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Too Much

THIS WEEK

Americans don’t need to feel “concerned about the very poor,” Mitt Romney told us last week. Those poor have “a very ample safety net.” We don’t need to worry about the “very rich” either, Romney also advised. They’re “doing just fine.”

Mitt took a great deal of grief for his comments. But most all that grief hammered Mitt on his carefree attitude to the poor. Hardly anyone in our chattering class had much to say about Mitt and those “very rich.” No surprise there. Pundits have been insisting for years that grand fortunes need not concern — or worry — us.

Let the rich be, the conventional wisdom has gone. Let them chase after those grand fortunes. No big deal for the rest of us. No big deal? Every week brings new evidence to the contrary. Last week, for instance, corporate watchdog Eleanor Bloxham highlighted new research on the chronic economic instability that CEOs chasing after windfalls are continuing to create.

But the impact of the rich on the rest of us goes far deeper than economic ups and downs. This week’s Too Much dives into that deep. We look at “super PACs” and the latest untidy shredding of our democracy. And we explore the new science that helps explain the proliferation of braggarts and windbags among us.

 

 

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GREED AT A GLANCE

Manhattan’s Upper East Side hosts some mighty posh zip codes — and maybe more private chefs per capita than anyplace else in America. But every chef gets a night off. What then? Upper East Siders finally have a decent option. Chef John DeLucie has opened a new local fine dining establishment that specializes in “comfort food for millionaires.” DeLucie has been honing his comfort food craft for some years now. At an earlier fine dining stop, he pioneered a scrumptious $55 truffled macaroni and cheese. His new Crown restaurant offers old favorites for the plutocratic palate that range from caviar and foie gras to dry-aged sirloin. And for the slightly adventurous, perhaps a little Tasmanian trout tartare. Dinner for two, notes one recent review, runs about $200 — before wine . . .

Mark ZuckerbergFacebook co-founder Mark Zuckerberg last week announced plans for an initial public offering of Facebook stock, a move analysts expect will value the company at near $100 billion — and Zuckerberg’s personal stake at $28 billion. Zuckerberg told prospective shareholders Wednesday that Facebook isn’t building services just “to make money.” More and more people, added the 27-year-old, want to see companies “believe in something beyond simply maximizing profits.” Wow, imagine if Facebook actually believed in maximizing profits. Documents filed last week, required for the stock sale, show that Facebook collected $1 billion in profits in 2011 — off just $3.7 billion in revenue . . .

Between 1985 and 2010, the take-home of a typical Harvard prof rose 47 percent. Over those same years, the take-home of the CEO at Johnson & Johnson rose 719 percent. But former Harvard prof James Q. Wilson, now the Ronald Reagan professor of public policy at Pepperdine, holds no hard feelings. The latest evidence of his magnanimity: an op-ed entitled “Angry about inequality? Don’t blame the rich” in last week’s Washington Post. But the rich may soon blame Wilson — for provoking a series of well-reasoned rebuttals to his op-ed that demolish the trendiest rationales for tolerating a fabulously rich among us. Among the top demolishers, the New Republic’s Tim Noah, the Nation’s Greg Kaufmann, and economists Dean Baker, Larry Mishel, and Paul Buchheit.

 

 

 

 

Quote of the Week

"If income is relatively evenly distributed and there are not very sharp differences between rich and poor, you have a greater sense of community. You have a greater sense of trust. You do not have parts of the community that have superior access to the political system that they can use to advance their own interests."
Francis Fukuyama, Where Is the Uprising from the Left? Spiegel, February 1, 2012

 

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PETULANT PLUTOCRAT OF THE WEEK

Eric SchmidtEric Schmidt made $7 million in 1999, as a Silicon Valley CEO, and had a fairly humble view of the world. As he told Forbes back then: “I realize I don’t have my wealth because I’m so brilliant. Luck has a lot to do with it.” Two years later, Schmidt became the CEO at Google and quickly ramped up his net worth to near $6 billion. These days Google's Schmidt seems to see more inevitability than luck in his personal good fortune. Late last month, Schmidt blamed high U.S. unemployment on workers who don’t have adequate skills and likened critics who wonder why Google has created so few new jobs to Luddites who railed against the job-destroying new technology of their day. Pronounced a clearly self-satisfied Schmidt: “I don't think any one of us would want to eliminate the loom.”

 

Stat of the Week

In every U.S. state, new Corporation for Enterprise Development data show, the top 1 percent of taxpayers pay a smaller share of their incomes in state taxes than the poorest 20 percent. The median difference? In the most typical states, the poor pay state taxes at twice the rate of the rich.

inequality by the numbers

Local top 1 percent

 

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IN FOCUS

America's Plutocrats Play the Political Ponies

Any resemblance between democracy and U.S. Presidential politics has become, in our new super PAC era, purely coincidental. The only mystery: Why aren't billionaires making even bigger bets?

Life sometimes imitates art. Life also sometimes imitates political cliché. The cliché in this case: the notion that tunnel-vision political reporting has reduced campaigns for American public office to nothing more than mere “horse races.”

This year, in the struggle for the Republican Presidential nomination, that “horse race” analogy has essentially become a literal reflection of reality.

The real horse racing industry follows a simple time-worn pattern: A wealthy connoisseur of horse flesh buys a thoroughbred. The wealthy connoisseur keeps racing that thoroughbred until the connoisseur loses interest.

In the current GOP Presidential “horse race,” we see the exact same pattern. Wealthy connoisseurs of political talent pick a candidate. These wealthy connoisseurs then keep that candidate racing until they lose interest.

Foster Friess, a billionaire mutual fund executive, hasn’t yet lost interest in Rick Santorum. Friess has personally bankrolled the “super PAC” that has enabled Santorum to stay in the primary hunt.

Sheldon and Miriam Adelson, the billionaire casino mogul couple, haven’t yet lost interest in Newt Gingrich. The Adelson family has single-handedly supplied $10.5 of the $12 million that has gone into the super PAC that’s keeping Gingrich in the nominating race.

Mitt Romney, meanwhile, is leading that race, but only because he has more billionaires on his side than anyone else. Four of these billionaires from the hedge fund industry — Paul Singer, Julian Robertson, Robert Mercer, and John Paulson — have each contributed $1 million to the cause of Mitt.

In all, the super PAC run by Romney cronies has collected $1 million from 10 men of immense means, $2 million from one other, and at least $100,000 each from almost 40 additional politically inclined super rich, more than enough to fund the $17 million TV ad campaign that bounced Romney into the nomination lead.

This White House horse race isn’t going to end, of course, until November. By that time, news analysts are predicting, total spending on the 2012 Presidential race will have likely reached over $2 billion, making this year’s election the most expensive in the history of the known universe.

Super PACs — quasi “independent” committees that can accept donations of unlimited size — will do the bulk of that spending. These super PACs, the Los Angeles Times noted last week, are now playing a larger role in politics than the candidates’ own personal campaigns, mainly because candidate campaign committees can accept no donation larger than $2,500.

A string of court decisions have made that $2,500 limit a dead-letter elsewhere across the political landscape. Wealthy individuals and the corporations they run can now contribute as much as they want to political committees that maintain a nominal “independence” from the campaigns of the candidates they support.

These super PACs do have to disclose their donors, and the latest disclosures came last Tuesday. But the disclosures now required leave a good chunk of the campaign finance scene in the dark. Super PACs have been setting up subsidiaries that can qualify for nonprofit status so long as less than half their money goes to politics. These “nonprofits” don't have to reveal their donors.

The bottom line: The wealthy are shoveling even more of their loot into politics than the disclosures that came out last week indicated. In effect, says Campaign Legal Center policy director Meredith McGehee, we have entered “a world of unlimited money in politics.”

In this world, she adds, “those who can marshal enormous amounts of wealth” can “drown out the voices of the average Americans.”

Those who do this marshaling, for their part, never fail to emphasize the nobility of their political engagement. Take, for instance, Harold Simmons, the Dallas billionaire who has dropped $8.6 million into super PACs backing an array of rich people-friendly candidates and causes over the last year.

signup"Mr. Simmons is a passionate conservative, and he has been for quite some time,” his spokesman, Chuck McDonald, told the press last week.

MacDonald went on to add that Simmons — a leveraged buyout king now worth an estimated $9.6 billion — has no specific policy agenda in mind when he’s making his contributions. He simply believes “in conservative ideology.”

This conservative ideology that has Simmons so passionately committed just coincidentally meshes up quite nicely with the huge payoffs deep pockets like Simmons can ensure themselves via victory on election day.

Just one political decision alone — the tax treatment of so-called “carried interest” — can make an annual difference of tens and even hundreds of millions of dollars for Simmons and his fellow billionaires. Consider the biggest superstar in the hedge fund firmament, Romney-backer John Paulson, a Wall Street whiz who pocketed $4.9 billion in 2010 and another $3.7 billion in 2007.

Most of Paulson's hedge fund income comes as “carried interest” subject to just a 15 percent federal capital gains tax rate, a tax rate well below the 35 percent top marginal rate on “ordinary” income.

In other words, the preferential tax treatment for carried interest all by itself saves hedge fund types like Paulson $20 million on every $100 million in carried interest income they collect.

Republicans in the Senate, with some Democratic help, have repeatedly blocked attempts to repeal this preferential treatment over recent years. But the Democratic senator who has been the most pivotally hedge fund-friendly, Chuck Schumer of New York, now says he’ll vote to repeal the carried interest loophole.

That makes the occupant of the White House all the more important to wheeler-dealers like John Paulson and his friends.

“Of course these guys are going to give a million dollars,” as U.S. senator Al Franken from Minnesota noted last week. “What a bargain — what a bargain to give that to a candidate who they know will veto a bill that makes the carried interest subject to the top” income tax rate.

All the major GOP candidates have so far pledged their fealty to the cause of keeping carried interest exempt from the ordinary top tax rate. That shouldn’t shock anyone, given last week’s super PAC campaign contribution disclosures.

What should shock? That America’s billionaires — given how much at tax time the 2012 horse race could cost them in carried interest income alone — aren’t giving super PACs even more than they already have.

 

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New Wisdom
on Wealth

Charles Elson and Craig Ferrere, Compensation and the Myth of the Corporate Superstar, Harvard Business Review, February 1, 2012. Two business school analysts explode the notion that “quality” CEOs must cost plenty.

Susan Brooks Thistlethwaite, Warren Buffett’s ‘nuclear bomb,’ Washington Post On Faith, February 1, 2012. A theologian contemplates wealth and immorality.

Katy Watson, The oil-funded super rich of the UAE, BBC, February 2, 2012. A video look at the United Arab Emirates, the society with the highest concentration of ultra high incomes. Part of a new BBC series, Is anyone benefiting from the wealth of the super-rich?

Salvatore Babones, As the Plutonomy Powers Ahead, the 'Realonomy' Remains in Recession, Truthout, February 3, 2012. For America's 99 percent, the real economy has been running in recession for a dozen years now.

Andrew Hacker, We’re More Unequal Than You Think, New York Review of Books, February 23, 2012. A review essay by one of America's most eminent political scientists.

 

 

In Review

How to Squelch the Inner Blowhard in Us All

Steve Loughnan, Peter Kuppens et al, Economic Inequality Is Linked to Biased Self-Perception. Psychological Science, October 2011.

People quite full of themselves populate every society, and, in fact, most all of us have at one time or another exaggerated our talents and character. Psychologists know this phenomenon well. They even have a term of art for it: “biased self-perception.”

Biased self-perceptionPsychologists have also understood, for many years now, that levels of “biased self-perception” can vary substantially from one society to the next. Japan, for instance, sports much less “biased self-perception” than the United States.

Investigators have generally credited that difference to meta cultural differences. Cultures in the United States and the rest of the West, the argument goes, value “personal success and uniqueness.” In Japan and the East, culture places more value on “interpersonal harmony and belonging.”

But new research recently published in the journal Psychological Science — by a team of 19 psychologists from all around the world — directly challenges this meta cultural cast on “biased self-perception.”

Psychologist Steve Loughnan from Britain's University of Kent and his fellow researchers have studied survey responses from over 1,600 people in 15 different countries. They’ve concluded that culture doesn’t explain national differences in “biased self-perception.” But economic inequality does.

People in more unequal societies — like Singapore and the United States — “tend to view themselves as superior to others,” the psychologists found. On the other hand, people in societies with less income inequality — Japan and Germany, for instance — “tend to see themselves as more similar to their peers.”

Why does inequality have this impact? Loughnan and his colleagues do some speculating. In more unequal societies, the psychologists point out, the gaps — and rewards — that divide people run more extreme. Where you stand in the pecking order matters more. The pressure from that mattering may create some powerful motivation for people to want “to stand out as superior to others.”

In more equal societies, the researchers surmise, people may feel “a pressure to seem more similar to others.” This pressure encourages modesty and discourages people from spouting off about their superiority to others, be that superiority real or just perceived.

Social scientists have postulated this dynamic in the past, most recently in a landmark 2010 book by epidemiologists Richard Wilkinson and Kate Pickett. Loughnan and his investigative team have now backed up those projections with compelling data. In the process, they've given us still another glimpse at how economic inequality is souring the daily lives we lead.

 

 

 

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About Too Much

Too Much, an online weekly publication of the Institute for Policy Studies | 1112 16th Street NW, Suite 600, Washington, DC 20036 | (202) 234-9382 | Editor: Sam Pizzigati. | E-mail: editor@toomuchonline.org | Unsubscribe.

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