Hardly anyone of late has many kind words for Citigroup, the bailed-out banking colossus that helped melt down the global economy — and paid its top execs a fortune while they did the melting. Citi today epitomizes, as much as any outfit on Wall Street, the basic indifference to inequality that has guided our executive elite for a generation.

But did you know that Citi’s top global strategists, not too long ago, actually spent two years deftly documenting how incredibly rich the rich have become — and obsessing over their luxury consumption?

Last week, the ultimate symbol of that consumption — the fine art bubble — finally popped. We reflect, in this week’s Too Much, on Citi and that popping.

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With top execs of bailed-out banks, insurance companies, and automakers constantly in the headlines, nobody these days is paying much attention to what’s happening in airline executive suites. That suits Delta CEO Richard Anderson just fine. Two weeks ago, Delta disclosed that Anderson collected $17.4 million in 2008, a year that saw Delta post a $8.9 billion loss. Delta president Ed Bastian did fairly well, too. He walked off with $10.8 million. Anderson and Bastian are now pledging to make Delta “a preferred way to travel for our customers,” and, last week, the airline announced the latest step in the Anderson comeback plan. Starting July 1, coach passengers on international flights will have to pay $50 for a second checked bag. The move will raise, over a year’s time, an estimated $100 million . . .

Almost every major U.S. corporation, Delta Airlines included, regularly bids on contracts to provide the federal government various goods and services. The corporations that get these contracts — and tax dollars — can pay their top executives as much as they want. But that might change, and quick, if legislation introduced last month by Rep. Janice Schakowsky ever became law. The Illinois Democrat’s bill would give a “preference” in federal contract bidding to companies that pay their top execs less than 100 times what they pay their lowest-paid staff. To earn this preference, a company with minimum-wage workers would have to limit its CEO pay to $1.5 million — or pay those workers more. Schakowsky’s Patriot Corporations of America Act (HR 1874) has eight co-sponsors. An earlier Senate version of this legislation had a co-sponsor from Illinois, a senator by the name of Barack Obama . . .

Love knows no budget, at least not in high-end British wedding planning circles. Now that love knows no privacy. A veteran London wedding planner, Imogen Edwards-Jones, has just penned what her publisher is calling “an insider's account of how the super-rich tie the knot.” Wedding planners like Edwards-Jones typically handle weddings that run at least $250,000. Their fee: 20 percent of the total cost. How high can that cost go? One recent bash cost $7.6 million. The bride spent $130,000 alone “on trips to New York for dress fittings.” At another gala, a Russian oligarch shelled out $91,000 for a floral bridal arch. The most over-the-top wedding accessory of all? At one wedding, an Edwards-Jones client spent $30,500 for a cake no one ended up eating . . .

At Melbourne’s National Australia Bank, they treat you nicely. Really nicely. Just one catch. First you have to have ante up at least $20 million to enroll in the bank’s new VIP club. Among the membership benefits: free access to luxury Ferrari sports cars and your own personal account manager who can do anything from arrange a nanny to charter a super-yacht. And if you don’t have $20 million? You may wait a bit for banking service. NAB has axed 343 staff in Australia. You’ll likely also pay through the nose to get a loan. Australia’s central bank recently cut interest rates, and only one major Australian bank — NAB — refused to pass the benefits from that rate cut to average customers. NAB has just declared a $2.7 billion profit for fiscal 2009’s first half . . .

Lawmakers the world over are now making noises about raising tax rates on high incomes — and angry wealthy taxpayers are threatening to exit any country that actually does. One global wealth management firm has just come up with a new service to help rich people make good on these threats. The just-released Scorpio Partnership “Mobile Wealthy Residency Index” ranks the world’s most rich people-friendly locales by factors that range from tax rates to cultural amenities and political stability. The top-ranked destination in Scorpio's inaugural index: Switzerland. The rest of the top ten: London, Singapore, New York, Hong Kong, Jersey, Cayman, Isle of Man, Monaco, and Dubai.

Quote of the Week

“If there are minimum wage laws to protect the less well-off, then we should also consider maximum wage laws to prevent runaway greed that simultaneously exploits the rest of humanity and our environment. We need to have a new theory of money that takes into account the fact that while it may be technically possible for wealth to grow indefinitely, the limits on our biosphere are not capable of the same feat.”
Isabella Chen, Imagining Recovery, CNET Asia, May 15, 2009

New Wisdom
on Wealth

Michael Lind, Let's Cut Social Security to Pay for Banker Bailouts! Salon, May 12, 2009. A look at the roots of the billionaire campaign to torpedo Social Security.

Irwin Stoolmacher, Achieve the American Dream, The Times of Trenton, May 13, 2009. An expert on effective organizations explains why “we must address the increasing inequitable distribution of wealth in America.”

Citizens for Tax Justice, President Obama’s Proposals to Raise Revenue, May 15, 2009. Examines the Obama budget proposals that will up taxes on America's wealthy.

When Citigroup 'Cared' about Inequality

Back a year ago, not long after Bear Stearns bit the Wall Street dust, buyers and sellers at New York’s annual spring fine art auctions shrugged off the rapidly multiplying signs of impending high-finance flop and went on to gleefully conduct business as usual.

At the Sotheby’s contemporary art auction last May, auctioneers pulled in a jaw-dropping $362 million. Over at Christie’s, connoisseurs of contemporary pieces shelled out a nearly as impressive $348 million.

Last week, the auctioneers went back at it. But this time around no one was shrugging. On Tuesday, the Sotheby’s contemporary art take dropped $315 million off last year’s total. A day later, Christie’s netted $254 million less than last year.

Among the disappointed: Daniel Loeb, the CEO of Third Point, a Park Avenue hedge fund. Loeb had brought a seven-foot-high blue-and-pink Easter egg sculpture by Jeff Koons to the Sotheby’s sale. In London, last year, a Koons went for $25.7 million. Loeb’s Koons, this year, fetched only $5.4 million.

Sotheby’s top auctioneer, Tobias Meyer, kept a stiff upper lip after last week’s “lackluster bidding.” He acknowledged only “a general pullback in the level of prices.” A local Manhattan art dealer at the auction gave a Bloomberg reporter a considerably blunter assessment: “It was a struggle to find buyers.”

So how should the rest of us react to all this angst in the high-end art world? Should we take a bit of pleasure, a little spring schadenfreude, at the sight of the excessively comfortable finally getting some comeuppance?

Or should this bursting of the fine art bubble have us out of sorts, too? Should sinking prices for seven-foot Easter eggs worry us as much as reports that refrigerators at Sears aren’t selling?

Maybe these sinking art prices should worry us more. Or so suggests the work of Ajay Kapur, the former chief global equity strategist at Citigroup.

Four years ago, in 2005, Kapur and his Citigroup research team started arguing that what “average” consumers do or don’t do with their money really doesn’t matter all that much any more.  

Whose behavior does matter? Essentially, the analysts contended, only the rich. The United States, they maintained, has become a nation “where the rich are so rich that their behavior” simply “overwhelms” whatever ordinary people spend or save.

Kapur and his Citigroup team even coined a word to describe this consumption dynamic. The United States, they proposed, has become a “plutonomy,” an economy “powered by a relatively small number of rich people.”

Kapur and his Citi analysts spent two years propagating this plutonomy thesis. They filled Citigroup research reports with charts and tables documenting just how staggeringly much U.S. income and wealth have concentrated at the top. They hosted Citigroup plutonomy symposiums tagged with cheeky, attention-grabbing titles. Read one: “Rising Tides Lifting Yachts.”

Future historians will no doubt wax ironic when they recount this unlikely “plutonomy” episode. In 2005 and 2006, at the arrogant height of Wall Street’s domination over the U.S. economy, America’s biggest bank — Citigroup — was bankrolling research that detailed how only America’s rich were prospering.

Kapur and his team had, to be sure, no subversive intent behind their plutonomy push. The analysts emphasized repeatedly they were merely describing the economy, not railing against it.

“We have no moral opinion on whether this income inequality is good or bad,” they noted in one paper, “just that it matters a great deal.”

Especially to investors. By investing in companies that cater to the rich, Kapur told the power suits who flocked to his symposiums and read his global strategy research papers, they could multiply their fortunes.

“Re-commit to plutonomy stocks,” Kapur advised in a September 2006 report. “Binge on bling.”

Kapur included Sotheby’s, the fine art auction house, in his “plutonomy basket” of recommended stocks — and saw nothing but good times ahead, at least in the near future, for the awesomely affluent.

“The plutonomists,” he wrote three years ago, “are likely to get even richer over the coming years.”

What could trip up this rosy scenario? Kapur, in all his plutonomy presentations, did acknowledge the risk of a Wall Street “financial collapse.” But he called the “political process” the greater danger.

“Ultimately, the rise in income and wealth inequality to some extent is an economic disenfranchisement of the masses to the benefit of the few,” Kapur observed in one Citigroup paper. “However in democracies this is rarely tolerated forever.”

Ajay Kapur left Citigroup in 2007 to start a hedge fund in Hong Kong. His highly recommended stock choice, Sotheby’s, last month announced plans to cut its dividend and 5 percent of its staff, on top of a 15 percent staff cutback last fall.

Meanwhile, in the United States, inequality is still tolerated.

An Icy Oasis from the Great Meltdown

Ådne Cappelen and Lars Mjøset, Can Norway Be a Role Model for Natural Resource Abundant Countries? United Nations University World Institute for Development Economics Research. Research Paper No. 2009/23. April 2009.

Amid our world’s economic wreckage, the New York Times marveled last week, at least one developed nation seems to be doing just fine. That nation — little Norway — actually grew economically last year. Norwegians today haven’t just sidestepped the Great Recession. They face no national debt. And Norway’s banks? They remain, the Times observes, “largely healthy and prudent.”

What explains this remarkable Norwegian success story? Why hasn’t the global meltdown brought Norway the same debt and despair that’s blanketing nearly every other nation?

The Times analysis offers a few possibilities. The “quirky contrariness” that defines the Norwegian national character, notes the Times, helps Norway go its “own way.” As does oil. Norway has plenty of it. The country’s oil revenues last year totaled $68 billion.

But plenty of other nations have “quirky” national characters — and abundant oil. So what, then, truly sets Norway apart? That special difference just may well be equality. Few nations have a distribution of income and wealth anywhere near as even as Norway’s.

A few stats: In 2006, the most recent year with comparative data available, the most affluent 10 percent of American households collected 41.6 percent of the nation’s total income. In Norway, only 20.6 percent of the nation’s total income went to the top 10 percent.

Norway works hard to stay on an even distributional keel. The wealthiest Norwegians pay a 47.8 percent tax on income over $105,368. The top income tax rate in the United States: just 35 percent.

The tax-the-rich contrast between Norway and the United States runs deeper than the simple difference between these two tax rates. Norway’s 47.8 percent top rate applies to both ordinary salary income and capital gains income from the buying and selling of stocks and bonds. Wealthy Americans pay only a 15 percent tax on their capital gains.

Still another difference between the two nations: Norway discourages tax cheating by making the taxes Norwegian households pay a matter of public record. Newspapers can and do highlight how much Norway’s most financially fortunate are actually paying in taxes.

But probably nothing demonstrates the contemporary Norwegian commitment to egalitarian values more than Norway’s approach to handling oil abundance.

A national abundance of a valuable natural resource, economists have noted, can prove more curse than blessing. Huge concentrations of oil or minerals have often distorted and stunted healthy economic growth and ended up nurturing much more corruption than social progress.

Norway has neatly avoided this “resource curse.” Economists Ådne Cappelen and Lars Mjøset, in this new study from the United Nations University’s World Institute for Development Economics Research, explain just how.

Norway is working from the assumption, the two researchers observe, that a nation’s natural “resources fundamentally belong to the whole nation and not to any private company or group of people.”

In 2001, all Norwegian government oil revenues — both the taxes levied on private oil companies and the profits from state-owned oil operations — began flowing into a “Petroleum Fund.” The government invests these revenues in foreign financial securities, then annually transfers into Norway’s annual budget the expected real rate of return from this investment, about 4 percent per year.

In effect, Norway is converting “petroleum wealth” into “financial wealth” and using this wealth to ensure a stable social safety net for all Norwegians. One benchmark of Norway’s success: Only 4 percent of Norwegian households with children, one study of developed world economies reported last October, rank as poor. The comparable poverty rate in the United States: 18 percent.

In short, note Cappelen and Mjøset in their new analysis, Norway has “secured broad distribution of the benefits from oil production.”

Securing broad distribution, that’s what nations that take equality seriously do. And that’s why they do better economically, in good times and in bad.

Stat of the Week

Ever since 1997, the Washington State-based Economic Research Institute has been annually tracking executive pay at a random sample of 45 companies drawn from the about 6,500 firms that file compensation data with the federal Securities and Exchange Commission. The latest ERI data, released last week, show that executive pay has increased 162.3 percent over the past 12 years.

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.