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||June 7, 2010|
One of the most celebrated “big thinkers” among U.S. conservatives, Newt Gingrich, last week offered up a program for ending the economic woes of Detroit, the city that may be the Ground Zero of our continuing Great Recession.
Gingrich proposed turning all of Detroit into a 10-year tax-free zone for investors. No taxes on any income from investments for an entire decade.
Such a decade could have, of course, just one certain outcome: more wealth for those who already have plenty. But that prospect doesn't particularly faze top American conservatives like Gingrich. They've spent the last 30 years mostly either denying we have rising inequality in the United States or singing that inequality's praises.
Conservatives in the UK, over those years, have been singing right along. Now that may be changing. Britain's new Conservative Party prime minister has pledged to go after income inequality, and last week he took a step in that direction. But did that step constitute a true move forward — or just a feint? This week, in Too Much, we go searching for an answer.
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|GREED AT A GLANCE|
Luxury retailers have lately started exhaling again. Tiffany is reporting sales up 17 percent in the jeweler’s most recent quarter. Overall U.S. luxury sales, says MasterCard SpendingPulse, jumped 22.7 percent in March, over the previous year. But high-end retailers, cautions the Unity Marketing consulting group, may want to wait before they break out the champagne. The “aspirational affluents” — households with incomes between $100,000 and $250,000 — still haven’t opened up their wallets. These households have only upped their spending 1.9 percent over 2010’s first quarter. The increase in luxury buying appears to be coming almost totally from the “ultra-affluents,” those households making over $250,000 a year. Their first-quarter spending increased 22.6 percent. Observes Unity’s Pam Danziger: “The ultra-affluents are returning to spending at pre-recession levels.”
Two weeks ago, just a few days before a court hearing on New York governor David Patterson’s plan to furlough 100,000 state workers one day a week, a surprising news release — from Goldman Sachs — started turning up in the in-boxes of local reporters. Goldman, the release announced, had decided to furlough the bank’s top execs one day a week and donate the resulting savings to New York’s state treasury. Wall Street profits last year, the release noted, totaled $61 billion, more than enough to “cover the state’s entire $9 billion deficit.” Concluded the release: “It's time for Wall Street to reimburse Main Street.” Well, not exactly. The release turned out to be a “brilliant” piece of satire meant to help promote recent public interest group proposals that call on state lawmakers to “recapture some of Wall Street’s profit windfall to spur Main Street’s recovery.” Good satire sells! The release drew coverage in a host of media outlets . . .
Hewlett-Packard is “streamlining” — again. The computer giant announced plans last week to lay off 9,000 workers over the next three years, just the latest major downsizing under CEO Mark Hurd. The top exec, since his 2005 hiring, has been “growing” HP by gobbling up other firms and their customers, then firing their workers. Some tech analysts are applauding Hurd’s latest job squeeze. After all, opines InformationWeek’s Bob Evans, “it is not the CEO's job to maximize employment.” Hurd appears to do his best maximizing on his own paychecks. In April, Forbes rated the HP CEO the top-paid executive in America’s technology hardware industry. Over the past five years, Hurd has pocketed more than $139 million . . .
Over at Xerox, Anne Mulcahy may not play the merge-and-purge game as well as Mark Hurd. But she has done her best to parlay job cuts into hefty paydays. Mulcahy picked up the Xerox CEO reins in 2001 and proceeded, over the next eight years, to toss 20,000 Xerox workers out of their jobs. Last year, as Xerox board chair, Mulcahy blessed the company’s buyout of Affiliated Computer Services, a Dallas outsourcing company, a merger that cost another 2,500 jobs. Late last month, Mulcahy formally retired. She’s walking away from Xerox with a severance package worth an estimated $31.4 million . . .
Do we humans take moral factors into account when we make economic decisions? Or do we go through life, as mainstream economics assumes, merely acting in our own self-interest? A new study from the Norwegian School of Economics and Business Administration, published last week in the journal Science, is bolstering the “growing body of research” that demonstrates the importance of “moral considerations.” The study put about 500 Norwegian students through “a modified version of the dictator game, a classic experiment used to measure attitudes toward fairness,” and found that attitudes on equality evolve as children age. But 19-year-olds, says study co-author Bertil Tungodden, remain “as concerned about a fair distribution of income” as 13-year-olds.
Quote of the Week
“Have decades of widening wealth inequality created a chattering class of reporters, pundits and lobbyists who’ve lost their connection to mainstream America?”
Stat of the Week
The best way to visualize America's staggeringly unequal distribution of wealth, suggests University of Tennessee at Martin historian David Barber, may be to envision a 100-seat auditorium filled with 100 people. If seating in that auditorium reflected our current wealth distribution, the single richest person in the hall “would be able to spread out smartly” over nearly 43 seats. The poorest 60 would have to squeeze into just one.
|inequality by the numbers|
A New Front in the Inequality Wars?
Britain's new Conservative Party prime minister has an idea for ending pay excess in the public sector. Should overpaid execs in the private sector — in the United States — now be starting to shudder?
Conservatives politicians have always enjoyed bashing public employees and their paychecks. So no one should be particularly surprised that David Cameron, Britain’s new prime minister, has just launched a major media offensive against the UK's highest-paid government officials.
But this new offensive may end up as much more than just another cynical political maneuver to exploit taxpayer frustrations.
Indeed, Cameron’s charge might even trigger — quite unintentionally — a major breakthrough in the struggle against income inequality, in Britain and everyplace else where corporate executives are walking off with outrageously high multiples of the pay that goes to their workers.
A conservative politico triggering a breakthrough against inequality? In the United States, that notion sounds simply preposterous. But the UK’s David Cameron styles himself a different sort of conservative. He’s actually framing his less-government-spending conservatism as an antidote to the UK’s growing gaps in income and wealth.
“Who can honestly say the Big Government approach is working,” he asked this past April, “when inequality is rising and social mobility is stalled?”
Cameron at that time vowed, if he ever became prime minister, to “investigate pay inequality in the public sector.” Now he’s moving to fulfill that pledge — and promoting a pay fairness yardstick for the public sector that many UK progressives see as an appealing precedent for attacking the enormous inequality in Britain's private sector.
That yardstick: the “pay multiple.” No public sector executive, says Cameron, should “earn over 20 times more than the lowest paid person” in that executive’s public agency.
Establishing a maximum public sector wage along those lines, Cameron argued during this past spring’s UK election campaign, would both “tackle unfair pay policies” and “improve cohesion and morale.”
“Unfair pay policies” certainly do exist in the UK’s public sector. Over 170 British government officials are currently collecting paychecks over £150,000, about $220,000, according to data that Cameron had released last week.
Britain’s highest-paid government agency executive, according to the new data, is making over £270,000, or almost $400,000, nearly twice the £142,500 that goes to prime minister Cameron.
Orthodox hard-line UK conservatives last week welcomed the new data release as a splendid opportunity to fulminate against the “public sector gravy train.” But UK progressive activists working on inequality welcomed the new data as well.
Any serious discussion about pay excess in government service, these activists believe, will soon have the angry taxpaying public contemplating the much greater compensation excess in Britain's private corporate world.
And that's already beginning to happen. News reports, for instance, are noting that many of the excessively paid public sector executives came to their positions from private sector executive slots that “pushed up” their government pay rate.
And taxpayer groups are noting that the pay problem goes far beyond the officials who work directly on the British government payroll. They’re pointing out that top execs of quasi-public enterprises — like the outfits that manage local public housing — may “technically” sit at “arms-length from the state.” But these execs collect “huge amounts of taxpayers' money and should be held to account.”
UK progressives focused on inequality are emphasizing that same theme. All executives grabbing “huge amounts of taxpayers' money,” they're contending, should be “held to account,” and that includes the huge numbers of private corporate executives whose companies profit off government contracts or snatch up government bailouts.
The Cameron government's push against excessive pay, as the director of Britain's equality-minded One Society said last week, “will be inadequate unless the government takes action on top pay in the private sector, too.”
“That is where,” the One Society's Malcolm Clark added, “the real drivers of executive wage growth originate.”
The One Society, a new advocacy group working to make inequality a top-tier UK political concern, wants the Cameron government to “widen out the concept of the pay ratio to all sectors of the economy.”
A first step toward that goal could be to deny government contracts to any private companies that compensate their executives at over 20 times their worker pay, the ratio Cameron has already deemed as appropriate — and necessary — for a more efficient public sector.
The conservative Cameron has so far made no move in that direction, and this distinct disinterest in applying his 20-times rule to the private sector may eventually prove politically embarrassing for him, suggests Jonathan Bartley, the co-director of Ekklesia, a religious think tank in London.
The public, notes Bartley, just might want to know “why one set of principles are acceptable and ethical for the public sector, and not for the private?”
Robert Reich, Closing Tax Loopholes for Billionaires: A Billionaire Responds, June 1, 2010. The former U.S. labor secretary neatly skewers the mega rich case for preferential tax treatment.
If you want to live the American dream … go to Norway, Castlemaine Independent, June 2, 2010. A dinner-table chat, inspired by British epidemiologists Richard Wilkinson and Kate Pickett, on the social impact of inequality.
Senators Defend 'Carried Interest' Loophole for Investment Fund Managers in the Name of the Poor, Minorities, Small Businesses, and Cancer Patients! Citizens for Tax Justice, June 3, 2010. A point-by-point refutation of the case for Wall Street's favorite tax loophole.
A New Field Guide to America's Plutocracy
Robert Kuttner, A Presidency in Peril: The Inside Story of Obama's Promise, Wall Street's Power, and the Struggle to Control Our Economic Future. Chelsea Green Publishing, 2010. 300 pp.
This week, on Washington's Capitol Hill, House and Senate lawmakers will begin meeting in conference to hash out the final version of the “financial reform” legislation that will go to President Obama.
President Obama, in short order, will almost certainly sign that legislation into law — and Wall Street’s most prominent players will breathe a celebratory sigh of relief. They will have dodged the reform bullet.
The financial legislation about to become law will, to be sure, create some inconveniences for the nation’s biggest bankers and speculators. But Wall Street's incredibly lucrative business as usual, for the most part, will simply speed along.
How could this have happened? How could a Wall Street so totally discredited in the eyes of the American people so soundly prevail over real reformers — and a new President elected on the promise of change? How could the financial industry kingpins whose mad chase after personal fortune crashed the economy get a green light to continue that chasing?
Robert Kuttner explains just how in his just-published A Presidency in Peril, the first comprehensive history of the 2008 financial crash and the recovery and reform debates that followed.
Kuttner may be this history’s best possible author. The moving force behind the American Prospect, the nation’s premiere progressive public policy journal, Kuttner has spent the last three decades expertly dissecting the public policy decisions that have tilted America’s income and wealth ever upward.
But don't call Kuttner a "policy wonk." That label has never fit him. Wonks relish the complexity of public policy — and don’t particularly care if anyone outside the policy-making community understands what’s going on. Kuttner cares deeply.
In A Presidency in Peril, Kuttner takes us behind the scenes of all the key economic policy debates that have defined the nation’s response to the economic collapse of the past two years. This response, he acknowledges, has “averted a second Great Depression” — to the great benefit of a precious few.
“Wall Street has recovered and its executives are once again collecting tens of billions in bonuses,” Kuttner details, “but Main Street is not sharing in the prosperity.”
Main Street isn’t sharing because the Obama administration “has not been able to shake the hegemony of finance.” Wall Street, despite a new occupant in the White House, still reigns.
On two of the three most significant post-collapse policy challenges — mortgage relief and banking reform — the Obama White House has chosen “a continuation of Bush’s failed policies.” On the third, economic stimulus, President Obama has broken “some new ground — but not enough.”
Behind these three disappointing policy outcomes stands the same political dynamic: the “immense undertow of Wall Street influence.”
“It is seemingly baffling,” Kuttner observes, “that a president elected as a change agent opted for so much continuity — until you appreciate that paradox as a reflection of the enduring and bipartisan influence of the financial industry.”
Or, as Kuttner notes more bluntly elsewhere in A Presidency in Peril: “With concentrated economic wealth has come concentrated political power.”
In this eminently accessible new book, author Kuttner soberly — and often chillingly — shows how Wall Street wields this power, sometimes brazenly, sometimes subtly. He names names. The villains. The heroes. The sadly compromised — like Gene Sperling, the Clinton administration’s last National Economic Council chief.
After the Clinton years, the centrist Sperling, unlike many of his colleagues, did not go off to Wall Street to make his fortune. Instead, Kuttner relates, “he impressed even his critics by taking positions at think tanks.”
But Wall Street realized that Sperling would likely have a prime role in any Democratic administration elected in 2008 and moved to bring him into the high-finance fold. Goldman Sachs “helpfully created a position for Sperling as adviser to its foundation” and paid him $887,727 in 2008.
“Now Sperling is a senior economic official in the Obama administration,” continues Kuttner. “If you were he, would you cross Goldman?”
In effect, suggests A Presidency in Peril, we need to be asking the same question about President Obama and his entire administration. Contends Kuttner: “The crucial question is whether Obama himself has been so totally captured by the financial elite that his path is now irreversible.”
Kuttner, in the end, has hopes for an about-face. Harry Truman, he asks us to recall, began his presidency genuflecting before the New Deal’s powerful enemies. But Truman, shoved by pressure from below, “rediscovered his New Deal roots” and went on to challenge Wall Street’s “gluttons of privilege.”
Obama, concludes Kuttner, “has only begun to realize his full potential as a leader.” What the President eventually goes on to do, his thoughtful new book reminds progressives, “will be a test of his character — and ours.”
|About Too Much|
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