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||September 27, 2010|
The National Bureau of Economic Research last week declared the Great Recession officially over, as of June 2009. This declaration did not quite inspire mass dancing in the streets. For good reason.
Some benchmarks of national economic well-being — like gross domestic product — did indeed stop sinking a year ago this past June. But the U.S. economy since that time actually boasts more jobs lost than gained. Admits Harvard economist James Stock, a member of the National Bureau of Economic Research business cycle dating committee: “We clearly still have a long ways to go.”
Well, not all of us have a long way to go. In fact, America’s 400 richest have come most all the way back from the Great Recession’s chilly depths. Their combined fortune, Forbes magazine revealed last week, has jumped 8 percent over the last year and now stands not far from the all-time top 400 wealth record.
In this week’s Too Much, we have the new top 400 numbers — and a bit of context to help us appreciate their full revolting glory.
Too Much online
|GREED AT A GLANCE|
Danger, these days, lurks everywhere, and that suits William Maizlin just fine. Maizlin’s company, Conquest Vehicles Inc., specializes in luxury armored cars for “high-net-worth individuals.” The Conquest Knight XV model — big enough, Maizlin gushed in Canada's Financial Post last week, to make a Hummer “look like a Tonka car” — can run up to $800,000 with options that include exotic leather interiors and a dashboard embedded with precious stones. Maizlin has been marketing the Knight XV since 2008, and he’s currently ramping up in a new factory that will let him up production to 60 cars a year. The recession, notes Maizlin, “doesn't affect our particular layer of clients.”
Over recent years, Wall Street’s most lavishly rewarded executives — power suits like Goldman Sachs CEO Lloyd Blankfein — have defended their windfalls as well-deserved rewards for the value they create for their shareholders. Last week, Bloomberg reporter Christine Harper went searching for that “value” — and didn’t find much. In the decade between September 2000 and September 2010, Harper discovered, Goldman Sachs shares sported a 2.78 percent annual return. Goldman shareholders could have realized more value by investing in one-year certificates of deposit. Those CDs, over the same decade, averaged a 3.17 percent annual return. The return for Goldman CEO Blankfein? He took home, for the decade, $125 million in cash bonuses. He currently holds another $300 million worth of Goldman shares . . .
Wall Street’s bankrupt Lehman Brothers has announced plans to auction off the firm’s 450-piece collection of fine art. The pieces cost Lehman just $2 million. They figure to sell for $10 million, a figure that shows, says auction expert Gabriela Palmieri of Sotheby's, that fine art remains “a very good investment.” An exceedingly high-maintenance investment, too. The Financial News last week detailed how annual maintenance for a serious art collection can easily cost up to 5 percent of the collection’s resale value. Among the top maintenance concerns: humidity and temperature fluctuations. An environmental monitoring equipment installation, in a single modest-sized room, can set collectors back over $1,500 a month. And if your cat should run a paw across a canvas? Figure to spend close to $50,000 for a “museum quality micro-weave.”
Future historians looking for symbols of wealth excess — and idiocy — in the 21st century’s first decade may well find themselves contemplating the “WHY,” a gigayacht project that luxury retailer Hermès and a Monaco-based ship design company unveiled almost exactly a year ago. The 190-feet-long and 125-feet wide WHY — the “ultimate fantasy yacht” — struck one reviewer as a cross between “a floating island and movable mansion on the sea.” The developers priced their new WHY at between $80 and $135 million, “depending on the fittings,” and then sat back and waited for orders. They didn’t come, and Hermès exited the venture this past March. The original WHY design plan, in the months since, has now been downsized — to just 124 feet long . . .
In India — a nation where over a third of the population subsists on less than $1 a day — the rich have gone to great lengths to keep the poor and their diseases at arm’s length. India’s wealthy, as Business Week noted last week, live behind “high-walled security gates” in posh neighborhoods “where three-bedroom apartments sell for $1 million.” Many of these neighborhoods also feature lush landscaping “punctuated” with plentiful pools and fountains of fresh, clean water. Unfortunately, all that clean water makes India’s upscale neighborhoods the perfect breeding ground for the mosquitoes that transmit dengue, the “most widespread tropical disease after malaria.” Laments New Delhi doctor Sandeep Budhiraja: “I've treated at least five CEOs this week alone.”
Quote of the Week
“Only twice before in American history has so much been held by so few, and the gap between them and the great majority been a chasm — the late 1920s and the era of the robber barons in the 1880s. And yet the Bush tax cuts of 2001 and 2003, which conferred almost all their benefits on the rich, continue.”
Stat of the Week
Are America’s super rich hardening into a permanent aristocracy of wealth? This year’s new Forbes magazine list of America’s 400 richest, notes Wall Street Journal analyst Robert Frank, includes only 16 new faces. Four of these faces belong to Dannine Avara, Scott Duncan, Milane Frantz, and Randa Williams, the four children — and main heirs — of oil pipeline billionaire Dan Duncan, who died this past March. Duncan’s $9 billion fortune faced no estate tax. This year has been the first since 1916 without a federal estate tax on the books.
|inequality by the numbers|
How Billionaires Could Race to Our Rescue
A modest tax on all U.S. personal fortunes over $1 billion could raise more than enough revenue from the Forbes 400 alone to erase the combined budget shortfalls of every state in the nation.
David Rockefeller, Sr., the only surviving grandchild of America’s first billionaire, has achieved still another distinction. At age 95, he currently rates as the oldest billionaire on the new Forbes magazine annual list of America’s 400 richest.
David Rockefeller, on this year’s list, has plenty of billionaire company. Every single one of the 400 deep pockets on that list holds an individual fortune worth at least $1 billion. In 1982, the first year the annual Forbes 400 list appeared, only 13 Americans could claim billionaire status.
Back then, nearly three decades ago, the Forbes 400 held a combined fortune of just $91.8 billion, the equivalent of about $208 billion in today’s dollars. The current top 400, Forbes reported last week, hold over a trillion dollars more in wealth. Their current combined fortune: $1.37 trillion.
The ten richest Americans on the new Forbes list carry, all by themselves, a combined net worth of $270 billion, more than the inflation-adjusted net worth of the entire initial Forbes list back in 1982.
How much of an impact on our troubled nation could these staggeringly massive accumulations of wealth have if modestly shared — or taxed?
One quick answer: A 15 percent “wealth tax” on all personal assets over $1 billion would this year raise $145.5 billion, more than enough to cover the entire $140 billion budget shortfall America’s 50 states are facing in the current fiscal year.
The 400 billionaires on the new Forbes list, after paying that tax, would still average $2.4 billion in personal net worth, over 37,000 times the $65,400 net worth that NYU economist Edward Wolff earlier this year calculated for the typical American family.
But the Forbes billionaires aren’t exactly rushing to do much sharing. The most politically active of them are rushing in the opposite direction. They’re bankrolling candidates and causes dedicated to cutting taxes on America’s wealthiest — and erasing regulations on the corporations that make these wealthy wealthy.
One sign of our billionaire times: Former Bush White House political chief Karl Rove is now pouring millions of dollars into attack ads against tax-the-rich candidates on this November’s ballot. American Crossroads, the group that Rove has directing this operation, is grabbing most all its funding — 91 percent, in the mostly recent Federal Election Commission filing period — from billionaires.
Another example: In California, oil and gas billionaires Charles and David Koch — who both now sit in the Forbes 400 top ten — have joined to help bankroll a ballot initiative designed to kill the landmark clean energy legislation that state lawmakers passed into law four years ago.
The billionaire brothers, as a powerful New Yorker magazine profile detailed last month, have also been generously underwriting the “grassroots” Tea Party drive.
Fans of great fortune don’t dwell of this sort of billionaire politicking. They talk up instead the generosity of billionaire philanthropists. Last week, these cheerleaders for wealth concentration were exalting Facebook billionaire Mark Zuckerberg — whose net worth tripled last year to $6.6 billion — after he announced plans to endow a $100 million fund for school reform.
But billionaire public policy initiatives, in school reform and every other field, almost always come with ideological strings. In education, billionaire philanthropy is pushing schools toward incentive-based, test-driven “reform” approaches that education researchers have shown to be largely ineffective.
In the meantime, notes Wisconsin teacher Bob Peterson, an editor at a top progressive education journal, reforms that do show promise — like providing poor kids ready access to books — go neglected and underfunded.
Peterson’s budget-squeezed elementary school in Milwaukee has just had to ax its school librarian position, the latest blow to a school that has already lost its music and gym teachers — and all its classroom teaching assistants — to earlier budget cuts. Next year, observes Peterson, Milwaukee’s nearly 100 elementary and K-8 schools will likely have just five full-time librarians.
The cost of financing a full-time librarian for every public school in the United States? Peterson has computed that figure at just over $7.1 billion.
A 1 percent tax on all personal wealth in the United States over $1 billion would, for the record, raise $9.7 billion.
Michael Graetz, It's Fair, and We Need the Revenue, Wall Street Journal, September 20, 2010. A defense of the estate tax that counters every major repeal lobby claim.
Jamelle Bouie, The Super-Rich Deserve Higher Taxes. American Prospect, September 21, 2010. The super rich should, but don't, see “higher taxes as the price they pay for playing games with our country's prosperity.”
Janet Novack, The Best Tax Breaks Go To The Rich, Forbes, September 24, 2010. Why, for America's 400 richest, “2010 may go down as the best year ever when it comes to paying taxes.”
David Cay Johnston, So How Did the Bush Tax Cuts Work Out for the Economy? Tax.com, September 24, 2010. A Pulitzer Prize-winning journalist offers a definitive analysis of the near-total economic failure of the Bush tax cuts.
Richard Thaler, What the Rich Don’t Need, New York Times, September 26, 2010. A University of Chicago economist blows away the small business defense of the Bush tax cuts.
Scoring Partisan Points, at a Price
Income Inequality and the Great Recession. A Report by the U.S. Congress Joint Economic Committee, Washington, D.C. September 2010.
The top economic affairs committee in Congress has a new report out on inequality and our ongoing hard times. This readable analysis deserves our cheers. This same paper, unfortunately, also deserves some jeers.
First the cheers. This new report may mark the first time an official congressional panel has openly acknowledged that income concentration at the top poses a clear and present danger to Americans in the middle.
The report neatly traces, with some powerfully crisp charts, just how a “dramatic rise in the share of income going to the very wealthiest American households” triggered the economic two-step that invited in the Great Recession.
The first step: Stagnant middle‐class incomes sent demand for credit soaring, “fueling an unsustainable bubble.” The second: The “ever‐richer rich amassed increasing sums of money to invest in new financial products,” and America’s financial giants, in their mad chase after those investment dollars, cascaded ever more exotic — and risky — financial instruments into the marketplace.
Government, meanwhile, essentially stood by and did nothing, mainly because, as the Joint Economic Committee points out, bank deregulation had stripped away the government’s capacity to rein in Wall Street excess. Eventually, “this house of cards” collapsed and “instigated the Great Recession.”
In short, the Joint Economic Committee makes clear, wrong-headed policy decisions — like bank deregulation — eased us into trouble. More sensible policy decisions, the report goes on to argue, can get us out.
So far so good. But then the new committee report proceeds to ignore the mid-20th century public policy decisions — like stiff tax rates on the super rich — that helped the United States become substantially more equal. Much of the report reads as if the only history that counts began in 1980 with the Reagan election.
This convenient historical amnesia helps the report, a product of the Joint Economic Committee's Democratic majority, score some easy partisan points.
Ronald Reagan and the Bushes, the committee report relates, shoveled fortunes into the already flush pockets of the rich. Bill Clinton, by contrast, dared to raise their taxes. Everyone saw their income increase under Bill Clinton the Democrat. Only the rich prospered under his GOP predecessors and successor.
All true, in broad swatches. But all terribly misleading as well.
Bill Clinton did raise the top tax rate on the wealthy — to 39.6 percent. But that Clinton 1993 tax hike still left the top tax rate on high incomes at less than half the top 91 percent rate in effect all throughout the 1950s under President Dwight Eisenhower, a Republican. And four years after his tax hike, Bill Clinton signed into law a capital gains tax cut that offset much of what the rich lost in 1993.
The gap between America's rich and everyone else actually widened in the Clinton years. That gap narrowed under Ike.
The Joint Economic Committee’s failure, in this new report, to dig deeper into the public policy specifics of our pre-1980 years should bother more than historians. By ignoring these specifics, the committee is shoving off the table the public policies that can actually — and significantly — reduce inequality.
Take those 1950s tax rates, for instance. Those steep tax rates on the rich actually stretched from the 1940s into the early 1960s. America’s richest, in these years, faced tax rates that hovered around 90 percent on income over $200,000. These same years saw average American incomes double — after inflation.
If we want to restore that sort of middle class prosperity, and narrow our woeful contemporary income inequality, maybe we ought to be diving into — not away from — the policies that worked so well a half century ago.
|About Too Much|
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