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June 9, 2008 |
| This Week | |
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In the late 1990s, we had the stock market bubble. That popped. Then we had the housing market bubble. And that popped. Last week the market for crude oil bubbled to an all-time high, nearly $140 per barrel. We seem today to be forever blowing bubbles. Maybe we should stop and ask why. Back a half-century ago, after all, our economy didn’t careen from one bubble to another. Why now all the bubbles — and busts? Here’s why. We’ve become too unequal. We have too much wealth in too few pockets. What difference does that make at the gas pump? We explain in this week's Too Much. Usually in this space, we highlight stories in Too Much. This week, we'd also like to highlight another publication, the upcoming June 30 issue of The Nation magazine, America's top progressive weekly. This new Nation, available later this week, will be a special issue devoted to extreme inequality that includes a guide to ending plutocracy co-authored by Too Much editor Sam Pizzigati. Take a look and tell your friends. |
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| Greed at a Glance: Magnums and Fashion | |
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Billionaire media magnate John Malone must feel like a proud papa. Four years ago, Malone’s Colorado-based Liberty Media spun off a subsidiary, Liberty Global, to market cable TV and Internet access in Eastern Europe and other Eduardo Arnal, the new Mexican consulate general for the Rocky Mountain states, may be running into the Liberty boys sometime soon. He’s now on a Colorado tour introducing himself to local government and business officials. But the mega millionaires at Liberty might not appreciate everything Arnal has to say. Last week, the Mexican diplomat told Colorado county leaders that his nation needs a fairer distribution of wealth. The $60-billion fortune of Mexico’s top media mogul, Carlos Slim, dwarfs John Malone’s $2.2 billion. But that enormous Carlos Slim fortune appears to give Arnal little pleasure. Noted the consular official: “It's an embarrassment to me that we have the richest man in the world, but aren't the richest country.” Down in Mexico City, on the other hand, clothier Miguel Caballero sees Mexico’s pronounced maldistribution of wealth as much more opportunity than embarrassment. Caballero’s new showroom in the ultra-affluent Polanco neighborhood specializes in bulletproof fashion for Mexico’s most awesomely affluent. Caballero’s bulletproof business suits start at $2,000. He also carries “women's suede jackets that'll stop a .44 Magnum,” a useful piece of outerwear in a city where kidnappers sometimes get trigger-happy. Bulletproof fashion, Caballero readily acknowledges, can’t guarantee personal safety. He encourages his wealthy clients to complement his clothing with a security plan that also includes armored cars and bodyguards . . . Community leaders in South Africa, one of the globe’s most unequal nations, last week demanded government action to help families cope with soaring food prices. The basic problem, provincial secretary Xola Phakathi of the COSATU labor federation charged, remains the nation’s “distribution of income.” South Africa’s most affluent 10 percent are collecting 200 times more market income than the nation’s poorest 10 percent. The most recent Sunday Times “rich list” counts 28 rand billionaires, up from 21 the year before. A billion rand equal, in U.S. dollars, about $127.2 million. Half of South Africa's households, even with government income support, live on under $3,050 a year . . . A coalition of unions around the world is taking on KKR, the giant U.S. private equity company that specializes in cutting corporate buyout deals that generate fortunes for the deal-makers — and pink-slips for workers. On July 17, this new Take Back the Economy campaign will be staging demonstrations in 25 countries and 100 cities. KKR’s Henry Kravis made $51,000 per hour in 2006 and, thanks to tax loopholes, paid taxes on most of his earnings at a rate lower than the rate on the incomes of nurses and teachers. KKR last year spent over $2 million lobbying against efforts to shut those loopholes. Companies like KKR, says Service Employees union president Andy Stern, “have a responsibility that extends beyond making a few people rich.” |
Quote of the Week “You couldn’t pick a worse, non-imprisoned CEO to be your standard-bearer.”
New Wisdom Mary McNamara, Television inhabited by shrinking middle class, Los Angeles Times, June 3, 2008. On television today, “even the folks who aren't admittedly super-rich live as if they are.” Peter Ronald deSouza, Fly away Peter, fly away Paul, Economic Times (India), June 7, 2008. Coming soon in South Asia: private airports for private jets. The director of the Indian Institute of Advanced Study explores the consequences of encouraging “the super-elite to live life in a bubble.”
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| In Focus: A Bit of Speculation on Gas Pump Prices | |
Grand concentrations of private wealth, history tells us, have a nasty little habit of nurturing wasteful and witless speculation. Wasteful and witless speculation, news reports last week revealed, just happens to be the economic joker in the deck that's turbocharging our current surge in crude oil prices. The speculation now doing so much damage at America’s gas pumps comes mostly out of hedge funds, those shadowy mutual funds on steroids open only to the deepest of deep-pocket investors. This special status largely frees hedge funds from any federal financial oversight and regulation. Hedge funds can essentially do whatever they choose. They typically make their money playing games with money. In the oil market, for instance, they have no interest in ever using the oil they sign “futures” contracts to buy. Instead, they buy and sell the futures contracts — with borrowed money. That can be risky. But the rewards can be staggeringly huge. A sweet deal for sweet crude can stuff hundreds of millions, even billions of dollars, into hedge fund manager pockets. Futures contracts have been around, of course, for years, and such contracts can serve a useful purpose. Airlines, for instance, can use futures “to lock in” the price they’ll have to pay for oil in the future. Manic trading in futures, by contrast, has no redeeming social value. Such trading, as billionaire George Soros told a June 3 U.S. Senate hearing, only inflates commodity price bubbles. Government regulators of commodity markets used to recognize this reality. They placed rules on commodity markets that limited speculative trading. But those rules for energy-related markets, by the end of 2000, had almost all been deregulated away. Since then, commodity trading volume has jumped six-fold. This speculative shot in the arm, Consumer Federation of America research director Mark Cooper believes, is adding at least $40 a barrel to the price of oil, about a third of the recent going price. Congress has taken notice, and lawmakers have begun discussing reform fixes. But the hedge fund industry is trying to shift that attention, arguing that oil price hikes simply reflect the vagaries of global supply and demand. Any congressional probe into commodity speculation, billionaire hedge fund manager Boone Pickens noted earlier this month, would be a “waste of time.” Many independent observers couldn't disagree more. Last week, in the Financial Times, widely respected London School of Economics analyst Meghnad Desai noted that nothing happening in the real-world market for oil — like growing demand from China — can explain the current oil market. Oil prices, Desai adds, are now climbing at a rate that “would mean an unprecedented doubling in price every eight months.” Letting this situation continue will likely force the global economy “into a serious crisis.” Can anything prevent that crisis? “The best way to counter speculation,” says Desai, “is to make it less profitable” — and that could be done easily by charging speculators more to do trades on the oil commodity market than those traders who are actually involved in the “making or taking delivery of oil.” But taking on the hedge funds and their aficionados so directly won’t be easy. In a deeply unequal society, the fabulously rich don’t just have wealth. They have power. | |
| In Review: About That Threat of Exit | |
Larry Elliott and Dan Atkinson, The Gods That Failed: How Blind Faith in Markets Has Cost Us Our Future. The Bodley Head, 2008. As the economic editors of two top British newspapers, the Guardian and the Mail on Sunday, Larry Elliott and Dan Atkinson have had front-row seats for the wildest 21st century show in town, “the excesses of banks, big business, and the super-rich.” The pair have chronicled, year after year, how ostensibly mature, democratic nations have “willingly ceded control of the world economy to a new elite of freebooting super-rich free-market operatives.”
But these two journalists have done something else as well, something more important. They’ve delivered an unusually thoughtful framework — a set of principles — for creating a world that recognizes “the undesirability of a semi-detached super-rich class.” That class today all too often appears unassailable. The global market, we’re told, makes any national effort to rein in the rich a fool’s errand. The mighty, if subjected to controls, will simply take their money and run, via high-tech that lets dollars and pounds and euros travel at the speed of fright. Nonsense, counter Elliott and Atkinson. The same “technology that makes possible almost instantaneous money transfers around the world and split-second dealings in cash and securities,” they point out, “also makes possible the tracking of such funds by national authorities.” “Indeed,” they add, “large financial movements are tracked already, in the name of anti-money laundering measures.” But nation-states, the authors emphasize, can also count on “a low-tech reinforcement for this hi-tech equipment.” They can declare all “contracts or deals entered into in offshore jurisdictions, or anywhere else, in defiance of financial controls” to be null and void. This “negative enforcement,” authors Elliott and Atkinson note, “requires no police.” Courts would simply refuse to recognize and enforce “financial arrangements made without authorization.” That threat would quickly strike paralyzing fear into high-finance movers and shakers the world over. “No one will sign a contract,” the authors observe, “if they know that the other party can simply walk away from it once they start to lose money.” And who would have the nerve to dare the super-rich to do business in a world where nations no longer guarantee the reckless the basic contract security they need to do business? Elliott and Atkinson see that daring emerging in a new populist coalition that encompasses everyone involved in producing and distributing real goods and services. All these real-economy people, they argue, have no reason to support — and every reason to oppose — a “belief system that sacrifices jobs and productive assets on the altar of deal-making.” The deal-makers, the authors remind us, have failed miserably. “It is time,” they conclude, “to live without them.” |
Stat of the Week The Swiss banking giant UBS, under pressure from the U.S. Justice Department, may soon release the names of wealthy Americans who have used the bank to conceal as much as $20 billion in assets — and avoid at least $300 million in federal taxes on income from those assets.
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| About Too Much | |
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Too Much is published by the Council on International and Public Affairs, a nonprofit research and education group founded in 1954. Office: Suite 3C, 777 United Nations Plaza, New York, NY 10017. E-mail: editor@toomuchonline.org. | Subscribe
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emerging markets. Liberty Global, the Rocky Mountain News 
Now Elliott and Atkinson have delivered an important