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||May 21, 2012|
Here at Too Much we like numbers. But the best ripostes against apologists for inequality sometimes carry no numbers at all. What may be the best assault on inequality ever written — R. H. Tawney’s 1920 classic, The Acquisitive Society — goes pages upon pages without stats. Yet no one who ever peruses these pages will ever again think about inequality quite the same way.
Attorney Henry Banta, writing for the Nieman Foundation for Journalism at Harvard, has just updated this Tawney spirit. His target: Edward Conard, the private equity kingpin whose new book argues that the super rich deserve their good fortune. People prosper, Conard argues, because markets reward success.
Politicos who carry rich people’s water love this logic. Henry Banta skewers it. If America's rich fully deserve the riches they’ve amassed over recent decades, he observes, then our middle class people must — by the same logic — fully deserve their last 30 years of stagnant incomes. They must be marketplace failures.
The rich and their handlers, needless to say, never dare make this logical leap, at least not in public. If they did, the absurdity behind their defense of privilege would stand instantly exposed. Ready for another absurdity? How about those newly minted Facebook billionaires? More on them in this week's Too Much.
|GREED AT A GLANCE|
Move over, George Pelecanos and Walter Mosley. The world has a new socially conscious — and best-selling — writer of crime fiction. Meet Petros Markaris, the 75-year-old Greek novelist whose latest book, The Settlement, has austerity-ridden Greece all abuzz. The plot: A serial killer who calls himself “the National Tax Collector” is stalking Athens, poisoning — with hemlock — rich Greeks who’ve been brazenly evading their taxes. Crime fiction may provide the best forum for Greek political commentary, Markaris noted in an interview earlier this month, because so much of what’s been going on in Greece rates as criminal . . .
Some nations have a National Health Service. China, press reports suggest, is creating a “National Wealth Service.” A new 1,297-bed hospital in Sichuan province features suites with marble bathrooms and giant plasma TVs, plus a gourmet restaurant that runs 24/7. Meanwhile, back in the United States, for-profit hospitals are greasing the luxury trail, too — for their CEOs. Official filings have just disclosed that Wayne Smith, top exec at the 134-hospital Community Health Systems chain, took home $21.58 million last year, a slight bump up from his $20.96 million in 2010. But Community Health Systems firmly believes in sharing the wealth. The firm's chief financial officer, the appropriately surnamed Larry Cash, last year took in $8.73 million . . .
The most expensive real estate in Boston now appears to be the executive suite of the new CEO at the Liberty Mutual insurance company. That new CEO, David Long, had the suite renovated shortly after he became the firm’s top exec last summer. The renovation bill: $4.5 million, a tidy sum that comes to $3,370 per renovated square foot. That bill, notes the Boston Globe’s Brian McGrory, equals what Americans who take home $100,000 a year make over the course of their entire careers. For four years running, adds McGrory, Long’s CEO predecessor at Liberty Mutual averaged $4.5 million a month.
Quote of the Week
“Dramatically higher tax rates on the top 1 percent would produce enormous revenues, improve the distribution of income, and most likely lead to greater economic growth.”
|PETULANT PLUTOCRAT OF THE WEEK|
Rich, hip, smart. That’s Chris Anderson, the publishing whiz who made a fortune on high-tech mags, then took over TED, the high-status lecture series that likes to be labeled a “journey into the future.” But earlier this spring Anderson balked at the future one TED speaker — venture capitalist Nick Hanauer — is pitching. Hanuaer wants taxes upped on America’s rich and explained why in a TED speech. Anderson subsequently refused to post Hanauer’s remarks online. That censorship — revealed last Wednesday — quickly sparked a petition drive that urged TED to “stop reinforcing plutocracy“ and “post the talk, or lose all your credibility as an open space for bold ideas.” By week’s end, Anderson caved and linked the tax-the-rich talk. But he couldn’t, in retreat, resist dissing Hanuaer as “needlessly partisan” and “unconvincing.”
Stat of the Week
Something to occupy your mind next time you’re filling up your gas tank: Last year’s highest-paid CEO, new data from GMI Ratings show, appears to have been ConocoPhillips CEO J. J. Mulva. His total compensation: $154.7 million.
|inequality by the numbers|
Urge the SEC to require companies to report their CEO-to-worker pay ratios.
Watch a two-minute
Facebook and Tahrir Square, Revisited
Facebook's initial public offering last week 'offered' the world another double dose of windfalls and greed. But Egypt's elections this week may bring an IPO of a different sort, the 'initial public offering' of an antidote to avarice.
Remember the heady days of the Arab spring? People in motion. Democracy breaking out all over. And right in the middle of everything . . . Facebook!
Activists in Cairo’s Tahrir Square, we marveled, were using Facebook and other social media tools to link and share and grow their movement. In a Facebook electronic age, anything suddenly seemed possible. A new world beckoned. A new world gloriously liberated from greed and corruption.
How’s that new world coming, over a year later? That depends where you look.
Over in Egypt, voters are going to the polls this week to start a two-round presidential election contest, the first presidential balloting since Tahrir Square first captured the world’s political imagination.
Egypt’s eventual future still remains hazy. But the nation's struggle for economic justice and democracy has kept moving forward over the last year. Egyptians are continuing to break new political ground, most particularly on the bold notion of a “maximum wage,” the idea that democracy and social decency both demand a limit on the income any one person can grab in a year.
The demand for a maximum wage in Egypt first surfaced in the militant labor protests that paved the way for last year’s uprising in Tahrir Square. This maximum wage demand has now gone mainstream. In the current presidential race, almost all the prime contenders are endorsing a “maximum wage” ethic.
The candidates, to be sure, do differ on the “maximum wage” specifics.
Aboul Fotouh, a liberal Islamist candidate, wants a maximum wage applied only to the public sector, and the Egyptian parliament is now putting the finishing touches on legislation that would do just that. The pending bill would set a public sector maximum at 35 times a public enterprise’s lowest wage, with an absolute income cap at the equivalent of just under $100,000 a year.
This public sector maximum would have a broad economic impact. In Egypt, the public sector covers nearly a quarter of the entire economy, not just government agencies but huge swatches of commercial and banking activity as well.
Activists from the Egyptian labor movement are calling for an even broader maximum wage. They’re urging a maximum applied to the entire economy, public and private sector alike, and former Arab League secretary general Amr Moussa, the presidential front-runner, appears to be backing that position.
In Egypt, the presidential campaigning suggests, a new world that pushes back against greed does still beckon.
On the other hand, here in the United States, the movers and shakers behind the Facebook phenomenon that meant so much for the initial Arab spring are shoving Americans in an entirely different direction.
These Facebook kingpins haven’t been challenging greed. They’ve been feting it, via an elaborately orchestrated initial public offering last week on Wall Street that dangled out to America’s investing class juicy new fantasies of over-the-top speculative windfalls.
In the days leading up to last week's Facebook IPO, investors buzzed with that old “irrational exuberance” of the 1990s dot-com bubble. Stocks typically trade at $14 of share price value for every $1 of profit. Facebook went to market asking over $100 for every $1 of profit.
And the market went along, in the process kindling get-rich fever and, on Friday, minting instant billionaires within Facebook’s inner circle.
One of those instant billionaires — Facebook co-founder Eduardo Saverin — took his money and ran. Saverin renounced his U.S. citizenship before the IPO. His move may enable him to avoid as much as $700 million in federal taxes.
The rest of the Facebook insider crew is staying put, at least for the moment, and doing its tax avoiding from the comfort of home.
Facebook’s top dog, Mark Zuckerberg, announced before Friday’s IPO that he would be exercising half the 120 million stock options he awarded himself in 2005. That decision cleared him a personal payday Friday around $2.3 billion.
The Facebook shares that Zuckerberg is still holding give him a net worth over $19 billion, and the 28-year-old seems to have no intention of sharing much of their new wealth with Uncle Sam.
The Wall Street Journal earlier this month detailed the tax code loophole — the “grantor-retained annuity trust” — that Zuckerberg and his fellow Facebook execs are likely using “to avoid at least $200 million of estate and gift taxes.”
Facebook is avoiding enormously more than this $200 million at the enterprise level, thanks to the U.S. tax code’s incredibly generous treatment of stock options. Facebook's exploitation of this option loophole, Citizens for Tax Justice calculates, will cost the federal and state governments about $6.4 billion.
How does this option loophole operate? Say Facebook hands out to execs a million options each to buy Facebook shares at $1 a share. These lucky option recipients later “exercise” their options and buy those shares at that $1 — and then turn around and sell them at $38, the Facebook going rate last Friday.
These option recipients will have to pay income tax on their $37-per-share profit. But Facebook — as an enterprise — can deduct that $37 off its corporate income tax. This deduction, of course, will fatten Facebook’s bottom line and pump up even further the value of the shares Facebook’s execs are holding.
The pushback against all this Facebook greed grabbing?
In Washington last week, two U.S. senators — Chuck Schumer from New York and Bob Casey from Pennsylvania — did propose legislation that would subject future wealthy citizenship renouncers like Eduardo Saverin to a 30 percent capital gains tax rate. But even the bill's supporters acknowledge that this legislation has no chance whatsoever of passage in the current Congress.
Legislation from Michigan senator Carl Levin that would strike down the much more significant stock option loophole faces an equally steep path to passage. New York’s Working Families Party, among other groups, is helping drive an effort to boost the Levin legislation.
Meanwhile, Fox Business News reported Friday that execs and investors who’ve “scored famously” from Facebook’s Wall Street debut have multi-million dollar mansions and $100,000 Porsches “flying off local shelves” in Silicon Valley.
America’s rich certainly do have cause to celebrate. But few people elsewhere in the world figure to be celebrating with them. For directions to a new world, they'll be better off looking toward Cairo.
Joe Nocera, Make Banking Boring, New York Times, May 14, 2012. The excessive executive pay link to the JPMorgan Chase multi-billion-dollar stumble.
Sarah Anderson, Nurses Push Tax on Trades to Help Sick, Chicago Sun-Times, May 15, 2012. America’s top nurses union is pushing for a financial transactions tax, and the union's campaign has hedge fund billionaires seeing red.
Kate Pickett and Richard Wilkinson, Sorry Nick Clegg — social mobility and austerity just don't mix, Guardian, May 15, 2012. To claim social mobility as your guiding principle and ignore income inequality does not make for serious public policy making.
Salvatore Babones, The Battle Over CEO Pay: When the Top 1 Percent Take on the Top 0.01 Percent, Truthout, May 16, 2012. America's top 1 percent holds the bulk of the nation's financial wealth. CEOs dominate the top 0.01 percent.
Rabbi Adam Zeff, Torah a Bellwether for Economic Equality, Jewish Exponent, May 16, 2012. On the enduring wisdom of the Jubilee, the notion that wealth must not “become permanently concentrated in the hands of a few.”
Barbara Ehrenreich. Preying on the Poor, Economic Hardship Reporting Project, May 17, 2012.
Robert Shiller, How National Belt-Tightening Goes Awry, New York Times, May 20, 2012. Why the new French president's plan to raise the top tax rate on the rich to 75 percent makes fine sense.
Entrepreneurial Energy: The Equality Link
Heather Boushey and Adam Hersh, The American Middle Class, Income Inequality, and the Strength of Our Economy: New Evidence in Economics. Center for American Progress, Washington, D.C., May 17, 2012. 52 pp.
Economists Heather Boushey and Adam Hersh have just delivered what Americans most definitely and desperately need: a guide to combating the economic claptrap that oozes out of our super rich — and the politicians and academics who fawn all over them.
This self-serving claptrap will no doubt rise in volume as the November elections near. We must not tax the rich, pols will advise us, because we need them to remain rich enough to create jobs. We must always stand, the pols will pronounce, for “equality of opportunity,” not “equality of results.”
On and on the claptrap will go, all justified by vague references to an age-old economic wisdom that no mere voter ought ever dare to challenge.
But that age-old economic “wisdom” — the phony belief that societies can’t grow and create wealth effectively unless they help the wealthy become ever more wealthy — has been crumbling within the economics profession. The super rich and their posses of pols, all sorts of economic evidence now documents, have reality totally upside-down.
Inequality isn’t growing our economy. Inequality is rotting our economy away. Inequality, as Heather Boushey and Adam Hersh show us in a new Center for American Progress study, is undermining those institutions, attitudes, and incentives that make our societies more productive.
This new study — The American Middle Class, Income Inequality, and the Strength of Our Economy — may be the most concise and up-to-date survey on the impact of income distribution of economic growth that has so far surfaced.
Boushey and Hersh mix both the latest academic research and a bit of popular flair. At one point in their narrative — to help us understand the impact of inequality on human capital and productivity — the pair even bring in this past winter’s fabled feel-good story of New York Knicks point guard Jeremy Lin.
Some of the evidence that Boushey and Hersh walk us through — how, for instance, wealth that concentrates at the top squeezes a society’s demand for goods and services — may come across as somewhat familiar.
But other points the two economists make will likely surprise most readers, especially their discussion on inequality and entrepreneurial energy. More equal societies, Boushey and Hersh point out, actually incubate entrepreneurial success at a far greater pace than top-heavy societies that try to egg on entrepreneurs with visions of fantastic wealth at the end of the economic rainbow.
Among the reasons more equal societies have this positive impact: “The potential to fall down the economic ladder“ in a distinctly unequal society discourages entrepreneurial risk taking because would-be entrepreneurs and their families have too far to fall should their entrepreneurial venture fail.
By contrast, more equal societies with broad and secure middle classes “tend to support public investments in social protections,” and these protections, note Boushey and Hersh, “increase family economic security and decrease a would-be entrepreneur’s potential loss from a failed investment project.”
What do we get when we have a society that ignores the dangers of income and wealth concentration? We get, explain Boushey and Hersh, “rent seeking,” the economic term of art that describes what happens when the powerful seek to gain economically more by manipulating politics than by investing productively.
In this situation, the two economists add, politics becomes dysfunctional. Government “lines the pockets of the wealthy elites rather than focusing on improving overall economic performance.”
|About Too Much|
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