduced,” Baker writes, “then the wealthy can look forward to being able to keep more of their income.”

All this may help explain why pollsters have found, as economist Paul Krugman pointed out last Friday, that wealthy Americans “by a large majority” consider budget deficits “the most important problem we face.”

America’s wealthy make their personal predilection for austerity equally plain to the politicians who seek their favor. These pols, for their part, want to be helpful to their deep-pocketed patrons. But these pols, Dean Baker reminds us, also have needs of their own. They need “evidence” they can use to show the general public that “austerity serves the general good and not just the rich.”

Three years ago, Harvard’s Reinhart and Rogoff supplied that “evidence,” via an academic paper that purported to show a clear and imminent danger whenever government debt hits a particular percent of Gross Domestic Product.

This Reinhart-Rogoff paper rushed to the “top of the charts,” in elite public policy circles. Austerians worldwide waved the paper at every opportunity. They cited Reinhart and Rogoff’s work as an unassailable justification for cutting government spending quick and cutting government spending deep.

Reinhart and Rogoff made no meaningful move to discourage the austerians. They basked instead in their global celebrity — until earlier this month when a team of unorthodox economists at the University of Massachusetts exposed the Reinhart-Rogoff paper as essentially a sloppy scholarly fraud.

This Massachusetts work quickly went viral. By last week, Reinhart and Rogoff’s Excel spreadsheet errors had become fodder for late-night TV comics.

End of story? Not quite. We have much more here than a spectacularly failed attempt to make the case for a doctrine that suits the sensibilities of the richest among us. We have powerful proof that inequality corrupts every corner of contemporary societies, even — and especially — our ivory towers.

The academic peers of Reinhart and Rogoff, the economists who hold the nation’s most prestigious endowed chairs in economics, never once made any effort to check out the Harvard pair's findings. The unraveling of their bogus case for austerity started with the digging of a skeptical grad student.

The lesson in all this? In a staggeringly unequal society, as Paul Krugman summed up last week, “what the top 1 percent wants becomes what economic science says we must do.”

The rest of us, of course, don’t have to listen, on austerity or any other front.

New Wisdom
on Wealth

Michael Peppard, Plutocracy in action: the FAA vs. National Parks, Commonweal, April 26, 2013. Gridlock in Congress magically ends — when the affluent squeal.

Sean Reardon, No Rich Child Left Behind, New York Times, April 28, 2013. A Stanford sociologist explains why rising income inequality needs to take center stage in debates over our education future.

Find out more about Too Much editor Sam Pizzigati's new book, The Rich Don't Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970.

new and notable

Why Mitt Lost: The Role Inequality Played

Larry Bartels, The Class War Gets Personal: Inequality as a Political Issue in the 2012 Election, NYU Law School Colloquium on Tax Policy
and Public Finance, April 23, 2013.

Vanderbilt political scientist Larry Bartels has written widely and wisely about inequality over recent years. Last week, he presented this new analysis of the impact of inequality on the 2012 election, a study based in significant part on specially commissioned survey data. His basic finding: Mitt Romney owes his 2012 defeat to a “widespread public perception that he cared more about wealthy people like himself than about poor and middle-class Americans.”

Reinhart-Rogoff and the Austerians

 

April 29, 2013

THIS WEEK

Ed Stack, the CEO of Dick’s Sporting Goods, has a rather unique claim to fame. A few years back, Stack invented “the stupid list.” He asked his managers and employees to list the three things Dick’s does “that make no sense.”

We have a suggestion for the Dick’s “stupid list”: the windfalls Dick's is stuffing into the pockets of Ed Stack. In 2012, news reports last week informed us, CEO Stack grabbed an astonishing $137 million cashing out stock options, on top of $10.7 million in his regular annual compensation.

How much more did Stack take home last year than his workers? We don’t know. Under the 2010 Dodd-Frank Act, firms like Dick’s must reveal the gap between their CEO and median worker pay. But the Securities and Exchange Commission has so far made no move to enforce the Dodd-Frank mandate.

Two dozen national citizen groups have just asked the new SEC chair, Mary Jo White, to stop the foot-dragging and start requiring CEO-worker pay disclosure. We need her to listen. More on the reasons why in this week’s Too Much.

GREED AT A GLANCE

America’s fourth- and ninth-biggest dailies, the Los Angeles Times and Chicago Tribune, may soon become the property of Koch Industries, the privately held corporation that fuels the fortune of America's two most notorious right-wing billionaires, Charles and David Koch. The two papers stand as the crown jewels of an eight-daily chain that also includes high-profile papers in Baltimore and Orlando. The likely cost of the total package: $623 million, pocket change for the Koch brothers. Their personal net worths now total, Bloomberg estimates, $45 billion each. A Koch Industries flack is telling reporters that the Kochs would not mettle with the “independence” of any media that might fall into the Koch camp. But a new Columbia Journalism Review analysis of a media property already under Koch control shows a tendency to “blur reporting and opinion.”

Caterpillar CEO Doug Oberhelman has spent billions the last few years buying up heavy equipment rivals. But that buy-up spree hasn't juiced up company earnings. So Oberhelman has tried squeezing a closer-to-home asset: his workers. He threw 700 employees out of work at a Cat plant in Canada after workers there rejected a 50 percent wage cut. Then, charges the United Steelworkers, Oberhelman bullied 800 workers at an Illinois plant into major pay concessions. In Wisconsin, the company threatened to axe 40 percent of one plant's workforce just days before bargaining began on a new contract. Oberhelman’s strategy appears to be working — for Oberhelman. His take-home last year jumped by $5.5 million. Oberhelman's 2012 $22.4 million, Caterpillar noted last week, reflects the company’s “pay-for-performance philosophy.”

Cara David, the top marketing exec at American Express, has some great news to report — for the businesses that service America’s rich. The latest Amex Survey of Affluence and Wealth in America, co-authored with the Harrison Group, is estimating that luxury sales will grow 3.4 percent this year, over twice the growth forecast for national GDP. America’s top 1 percent, says David, have maneuvered themselves into “a better position to spend on luxury.” Gushes Harrison's Jim Taylor: “Lessons learned from the recession — resourcefulness, self-reliance, and a deep sense of financial responsibility — continue to dominate purchasing strategies in the country’s most successful households.”

Quote of the Week

“We used to be a country with a rich heart. Now we’re the land of the heartless rich.”
Pam Martens, Koch Brothers' Wealth Grew By $33 Billion . . . as America’s Schools Report 1 Million Homeless Kids, Wall Street on Parade, April 24, 2013

PETULANT PLUTOCRAT OF THE WEEK

Mark Bertolini, the CEO at health insurer giant Aetna, has been loudly warning Americans to beware next January 1, the date Obamacare finally goes into near full effect. Consumers, says Bertolini, will be facing “rate shock” when they see how much their insurance premiums are going to be costing. But he’s not saying why. Aetna and other insurers, industry whistle-blower Wendell Potter points out, have been making big bucks selling low-premium policies that lead consumers to believe they’re buying much more coverage than they actually get. Obamacare bans this junk insurance, and firms like Aetna will have to offer policies that provide real coverage. Expect Aetna to charge dearly for these policies. How else will the insurer be able to continue paying Bertolini his going rate? He pulled in $36.4 million last year.

Share Too Much with your friends! They can sign up here to have Too Much delivered to their inboxes every Monday afternoon.

PROGRESS AND PROMISE

Know Where Your Premiums Are Going?

Only one state in America, Vermont, has so far moved to shove giant health insurers and their lavishly paid execs out of their central role in American health care. Vermont lawmakers two years passed legislation that puts the state on track to creating a “single-payer” health care system. But single-payer remains years away. In the meantime, Vermont is moving to up the heat on health insurer CEOs. State legislation enacted last year requires insurers to reveal to consumers exactly how much they spend on lobbying and advertising, how often they deny consumer claims, and how much they pay their CEOs.

Take Action
on Inequality

Urge your rep in Congress to back the Inclusive Prosperity Act, the new bill that would set a financial transactions tax on Wall Street speculation. More at the Robin Hood campaign.

IMAGES OF INEQUALITY

The property in London’s 10 most exclusive boroughs, we learned earlier this year, now holds more value than all the property combined in Scotland, Wales, and Northern Ireland. Insatiable global billionaire demand for London addresses now appears poised to drive that gap even wider. The second largest manse in London has just gone on the market for €250 million, about $382 million. The sale, if completed at the asking price, will make the “palatial Regency mansion” at 18 Carlton House Terrace the developed world’s most expensive abode.

Web Gem

Global Rich List/ See where you rate in the worldwide distribution of income.

inequality by the numbers

Stat of the Week

In the world’s top four financial hubs — New York, London, Hong Kong, and Singapore — over 300 residential properties sold for over $15.5 million in 2012, says a new report co-produced by Deutsche Bank. The total outlay for the 300 properties: over $10 billion, for an average over $33 million each.

IN FOCUS

From a Sloppy Spreadsheet, an Eternal Truth

If we let wealth continue to concentrate — and corrupt every element of our contemporary societies — we'll all end up crying '96 tears.'

Aging baby boomers may remember, from way back in 1966, a one-hit-wonder rock band that sported an all-time great of a name. That band — Question Mark and the Mysterians — may now have a worthy rival on the name front. Make way for Reinhart-Rogoff and the Austerians.

Harvard economists Carmen Reinhart and Kenneth Rogoff don’t make smash records. They write learned economic papers that make austerians happy — and help smash the life prospects of average working families.

Austerians preach the absolute necessity of whacking away at government spending for public services. We must, these champions of austerity solemnly intone, discipline ourselves to reduce government deficit and debt, no matter the pain austerity may bring us.

And austerity does bring pain. People lose access to basic services. People lose jobs. People even go hungry. But some people — extremely affluent people — don’t mind austerity at all.

These affluents don’t send their kids to public schools. They don’t spend weekend afternoons at public parks. They never step aboard public transit. These wealthy don’t need public services and resent having to pay taxes to support them.

Austerity works for these affluents. Cutbacks in public services won’t, by and large, bring any discomfort to their daily lives.

And if austerity should create some unanticipated discomfort, they can always get their friends in high places to intervene — as Americans saw last week when lawmakers rushed to undo recent austerity cutbacks in the Federal Aviation Administration budget that had affluent people cooling their heels in airports.

Austerity cutbacks, notes Center for Economic and Policy Research economist Dean Baker, promise even greater payoffs — for the rich — down the road. The austerity push for cuts in programs like Social Security, he points out, “opens the door for lowering tax rates on the wealthy in the future.”

“If these sorts of social commitments can be reduced,” Baker writes, “then the wealthy can look forward to being able to keep more of their income.”

All this may help explain why pollsters have found, as economist Paul Krugman pointed out last Friday, that wealthy Americans “by a large majority” consider budget deficits “the most important problem we face.”

America’s wealthy make their personal predilection for austerity equally plain to the politicians who seek their favor. These pols, for their part, want to be helpful to their deep-pocketed patrons. But these pols, Dean Baker reminds us, also have needs of their own. They need “evidence” they can use to show the general public that “austerity serves the general good and not just the rich.”

Three years ago, Harvard’s Reinhart and Rogoff supplied that “evidence,” via an academic paper that purported to show a clear and imminent danger whenever government debt hits a particular percent of Gross Domestic Product.

This Reinhart-Rogoff paper rushed to the “top of the charts,” in elite public policy circles. Austerians worldwide waved the paper at every opportunity. They cited Reinhart and Rogoff’s work as an unassailable justification for cutting government spending quick and cutting government spending deep.

Reinhart and Rogoff made no meaningful move to discourage the austerians. They basked instead in their global celebrity — until earlier this month when a team of unorthodox economists at the University of Massachusetts exposed the Reinhart-Rogoff paper as essentially a sloppy scholarly fraud.

This Massachusetts work quickly went viral. By last week, Reinhart and Rogoff’s Excel spreadsheet errors had become fodder for late-night TV comics.

End of story? Not quite. We have much more here than a spectacularly failed attempt to make the case for a doctrine that suits the sensibilities of the richest among us. We have powerful proof that inequality corrupts every corner of contemporary societies, even — and especially — our ivory towers.

The academic peers of Reinhart and Rogoff, the economists who hold the nation’s most prestigious endowed chairs in economics, never once made any effort to check out the Harvard pair's findings. The unraveling of their bogus case for austerity started with the digging of a skeptical grad student.

The lesson in all this? In a staggeringly unequal society, as Paul Krugman summed up last week, “what the top 1 percent wants becomes what economic science says we must do.”

The rest of us, of course, don’t have to listen, on austerity or any other front.

New Wisdom
on Wealth

Michael Peppard, Plutocracy in action: the FAA vs. National Parks, Commonweal, April 26, 2013. Gridlock in Congress magically ends — when the affluent squeal.

Sean Reardon, No Rich Child Left Behind, New York Times, April 28, 2013. A Stanford sociologist explains why rising income inequality needs to take center stage in debates over our education future.

Find out more about Too Much editor Sam Pizzigati's new book, The Rich Don't Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970.

new and notable

Why Mitt Lost: The Role Inequality Played

Larry Bartels, The Class War Gets Personal: Inequality as a Political Issue in the 2012 Election, NYU Law School Colloquium on Tax Policy
and Public Finance, April 23, 2013.

Vanderbilt political scientist Larry Bartels has written widely and wisely about inequality over recent years. Last week, he presented this new analysis of the impact of inequality on the 2012 election, a study based in significant part on specially commissioned survey data. His basic finding: Mitt Romney owes his 2012 defeat to a “widespread public perception that he cared more about wealthy people like himself than about poor and middle-class Americans.”

The Only CEO Pay Number that Really Matters

April 22, 2013

THIS WEEK

Apple just keeps churning out geniuses. First we had the late Steve Jobs, the exalted visionary who, legend has it, single-handedly sent Apple soaring. Jobs ended up a billionaire. Then we learned that Jobs had some genius help. Tim Cook, his number two, turned out to be worth $378 million in 2011, the year he succeeded Jobs as CEO. No CEO on the planet took home more that year.

Last week we learned that Cook has his own genius sidekicks. In 2012, four of the five top-paid execs in America served as his understudies: his technology vice president at $85.5 million, his operations VP at $68.7 million, his general counsel at $69 million, and his chief financial guy at $68.6 million.

Ron Johnson might have made that group. But Johnson, Apple’s retail genius, left in 2011 to grab a $53 million CEO paycheck at J. C. Penney. How did that work out? An epic disaster. Penney gave Johnson the heave-ho earlier this month.

Hmmm. Maybe our executive superstars don’t rate as geniuses after all. Maybe, we suggest this week in Too Much, they just rate as appallingly overpaid.

GREED AT A GLANCE

Earlier this year, billionaire New York mayor Michael Bloomberg delivered his final “state of the city” address. The mayor filled his valedictory with a host of stats on the Big Apple’s progress since his 2002 election. Bicyclists, he noted, have 440 more miles of bike lanes. The Nation magazine has just catalogued a few of the metrics the mayor overlooked. In the Bloomberg decade, New York’s richest 1 percent have seen their share of city income jump from 27 to 39 percent. The city poverty rate, meanwhile, has held eerily steady, 21 percent in 2001 and 20 percent in 2011. Homelessness has jumped by 61 percent. Bloomberg himself? His net worth, $5 billion in 2005, now sits at $27 billion . . .

In 2011, months before the emergence of the Occupy Wall Street movement in the United States, the indignatos — the “outraged” — occupied city squares all across Spain. Earlier this month, the egalitarian thinker who helped inspire the indignatos, the economist José Luis Sampedro, passed away at the age of 96. Sampedro had been an eloquent advocate for greater economic equality ever since he first experienced Sweden in 1949. The world has two types of economists, he often quipped, “those who work to make the rich even richer and those of us who work to make the poor less poor.” Added Sampedro, in support of the indignatos: “To consider money as a supreme good will lead us to catastrophe.”

Gallup has just released its latest polling on taxes and America's wealth. Among “moderates,” Gallup finds, 65 percent feel the nation's wealth “should be more evenly distributed.” Last week also saw the American Enterprise Institute release a new compendium on tax-related polling since 1937. The collection — the most comprehensive “ever,” says the conservative AEI — highlights polls that show an America hostile to high taxes on high incomes. Missing from the collection: key polls that show the reverse, like the Gallup survey on Franklin Roosevelt’s 1942 call for a 100 percent tax on income over $25,000, about $360,000 today. By a 47-38 percent margin, Gallup found, Americans backed FDR’s income cap notion. Congress eventually gave FDR a 94 percent tax rate on income over $200,000.

Quote of the Week

“Being wealthy in modern America means you don’t come across anyone who isn’t.”
Robert Reich, former U.S. labor secretary, The Dis-Uniting of America, April 17, 2013

PETULANT PLUTOCRAT OF THE WEEK

Back in the Clinton years Eugene Ludwig ran the Office of the Comptroller of the Currency, the U.S. agency that oversees the nation’s big banks. Ludwig wanted to do less overseeing. He championed bank deregulation. America’s banks, Ludwig argued in 1997, need more “freedom.” Banks would get that “freedom.” Ludwig would get rich. He now lives in a $11.5 million D.C. estate and makes over $30 million a year as the CEO at the Promontory Financial Group, the consulting firm his former agency hired to sort out the massive foreclosure fraud big banks committed in 2009 and 2010. Promontory collected $1 billion in fees for this now abandoned effort. Turns out that Promontory was letting banks themselves determine how much their frauds cost homeowners. And why not? For Ludwig, after all, bankers still need their freedom.

 

IMAGES OF INEQUALITY

The best place in America “for billionaires who value majestic natural beauty over man-made trifles”? The experts at curbed.com who track luxury real estate feel that “best place” just might be the plush Rana Creek Ranch in California’s Carmel Valley. The ranch stretches half the size of San Francisco and just went on the market for $60 million. Rana Creek offers billionaires much more than beauty. The cattle on the grounds qualify the property for amazing tax breaks.

Web Gem

Economic Hardship Reporting Project/ Real-life stories about the world our CEOs and Wall Street “masters of the universe” have created.

PROGRESS AND PROMISE

U.S. Presidents have been releasing their tax returns since the 1970s. But last year only 17 members of Congress voluntarily released their returns. Emory law school's Dorothy Brown has proposed an endrun around that disinclination. She's asking the IRS to start releasing an annual study that provides “in summary fashion” the info from the tax returns of all 535 members of Congress. A report on this order, says Brown, might build public pressure for moves against tax loopholes. Back in 1934, interestingly, Congress actually enacted a law that required all high-income earners to reveal their incomes and taxes paid. But America’s wealthy quickly mobilized and, in less than a year, had the law repealed.

Take Action
on Inequality

Stay up-to-date on campaigns for greater tax justice. Check out Americans for Tax Justice on Twitter and Facebook.

inequality by the numbers

Stat of the Week

The share of America’s national income that goes to the nation’s top 1 percent has jumped by over 10 percentage points since the late 1970s. This redistribution of income up the income ladder, notes economist Dean Baker, “has roughly the same impact on the living standards of ordinary workers as a doubling of all federal taxes.”

IN FOCUS

The Only CEO Pay Number that Really Matters

How much did America's top execs make last year? The scorekeepers don't all agree. But that won't matter if we keep our eyes on the most important figure of all: the pay gap between CEOs and workers.

The new numbers on executive pay have been coming fast and furious the last few weeks. So how are America's top execs faring these days? Last Wednesday, two business correspondents gave two totally different answers.

CEOs, journalist Darcy Keith reported, are once again “scoring big pay increases.” The data, countered analyst Rick Newman, show that shareholder activists now have “more power to rein in bloated executive pay packages.”

Why all this uncertainty about how well top execs are doing? In theory, none of this confusion should exist. By law, after all, U.S. corporations must publicly disclose exactly what they’re paying their top execs.

But exactly how corporations pay their top execs can get tricky. Straight salary — the stuff of standard paychecks — only makes up about 10 percent of typical big-time corporate executive compensation.

Most executive pay today comes as stock-related compensation, as either stock “options” or “restricted” stock. Options give executives the right, down the road, to buy shares of their company stock at today’s share price. If that share price rises, the execs can buy low and sell high. Instant windfall.

“Restricted” stock awards give executives actual shares of stock, not just an option to buy them. Execs do have to wait a few years before they can actually claim these shares. No big deal. The shares will still have value, in future years, even if a company’s share price falls.

But how should we value right now all this share-related compensation? Should CEO pay scorekeepers, in their annual tallies, estimate how much stock awards granted this year will be worth in years to come?

Or should scorekeepers only tally stock-related awards when execs actually profit personally from them, either by “exercising” their options or gaining title to restricted shares that have “vested”?

Different executive pay scorekeepers give different answers. Some estimate the future value. Others wait until execs actually profit personally.

Scorekeepers also keep score on different sets of corporations. USA Today’s new scorecard for 2012 tallies pay at 170 firms, the New York Times at just 100.

Out of all this scorekeeping confusion come — no surprise — substantially different results. USA Today last month found an 8 percent hike in 2012 CEO pay. “CEO pay rockets,” the paper reported. The New York Times earlier this month found CEO average pay up 18.7 percent.

But Towers Watson, a corporate consulting firm, announced last week that CEO pay growth “slowed considerably in 2012,” rising at just a 1.2 percent rate.

This Towers Watson finding came one day after researchers at the AFL-CIO, America’s national labor federation, reported that U.S. CEOs are now making 354 times the pay of average U.S. workers, the “largest pay gap in the world.”

Wait, things actually get even more complicated. Rick Newman at US News and World Report looks at the same data as the AFL-CIO and pronounces that the CEO-worker pay gap “is actually narrowing.”

This gap, the AFL-CIO acknowledges, did drop in 2012, from 380 to 354 times, but only because the dip in Apple CEO Tim Cook’s pay — from over $376 million in 2011 to $4.2 million in 2012 — wildly lowered 2012's overall CEO pay average.

What matters most, the AFL-CIO stresses, remains the trend line, and that trend tells a crystal-clear story. Three decades ago, in 1982, American CEOs averaged 42 times more than average U.S. workers. Two decades ago, in 1992, the gap stood at 201 times. A decade ago: 281 times. The latest ratio: the 354 times.

How do we reverse this growing gap? Identifying the specific pay gap ratio between CEOs and their own workers would be a good first step.

Corporations have had to publish, for decades now, how much they pay their top executives. They haven't had to tell us how much they pay their workers. The Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in 2010, at least on paper, changes this dynamic.

Dodd-Frank requires corporations to annual disclose the gap between what they pay their CEOs and their most typical workers. But a Corporate America lobbying blitz has kept the Securities and Exchange Commission from writing the federal regulations needed to enforce this Dodd-Frank pay disclosure mandate.

The SEC chairman who let corporate lobbying bury the mandate, Mary Schapiro, left the agency in December. Corporate America takes care of its friends. This week Schapiro will join the General Electric board of directors.

Schapiro’s successor, Mary Jo White, hails from the same corporate world Schapiro is now joining. Americans for Financial Reform, a coalition helping to lead the charge against CEO pay excess, is urging White to start up fresh and move expeditiously to start enforcing Dodd-Frank.

America's major corporations are still pushing the other way. Why do they so relentlessly oppose pay ratio disclosure? Disclosure, by itself, won't shove down CEO pay levels. But disclosure could open the door to other significant steps that could put a damper on CEO pay excess.

Lawmakers could, for instance, choose to deny government contracts or subsidies or tax breaks to corporations that pay their top executives over 25 or 50 or 100 times what their own workers are making.

Far-fetched? Current law already denies government contracts to companies that discriminate by race or gender in their employment practices.

As a society, we've concluded that our tax dollars must not go to corporations that widen racial or gender inequality. So why should we let our tax dollars enrich corporations that widen our economic divide?

New Wisdom
on Wealth

Chye-Ching Huang and Nathaniel Frentz, Myths and Realities about the Estate Tax, Center for Budget and Policy Priorities, April 16, 2013. A cogent counter to the claims of the estate tax-repeal crowd.

Sarah Bloom Raskin, Aspects of Inequality in the Recent Business Cycle, April 18, 2013. A Fed Reserve governor argues that maldistributions of income and wealth have inflamed the Great Recession and slowed the recovery from it.

Katie Prisco-Buxbaum, Economic inequality at Emerson, Berkeley Beacon, April 18, 2013. A perceptive college student explores the toll America's deep economic divide exacts.

Citizens for Tax Justice, The Corporate Tax Code Gives Away as Much as It Takes In, April 18, 2013. Thanks to decades of CEO machinations, the myriad deductions, credits, and other corporate loopholes in the U.S. tax code are denying the U.S. Treasury $181 billion a year.

Elizabeth McNichol, Strategies to Address the State Tax Volatility Problem Eliminating State Income Tax Not a Solution, Center for Budget and Policy Priorities, April 18, 2013. A good counter to a new right-wing push that would sharply reduce state taxes on high incomes.

Watch the Laura Flanders Show interview with Too Much editor Sam Pizzigati on his new book, The Rich Don't Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class.

new and notable

Eight Great Steps Away from Austerity

Rebecca Thiess, Many options exist for raising revenue in a smart and progressive manner, Economic Policy Institute, Brief #354, April 18, 2013.

For far too long, economist Rebecca Thiess reminds us in this welcome new paper, average Americans have suffered under a tax system that has “lacked progressivity and efficiency, exacerbated income inequality, and underfunded key national priorities.”

The widely ballyhooed “fiscal cliff deal” enacted early this January, Thiess adds, has only “cemented in place” much of this suffering.

How do we crack the cement? This new study that Thiess has prepared for the Economic Policy Institute spells out eight “progressive revenue options” that ought to be “front and center in upcoming fiscal and tax policy debates.”

These eight moves, all together, would raise $5.1 trillion in new revenue over the next decade — and enhance the current well-being and future life chances of every American working family.

America’s awesomely affluent would, on the other hand, end up paying Uncle Sam quite a bit more if these eight policy shifts actually went into effect. But these affluents would still enjoy a quality of life and future second to none.

None of the eight individual or corporate tax changes author Thiess lists in this new paper will come as a surprise to well-read tax reformers. But Thiess adds ample value. Her list clearly describes why we need each of the eight reforms and how much revenue each reform will raise over a ten-year span.

In sum, an ace action plan — and a great yardstick for measuring our progress.

The Dis-Uniting of America

Robert Reich

Chancellor's Professor of Public Policy, University of California at Berkeley; Author, 'Beyond Outrage'

 

Posted: 04/17/2013 2:10 pm

We come together as Americans when confronting common disasters and common threats, such as occurred in Boston on Monday, but we continue to split apart economically.

Anyone who wants to understand the dis-uniting of America needs to see how dramatically we're segregating geographically by income and wealth. Today I'm giving a Town Hall talk in Fresno, in the center of California's Central Valley, where the official unemployment rate is 15.4 percent and median family earns under $40,000. The so-called "recovery" is barely in evidence.

As the crow flies Fresno is not that far from California's high-tech enclaves of Google, Intel, Facebook, and Apple, or from the entertainment capital of Hollywood, but they might as well be different worlds.

Being wealthy in modern America means you don't come across anyone who isn't, and being poor and lower-middle class means you're surrounded by others who are just as hard up. Upward mobility -- the old notion that anyone can make it with enough guts and gumption -- is less of a reality.

The probability that a poor child in America will become a poor adult is higher now than it was 30 years ago, and higher in the United States than in the United Kingdom, which has a long history of class rigidity.

Almost 1 out of 4 of the nation's children is in now in poverty, but you wouldn't know that in Washington, where our representatives are now busily cutting safety nets children depend on, or in many state capitals that continue to slash budgets for education and social services.

Many of America's wealthy don't see why they should pay more taxes to support the less advantaged because they have no idea what it means to be less advantaged, while many in America's middle class can't afford to pay more because their real wages continue to decline.

Our thoughts turn to Boston -- as they should. But Fresno and other places like it across America remain ignored.

ROBERT B. REICH, Chancellor's Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers "Aftershock" and "The Work of Nations." His latest is an e-book, "Beyond Outrage," now available in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

The Great British class calculator

3 April 2013 Last updated at 00:00 ET

Previous definitions of social class are considered to be outdated

People in the UK now fit into seven social classes, a major survey conducted by the BBC suggests.

It says the traditional categories of working, middle and upper class are outdated, fitting 39% of people.

It found a new model of seven social classes ranging from the elite at the top to a "precariat" - the poor, precarious proletariat - at the bottom.

More than 161,000 people took part in the Great British Class Survey, the largest study of class in the UK.

Class has traditionally been defined by occupation, wealth and education. But this research argues that this is too simplistic, suggesting that class has three dimensions - economic, social and cultural.

The BBC Lab UK study measured economic capital - income, savings, house value - and social capital - the number and status of people someone knows.

The study also measured cultural capital, defined as the extent and nature of cultural interests and activities.

The new classes are defined as:

• Elite - the most privileged group in the UK, distinct from the other six classes through its wealth. This group has the highest levels of all three capitals

• Established middle class - the second wealthiest, scoring highly on all three capitals. The largest and most gregarious group, scoring second highest for cultural capital

• Technical middle class - a small, distinctive new class group which is prosperous but scores low for social and cultural capital. Distinguished by its social isolation and cultural apathy

• New affluent workers - a young class group which is socially and culturally active, with middling levels of economic capital

• Traditional working class - scores low on all forms of capital, but is not completely deprived. Its members have reasonably high house values, explained by this group having the oldest average age at 66

• Emergent service workers - a new, young, urban group which is relatively poor but has high social and cultural capital

• Precariat, or precarious proletariat - the poorest, most deprived class, scoring low for social and cultural capital

The researchers said while the elite group had been identified before, this is the first time it had been placed within a wider analysis of the class structure, as it was normally put together with professionals and managers.

At the opposite extreme they said the precariat, the poorest and most deprived grouping, made up 15% of the population.

The sociologists said these two groups at the extremes of the class system had been missed in conventional approaches to class analysis, which have focused on the middle and working classes.

Solicitor Vikki Harding is classed as an 'emergent service worker' under the new ranking

The researchers also found the established middle class made up 25% of the population and was the largest of all the class groups, with the traditional working class now only making up 14% of the population.

They say the new affluent workers and emergent service workers appear to be the children of the "traditional working class," which they say has been fragmented by de-industrialisation, mass unemployment, immigration and the restructuring of urban space.

 

What class are you?

• The full class survey takes about 25 minutes and covers wealth and job type, interests and social circle
• Compare your score to the nation's
• Receive a personalised coat-of-arms

• Take the original Great British Class Survey
• Where do you fit in the new class system?
• Try more citizen science with BBC Lab UK

BBC Lab UK worked with Prof Mike Savage of the London School of Economics and Prof Devine on the study.

The findings have been published in the Sociology Journal and presented at a conference of the British Sociological Association on Wednesday.

Researchers asked a series of questions about income, house value, savings, cultural and leisure activities and the occupations of friends.

They were able to determine a person's economic, social and cultural capital scores from the answers and analysed the scores to create its class system.

The GBCS was launched online in January 2011, but data showed participants were predominantly drawn from the well-educated social groups.

To overcome this a second identical survey was run with a survey company GFK, with a sample of people representing the population of the UK as a whole, using the information in parallel.