Class Warfare –
My country ‘tis of thee,
Sweet land in jeopardy,
For thee I weep.
By Steve Thompson
CLASS WARFARE - AMERICA’S CANCER
1 – ESTABLISHING OUR ECONOMIC ARISTOCRACY 3
Figure 1 – Share of the nation’s income earned by the top 1% 5
Figure 2 – The Shift from Rentiers to a Managerial Aristocracy 6
Figure 2 – Health Care Comparisons Between Developed Nations 16
2 – HOW BAD HAS THE ERA OF INCOME INEQUALITY BEEN FOR YOU? 23
Figure 3 – The Gini Coefficient 23
Table I - Gini Index Table 24
Fig. 4 – Change in real After-Tax Income - 1979-2006 26
TABLE II – The Penalty for Living in Richistan 28
Fig. 5 – The effect of education on earnings 32
Fig. 6 – CEO’s pay as a multiple of the average worker’s pay 35
Fig. 7 – Change in pay of CEOs vs others and S&P 500 38
Fig 8 – How the tax code has widened the gap 39
Fig. 9 – Share of capital income earned by top 1% vs bottom 80% 40
3 – WHY IS THIS BAD FOR US? 41
4 - HOW CEO AVARICE DEVELOPS 50
5 – BUILDING AN AGENDA TO GO FORWARD 58
6 – AN ACTION AGENDA 68
7 – QUESTIONS FOR CANDIDATES FOR PUBLIC OFFICE 71
1 – ESTABLISING OUR ECONOMIC ARISTOCRACY
A Rapacious Capitalistic Monarchy is winning the war
Our country is very close to or has passed the tipping point where a very tiny club, the
Economic Aristocracy, controls enough of our assets and power to dictate how the rest of
us are to live, and that will be to serve mainly as their wealth generating servants. Our
founding fathers liberated us from one form of economic and political servitude, but
under the Law of Unintended Consequences we are substituting another.
We left behind medieval hierarchies whose power was based on land and unrestrained
physical force. Unwittingly, we have become prey for an equally ruthless oligarchy
based on today’s power, unrestrained economic muscle. The key word is unrestrained,
the net effect of which is despotic power exercised by a small, privileged group of
sociopaths for corrupt or selfish purposes. In an undeclared, unrelenting class war the
stealth warriors of wealth have become so successful that they have converted our
government into an ATM that funnels most of our nation’s wealth into the hands of a
very select few to the detriment of all other Americans. Unless the vast majority of
Americans realizes its situation and counterattacks, the prospects for improving its
economic lot will continually diminish at the hands of the plutocrats. The houses on top
of the hills will become ever more opulent, the better to overlook the expanding blighted
The representatives of capital have co-opted our government and systematically
dismantled all of the fail-safe banking regulations that were implemented in the post 1929
crash era while engineering new ways to transfer wealth by seducing our government as a
co-conspirator. Those regulations were contemptuously dismissed as benighted
hysterical panic driven by overreactions to the crash that precipitated the Great
Depression. Using massive amounts of corporate dollars the representatives of capital
engaged in a well-orchestrated, systematic campaign to induce large portions of
the working class to vote against their own economic self-interest
Adding insult to injury they also engineered a massive shift of the tax burden from capital
to labor, to such a grotesque extent that CEOs can pay a tax rate on mega millions that is
significantly less than what their secretaries pay. For example, Warren Buffett, the third-
richest man in the world, has criticized the US tax system for its unfairness. At a
fundraiser for Hillary Clinton he told his audience, “The 400 of us pay a lower part of our
income in taxes than our receptionists do, or our cleaning ladies, for that matter.”
He detailed that without trying to avoid paying higher taxes he was taxed at 17.7% on the
$46 million he made the previous year, while his secretary, who earned $60,000, was
taxed at 30%. He concluded, “If you’re in the luckiest 1 per cent of humanity, you owe it
to the rest of humanity to think about the other 99 per cent.” He added that the US
government policy accentuates a disparity of wealth that hurts the economy by stifling
opportunity and motivation.
An Industry Note from Citicorp in October 2005 provides further insight. Plutocracy,
rule by the wealthy, provides the wealthy a disproportionate influence over the political
process. For example, according to Kevin Phillips, author and political strategist to
President Nixon, the United States is a plutocracy in which there is a "fusion of money
and government." That creates a Plutonomy where the rich rule with the support of the
Citicorp concluded that a) the World is dividing into two blocs - the Plutonomy and the
rest. The U.S. is a key Plutonomy in contrast to Continental Europe (ex-Italy) and Japan,
which are in the egalitarian (having fewer inequalities among its people) bloc. b) In
plutonomies the rich absorb a disproportionate chunk of the economy and have
a massive impact on aggregate numbers like savings rates, current account deficits,
consumption levels, etc. c) There is no “average consumer” in a Plutonomy. Consensus
analyses focusing on the “average” consumer are flawed from the start.
Citicorp projects that the U.S. will likely see even more income inequality,
disproportionately feeding off a further rise in the plutocrats’ share of our economy,
capitalist-friendly government, more technology-driven productivity, globalization and
creative financial innovation, which are best exploited by the rich and educated of the
time. There is no such animal as “the U.S. consumer.” The very few rich take
disproportionate, gigantic slices of income and consumption. The rest, the multitudinous
“non-rich,” only account for surprisingly small bites of the national pie.
Viewed another way, Robert Michels believed that any political system eventually
evolves into an oligarchy, which he called the “iron law of oligarchy." Accordingly,
modern democracies should be considered as oligarchies. In these systems, actual
differences between viable political rivals are small, the oligarchic elite impose strict
limits on what constitutes an 'acceptable' and 'respectable' political position, and
politicians' careers depend heavily on unelected economic and media elites. Thus the
popular phrase: there is only one political party, the 'incumbent' party.
The U.S. then is a corporate oligarchy or Corporatocracy, a form of power, governmental
or operational, where such power effectively rests with a small, elite group of inside
individuals or influential economic entities or devices, such as banks, commercial entities
that act in complicity with, or at the whim of the oligarchy, often with little or no regard
for constitutionally protected prerogative.
One can find endless supporting documentation of the trends that are transferring more
and more of our wealth to fewer and fewer people. Different sources may vary slightly in
details, even within this paper, but the trends are so overwhelming that it matters little
which sources one uses. Don’t get sidetracked by minor details; stay focused; the
bouncing ball always leads toward a class war wherein the upper class is successfully
confiscating more and more of the pie.
Fig. 1, A graphic from the October 25, 2011 NY Times, bears that out. It shows that the
top 1 percent of American earners (about one million households) increased their control
of the nation’s total income from less than 9 percent in the late 70’s to over 23% in 2007,
rivaling their share of income on the eve of the Great Depression. That’s about as much
income as the bottom 60% and their net worth exceeds that of the bottom 90%.
Figure 1. Share of Nation’s Income Earned by the Top 1 Percent
Sources: Thomas Piketty and Emmanuel Saez, Urban Institute, Brookings Institution
As we shall see in more detail later, the top 1% does not tell the whole story. The rarer
the air, the larger the relative gains. The top 0.1 percent increased their take from less
than 2% in 1978 to almost 12% in 2007, a 350% gain! Meanwhile, the “bathtub” effect
that we see between the Great Depression and 2007 surfaces whenever we analyze data
about the wealthy and their ascendancy from post WWII lows in the 70s to rival pre-1929
highs just prior to when the economy took its worst beating ever.
With the exception of the boom in the Roaring 1920s, this super-rich group kept losing
its share of income through WWI, the Great Depression and WWII, and till the early
Eighties. Why? The answers are unclear, but the massive loss of capital income due to
progressive corporate and estate taxation is the likely candidate. That is also the time of
the greatest middle class boom in history. The rise in their share since the mid-eighties
coincides with the subsequent reduction in corporate and income taxes and also the
contraction of that same middle class.
Meanwhile, a new wave of entrepreneurs and managers earned disproportionate incomes
as they drove and participated in the ongoing technology boom. Fig. 2 shows a
fundamental shift in the nature of the top earners. In the early 20th century capital income
was the big chunk for the top 1% of households while the resurgence in their fortunes
since the mid-eighties was powered mainly from oversized salaries. The rich in the U.S.
transformed from coupon-clipping, dividend-receiving rentiers to a Managerial
Technocratic Aristocracy via skyrocketing salaries indulged by their shareholders.
Figure 2 – The shift from rentiers to a managerial aristocracy
How might these trends be reversed? Citicorp considers three possibilities. Property
expropriation is highly unlikely. The more likely means of expropriation is through the
tax system. Raising personal taxation rates on dividends, capital gains, and inheritance
taxes would hurt the plutonomy. The approach of regulating the domestic labor markets
through minimum wages, regulating the number of hours worked, deciding who can and
cannot work etc, or by dictating where goods and services can be imported from
(protectionism) do not seem to be productive alternatives, especially in a global economy.
Citicorp concludes that the three levers governments and societies could pull on to end
plutonomy are benign. Property rights are generally still intact, taxation policies neutral
to favorable, and globalization is keeping the supply of labor in surplus, acting as a
brake on wage inflation.
There is an alternative, from the potential social backlash that would restrict the
“invisible hand” of the market from operating without bounds. One reason that societies
allow plutonomy is that enough of the electorate believes they have a chance of becoming
a Plutoparticipant. Why kill it off, if you can join it? In a sense this is the embodiment of
the “American dream”. But if voters feel they cannot participate, they are more likely to
divide up the wealth pie, rather than unrealistically aspiring to being truly rich. If voters
understood the monumental odds of becoming a plutocrat other than through inheritance,
they might restructure their economy in short order. The recent Wall Street protests may
be the first shot in such a backlash.
Annalyn Censky on CNN Money.com lays out a typical scenario. He contends that you
are probably not better off than your parents if you are in the middle class. Incomes for
90% of Americans have been stuck in neutral, and it's not just because of the recent Great
Recession. Middle-class incomes have been stagnant for at least a generation, while the
wealthiest tier has surged ahead at lighting speed. One cannot escape the fact that the
rich are getting richer and the poor are getting poorer at a staggering rate. Once upon a
time, the United States had the largest and most prosperous middle class in the history of
the world, but now that is changing at a blinding pace.
In 1988, the income of an average American taxpayer was $33,400. Fast forward 20
years and adjusting for inflation not much had changed: The average income was still just
$33,000 in 2008, according to IRS data. Meanwhile, the richest 1% of Americans --
those making $380,000 or more -- have seen their incomes grow 33% over the last 20
years, leaving average Americans in the dust.
From Michael Snyder of The Business Insider we learn that in 1950, the ratio of the
average executive's paycheck to the average worker's paycheck was about 30 to 1. Since
the year 2000, that ratio has exploded to ratios between 300 and 500 to one. Meanwhile,
the American middle class is being systematically wiped out of existence as U.S. workers
are slowly being merged into the new "global" labor pool. So corporations are moving
operations out of the U.S. at breathtaking speed. There are now about six unemployed
Americans for every new job opening in the United States, and the number of
"chronically unemployed" is soaring. There simply are not nearly enough jobs for
Many of those who are able to get jobs find that they earn less than they used to as an
increasingly large percentage of Americans are working at low wage retail and service
jobs. For the first time in U.S. history, more than 40 million Americans are on food
stamps, and the U.S. Department of Agriculture projects that number will go up to 43
million in 2011.
We can conclude that neither our leaders nor our corporate executives seem to care about
us. Big Money spends fortunes advocating precisely the wrong actions for the country, to
the benefit of corporations, which are simply ATMs from which greedy CEOs withdraw
money. That allows those few Caretaker CEOs who are lucky enough to manage the
largest of them to siphon off most of our economy’s rewards. The term “caretaker CEO”,
which will come up often, refers to all successor CEOs to the founder(s) of a company.
They did not and probably could not build the enterprise, but they now control it. The
key difference is that their managerial motives and goals can be vastly different from
those of its founder(s), much to society’s detriment. Unfortunately, caretaker CEOs
control most companies of any size.
Further tilting the playing field against the vast majority, unfettered inheritance of
economic assets rigs the future. It inevitably stratifies society into economic classes and
thereby biases social outcomes in a manner that institutionalizes social dominance based
on family lineage at the expense of merit and/or hard work. It’s precisely what kings and
despots do; it’s why we revolted against England.
The Predator State by James K. Galbraith supports the thesis that the actions of another
key player, Alan Greenspan, make sense if his lifetime goal was to elevate the financial
sector to the largest sector of the economy. He succeeded and it now exceeds 25% of
GDP. Coupled with “capitalistic monarchy” (CM) or “wealthocrat” values, it works out
badly for all but a tiny few. CM values are those of the few who have acquired massive
wealth and strive to maintain the upper hand in what they perceive as competition against
their fellow humans. They consider that piling up obscene assets constitutes "victory,
success and winning" over all others who are "failures and losers" in their eyes.
Their goal is a modern feudalist society controlled by the often-sociopathic economic
elite. G. Edward Griffin “…reveals a personality profile…of that special breed of
international financiers whose success typically is built upon certain character traits.
Those include cold objectivity, immunity to patriotism, and indifference to the human
condition.” Other sociopathic qualities are: manipulative and conning, grandiose sense of
self, pathological lying, lack of remorse shame or guilt, and indifference to devastation
they cause. These are almost prerequisites among today’s business leaders.
They who would be kings and/or die with the most toys wage eternal class warfare
against the larger society. It is not new or unique; it is embedded in human nature. One
foundation of this undeclared war’s success is convincing the masses of the fiction that
class warfare whereby the impoverished awaken and strike back is undignified,
inappropriate, wrong and naughty-naughty. They have successfully created a new string
of synonyms. Anything that is not unrestrained capitalism is first labeled socialism,
which equates to communism, which is patently anti-American and therefore basically
evil. Those who subscribe to that propaganda, logic chain condemn themselves to the
class of willing prey.
Our most recent 2008 economic crisis in a continuing series of ever-worsening crises is
arguably the worst since the great depression. In 1980 legislation freed savings and loans
from restriction on the interest rates they could charge. Two years later sweeping
deregulation allowed the savings-and-loan industry to enter a wide range of new
businesses with very limited oversight, expanding opportunities to score big by betting
with other people’s money. The debacle, costing the taxpayers over $125 billion was an
eerie precursor of the financial implosion of 2008.
Enron’s spectacular collapse in 2001 was just one of many corporate falls from grace.
The names in the headlines changed – Tyco, Adelphia, HealthSouth, WorldCom—but the
story, again and again, was the same: in a system riddled with conflicts of interest and
self-dealing, executives looted their companies, enabled by pliant accountants and banks
that happily took their fees, while docile or disinterested board looked the other way. A
few executives were found guilty of criminal wrongdoing, but many, many more could
view the carnage they inflicted from extremely comfortable retirements.
In 2008, the same psychology reached new heights and destroyed even more companies.
Employees lost their jobs, and workers saw their pensions disappear—not just by the
hundreds but by the hundreds of thousands. Millions of middle-class Americans who had
invested through mutual funds or pension plans also paid dearly while they watched their
housing nest eggs vanish entirely in many cases. A partial list of institutions we lost
virtually overnight includes:
Washington Mutual - the largest bank failure in American history
AIG - Largest underwriter of commercial and industrial insurance in the US and
18th largest publicly held company in the world
Bear Stearns - one of the largest global investment banks and brokerage houses
Merrill Lynch - a synonym for brokerage house - 22nd largest corporation in
IndyMac - 4th largest bank failure in US history
Fannie Mae and Freddie Mac - owned or insured half of all US mortgages and
underpinned the entire mortgage industry
Lehman Brothers - Leading Investment house - 47th largest US company
National City Bank - 12th largest in the US, which we will examine shortly
We now know that the price tag for two decades of deregulatory excess will be
unconscionably high. Yet in one respect the success of the deregulatory agenda remains
undeniable and largely intact: the massive enrichment of an extremely thin slice of
American society. In the eight years leading up to the collapse of Bear Stearns and
Lehman Brothers in 2008, the top five executives at each firm cashed out a total of
roughly $2.4 billion in bonuses and equity sales that were not lost or clawed back when
the firms went under. As one post crash expose in Time Magazine explained the game,
“Here’s how it goes. You bet big with someone else’s money. If you win, you get a big
bonus, based on the profits. If you lose, you lose someone else’s money rather than your
own, and you move on to the next job. If you’re especially smart – like Lehman chief
executive Dick Fuld – you take a lot of money off the table. During his tenure as CEO,
Fuld made $490 million (before taxes) cashing in stock options and stock he received as
Here is just one example of the damage done by one of the 1,000. National City Bank in
Cleveland, Ohio was the nation’s 12th largest bank. How could a bank that was founded
when Abraham Lincoln was just a prairie lawyer become both a cause and a casualty of
the nation’s financial mess?
Roger Metzger eloquently reported the events on Cleveland.com on October 27, 2008. In
the late 1990s its former Chairman and CEO wanted the bank to become a mortgage
superpower, which required outside help to happen fast. In 1999 the bank bought
California-based First Franklin from B of A for $266 million. It specialized in loans for
people with lousy credit ratings who could only qualify for very high interest mortgages.
First Franklin skyrocketed from doing $4 billion in loans in 1999 to $30 billion by 2003!
That put National City’s mortgage business on steroids and in just four years mortgage
profits grew twenty-fold from $50 million to over $1 billion a year, half of National
City’s annual profits. This volatile, unpredictable mortgage business would eventually
sink National City.
In May 2006 the CEO gushed that his strategic plan “was wildly successful.” He was
now addicted to the profits and didn’t want to get out. As early as 2005 senior personnel
at National City sensed that the subprime party was ending. They wanted to get out and
sell First Franklin, but the CEO trumped them. In 2006 the bank’s chief economist
issued a report screaming about the trouble ahead and was ignored by his CEO. When
the division was finally sold in late 2006 National City had about $25 billion in risky
loans, more than the market value of the bank.
The sale was too little too late. It bought First Franklin in 1999 for $266 million and sold
it to Merrill Lynch in 2006 for $1.3 billion, which looked good on paper. Not so. Merrill
only bought $6 billion of First Franklin’s loans, because the remaining loans looked too
risky, leaving National City holding $19 billion in bad paper, which brought it down. In
October 2008 it was sold to PNC Financial Services Corp of Pittsburgh at a value of 4%
of its share price a year earlier.
Metzger’s account showcases how National City’s management strategy was exquisitely
good for the top dog, the CEO, and abysmal for 300 million other Americans. One man,
the CEO, was completely in charge of all decisions. His peers on National City’s Board
of Directors structured his pay package such that he earned money based on profit,
however gained, at whatever risk. He could refuse to sell First Franklin when everyone
else knew it was a time bomb and told him so. As long as he personally profited he had
no reason to sell it, because he would escape whole no matter what happened to the bank.
For the five years prior to his departure in December 2007, he earned a total of $36
million dollars. Was he worth it? He earned 37% more than the median of his peers in
other regional banks in spite of the fact that his bank provided only 60% of the median
return for similar banks. That is world-class compensation package management by the
On the day he was terminated, the bank’s stock had fallen 50% in a year, profits were
headed into the tank, and the bank was doomed. No matter, he received $46 million
dollars in salary, bonuses, perks, stocks, non-compete clauses and pensions that
afternoon! That’s 28% more in one day than he earned in five years! Good job!
A root cause for our financial failures is that today’s CEO’s can view their companies as
horses for them to ride and a cows for them to milk. Corporate failures or successes can
be irrelevant to their personal goals, which are to amass the most money they can for
themselves. They have succeeded in privatizing all of the gains and socializing all of the
losses. They pocket the profits while they last and leave the rest of us to pay to clean up
the carnage they leave behind. And they laugh at us all the way to the bank.
And they have help. A PBS special showed how the rating agencies, Standard and Poor,
Moody’s, etc. participated in our latest economic debacle. The worker bees in the
agencies that rate everything found ways to bundle mortgages that contained only low-
rated properties and award them overall AAA ratings, in spite of internal employees who
tried to stop it. It was a very attractive scam, because every mortgage bundle transaction
they rated netted them $250,000. One department grew from 3 to over 150 people in a
year, and earned $5 million a month. Tragically, only a very few people at the very top
of those companies had to approve and encourage such practices or they could not exist.
One can suspect they knowingly allowed and encouraged it, because the practice earned
millions of short-term dollars on their monstrous compensation packages; that would be a
driving force sufficient to enable the whole catastrophe. If those few put their feet down
and say, “We don't do that here." it never happens.
That the same scenario probably played out at Lehman Brothers, Merrill Lynch, AIG,
WAMU, et al. A tiny handful of their "executives" with get-out-of-jail-free cards are no
different than few partners who took down tens of thousands of Arthur Anderson workers
along with their careers and savings without warning or apologies, not to mention billions
in investor losses. A CEO either turning a knowing, blind eye to the practice and/or
encouraging it authorized every single bit of shaky mortgage debt in 2008. Debt
leveraging may be the technical culprit, but that cannot exist without the top-level
approvals of only a handful of people.
There could not have been more than 1,000 top managers in every institution of
consequence that let us down. And, on average, each of them probably departed with at
least tens of millions of dollars, head held high, looking over his shoulder and saying,
"Take that, losers." And virtually none of them broke any laws. The ways we motivate
CEOs to pad their nests without regard for their enterprises or the rest of us is precisely
what gives "capital" its capacity to destroy "labor," labor being the other 99.9% of us.
CEO compensation schemes really do matter.
There is no incentive for CEOs to leave their companies stronger and more vigorous than
they found them. Compensation is rigged so that even if the company fails, they are
obscenely rewarded. No matter what the risks, they cannot lose. The ultimate fate of the
company is secondary to manipulating the financials to transfer company revenues into
the bank accounts of the economic aristocracy. If the company collapses; if every
employee is thrown out of work; if they all lose their homes and their retirement plans; if
they all go on welfare and become homeless – that is none of a sociopath’s concern. The
employees merit no pity; they are just dumb losers. He has the most toys and he has won.
Lacking either a conscience or a sense of reciprocal altruism, he will leave that horse to
die and just mount another so that he can capture even more toys to impress the
0.00015% of the citizens who are his peers and who will help him saddle up the next
company so he can get back into the game.
And they have accomplices in the very highest places. The recent financial crisis with its
myriad home foreclosures, unemployment, and a general loss of standard of living among
all Americans that was probably enabled by fewer than 1,545 people! No more than
1,000 of them head some of our largest financial and business institutions. Those top
1,000, CEO, money moguls own our 535 “elected” congressional representatives. The
nine supreme court justices are completely politicized, pre-qualified in thought word deed
by the parties of the presidents who appointed them, who, in turn, cannot even run to be
nominated for that office without the financial support of the 1,000.
That mere one in every 200,000 Americans, roughly the population of Des Moines, Iowa,
is far more than enough to orchestrate our downfall. The combination of the Fortune
1,000 elite in collusion with government makes the danger of Eisenhower’s military-
industrial complex look like a non-event. Support from the corporate and financial
community chooses who gets to run and then who succeeds in primaries, and by the time
it gets to the general election they are indifferent to who wins; they own all the candidates
either way. Who benefited and who lost? The gang of 1545 benefited, the 1,000 people
at the helms of the Biggest Businesses, in collusion with their 545 willing partners in the
U.S. Government, who aid and abet the wealthocrat’s class warfare against the rest of
society, created the entire calamity. They continue to benefit, while everyone else
continues to lose ground, as we shall see in some detail. Politicians should wear uniforms
with patches, like NASCAR drivers, so we could identify their corporate sponsors.
A Seminal Event
In the early 70’s, forces were coalescing into what would become a major strategic
success for the hyper-rich, including the meteoric rise of wealth through executive
In 1971, future Supreme Court justice, Lewis Powell, asserted in a famous memo that the
“American economic system is under broad attack.” He maintained that this attack,
which had seen the increasing regulation of many industries, required mobilization for
political combat, “Business must learn the lesson…that political power is necessary; it
must be used aggressively and with determination.” And whom did he identify as
businesses’ enemies? “The most disquieting voices joining the chorus of criticism came
from perfectly respectable elements of society: from the college campus, the pulpit, the
media, the intellectual and literary journals, the arts and sciences, and from politicians.”
He even advocated “constant surveillance” of textbook and television content, as well as
a purge of left-wing elements. This from a soon-to-be appointed justice of the Supreme
Court by President Bush! He stressed that the critical ingredient for success would be
organization: “Strength lies in organization, in careful long-range planning and
implementation, in consistency of action over an indefinite period of years, in the scale of
financing available only through joint effort, and in the political power available only
through united action and national organizations.”
It was an extraordinary prefiguring of the social goals of business that would be felt over
the next three decades. Powell set his main goal: changing how individuals and society
think about the corporation, the government, the law, the culture, and the individual.
Shaping public opinion on these topics became, and would remain, a major goal of
business, not to mention something he could personally influence from the highest bench
in the land.
He was heard. The seminal event occurred in the fall of 1972, when the National
Association of Manufacturers (NAM) planned to move its main offices from New York
to Washington, DC. Its chief, Burt Raynes, observed, “We have been in New York since
before the turn of the century, because we regarded this city as the center of business and
industry. But the thing that affects business most today is government. The
interrelationship of business with business is no longer so important as the
interrelationship of business with government.”
The mobilization was awesome. The number of corporations with public affairs offices
in Washington grew from 100 in 1968 to over 500 in 1978. In 1971 only 175 firms had
registered lobbyists in Washington, but by 1982 nearly 2,500 did. The number of
corporate PACs increased from under 300 in 1976 to over 1,200 by the middle of 1980.
While the growth of labor PACs languished, growing from 224 in 1976 to only 261 in the
next decade, corporate and trade PACs exploded from 922 to 2,182 and could outspend
labor by two or three to one. In 2009, 2,593 corporate and trade PACS could smother a
mere 272 labor PACs. When business pools its resources there is no combination of
economic muscle available throughout the rest of the economy that can counteract it. It is
the 600-pound gorilla.
As of 2007 there were 17,000 federal lobbyists based in Washington, DC, outnumbering
congress people by 32:1. They spend $3.5 billion each year, not including campaign
contributions, to influence them, which is about what the combined winners and losers
spent on trying to get elected every other year.
In 2010, corporate PACs split their contributions exactly evenly between democrats and
republicans at $164.3 million each. They sponsor and select the candidates from both
sides, who are virtually all beholden to them. We have government of he corporations,
by the corporations, and for the corporations. Because of their absolute control over their
companies, corporations are synonymous with CEOs; single individuals at each location
who can reap the obscene incomes they can generate.
A new wrinkle is the Non-Connected PAC. It is an example of buying influence on both
sides in any election to support the same agenda and shut out alternative debate. Non-
connected or ideological PACs raise and spend money to elect candidates -- from any
political party -- who support their ideological missions or agendas. They are single-issue
groups and as of January 2009 there were 1,594 non-connected PACs, including the
National Rifle Association (gun owner rights) and Emily's List (abortion, pro-choice).
The second seminal event
The development that insures that the influence of the very few will trump all others was
the Supreme Court decision that awarded “personhood” to corporations so that they could
contribute to political campaigns. That decision was probably the worst betrayal of the
American people ever rendered by what is now a completely politicized court.
Corporations are not people; they cannot hold office or vote in elections, so on what basis
should they be able to influence elections? As one Wall Street protester put it,
“Corporations will be people when the state of Texas executes one.” A CEO can decide
on behalf of all the employees which politicians should receive his corporation’s support.
The money he single-handedly appropriates is the corporation’s money. He did not earn
it; the combined efforts of all of the people within the company earned every single dime,
yet he has the control over which politicians he will help to elect. Nominally, half of the
people in any company vote for one party and half for the other. Whichever side he
backs, he disenfranchises half of the employees and uses money they earned for the
corporation against them. They are in effect slaves, working against their perceived self-
interest. It is corrupt, immoral and just plain wrong for corporations to be permitted to
give money to any political candidate or issue.
The Supreme Court’s betrayal of America is worse than that. Most companies of any
size do business internationally, which influences them. They may even have CEOs or
Board Members who are foreign citizens. No matter, those foreign nationals now have a
big money voice in whom we elect and we are all diminished by any foreign influence.
No matter to the patriots-for-life in the judicial robes; corporations and foreigners can
now use money earned by their employees against them, support genuine anti-American
interests, dictate agendas and decide our elections – not quite what our founding fathers
Once the Supreme Court ruled and lifted many spending and contribution limits, it didn’t
take long to invent the “Super PACs,” officially known as "independent-expenditure only
committees," which can raise unlimited sums from corporations, unions and other groups,
as well as individuals. These groups can also mount the kind of direct attacks on
candidates that were not allowed in the past. Super PACs are theoretically not allowed to
coordinate directly with candidates or political parties and must disclose their donors.
PACs with only a handful of members can now buy and sell virtually any candidate.
Brett Kappel, a campaign-finance lawyer at Arent Fox, said super PACs are poised to
become “the de facto political parties” because of their broad ability to raise and spend
money. “These PACs will now be able to do what the candidates and parties can’t do,”
Kappel said. “It’s moving the entire political system into super PACs.” For instance,
earlier this year, three donations of $1 million each were given to a super PAC supportive
of the presidential campaign of former Massachusetts Gov. Mitt Romney.
As a super PAC, American Crossroads can accept unlimited donations from individuals
and corporations. It recently received a single giant check: $2 million from Houston
homebuilder Bob Perry, who gave an additional $500,000 to the group earlier in the year.
He is the single largest donor to super PACs so far this election cycle. He joins Jerry
Perenchio, former CEO of Univision, who gave $2 million to the group in April and
Dallas businessman Robert Rowling who kicked in $1 million in May.
That's standard for Perry (no relation to Texas Gov. Rick Perry), whose deep pockets
have long subsidized Republican candidates and causes. He earned notoriety in political
circles as one of the primary funders of the Swift Boat Veterans for Truth campaign that
aired attack ads against Sen. John Kerry in 2004. In the 2010 election cycle, he gave $7
million to American Crossroads and another $7.5 million to the Republican Governors
Not to worry though. As a taxpayer you can still designate $3 of your Individual Income
Tax Return to go to the Presidential Election Campaign, to be apportioned among all of
the already bought off candidates for president through matching funds from your
government to tack onto contributions from billionaire’s and corporate funding. Doesn’t
that make you feel really part of a fair and balanced process? Who said that the IRS has
no sense of humor? It would be funny if asking our government to augment
contributions from special interests were not so degrading and ludicrous.
Controlling the dialogue
In collusion with their bought-and-paid-for government lackeys the economic royalty has
systematically engineered an economy where all gains are privatized i.e., deposited into
the accounts of the hyper-privileged, and all losses are socialized, i.e., covered by the
taxpayers. One way they do that is by controlling the agenda of what is appropriate for
government to consider, or what information we are to receive, or not.
Take a simple thing such as defining a recession. The start of a recession is defined as a
drop in GDP for two or more consecutive quarters, typically accompanied by a two-
quarter drop in the stock market. Therefore our current recession, which actually began
in December of 2007 could not even be defined until two quarters later in June of 2008,
and was not officially declared a recession by most until December 2008, a full year later
even though everyone in America knew that our economy was falling apart at the seams
and job losses were rampant. The recession “officially” ended in June 2009, when the
GDP and the stock market turned upward for a quarter from their bottoms, which was not
publicly declared for several more months. What’s wrong with those definitions?
Those definitions only apply to corporations and banks. Why is that important? Because
until you can actually declare a recession, there is no reason for government to interfere
with the businesses that caused it, is there? It is a year’s free ride from a recession’s
onset for the malicious. The instant the financial indicators start upward, that’s when the
bankers and CEOs begin declaring obscene bonuses again. Declaring an end to the
recession signals that government intervention is no longer needed; the country is back
on its feet and it is business as usual for the sociopaths. They are out of the woods, and
they have rigged the dialogue so that everything is “over” and we can all relax.
That is the precise point when job losses, housing foreclosures and 401k decimations are
at their peaks. At best it is only the midpoint of the financial hardships of the public and
it may be years from being over for the displaced workers and their families. The
corporate royalty doesn’t want to talk about because they are now busy telling us how
raising taxes and implementing regulations on those who directly caused the economic
carnage would inhibit them from hiring a dozen or two of the millions of people who they
just put out of work. They control the dialogue such that when you are in the depths of
economic chaos they are touting “recovery, good times, and business-as-usual.” They
don’t even permit us to define good times and bad. Something like job losses and job
recovery would be an infinitely better measure of recessions and recoveries, but that is
not permitted under their rules.
Another example of limiting our national agenda to discussions that only help the opulent
is our recent exercise in so-called health care reform. One might think such a debate
should be about health care, but that was hardly the case. Figure 2, taken from the
National Geographic, elegantly illustrates our problems with health care. Our situation is
Figure 2 – Health Care Comparisons Between Developed Nations
1) Even though we are only one of two countries that does not provide health care for all
its citizens, disenfranchising over 46 million Americans below age 65, the US still spends
almost 2 1/2 times as much per person on health care as the average of most developed
nations, and rapidly rising.
2) Our life expectancy is lower than all but four, relatively poor, east European countries
and Mexico. New estimates are surfacing that predict the generation about to be born
may be the first in American history to have a lower life expectancy than their parents.
At the other end of life, if infant mortality were plotted the U.S. would also be near the
bottom of the pile.
3) For all we spend, we see doctors less often than all but Mexicans and the Swiss, fewer
than four times per year. Our system discourages seeking medical care.
4) Conclusion: whatever we are doing, we are getting sub-standard results for our money
in both access to care or in results. Our system is horribly inefficient and broken.
Where did we go astray? Our system treats health care as a product to be sold, paid for in
advance, not a service for the well being of our citizens. Any suggestion for real reform
is met with the “that’s socialist = communist = anti-American = evil” tirade, which still
sells. The “health care” debate did not address a single “health” issue. The dialogue was
a restricted debate how we should compensate insurance companies and try to include
more people paying premiums either on their own or with government subsidies.
Insurance, alone, is a tremendous drag on the system. Overhead averages about 15% and
can run as high as 30%, not one dime of which goes for an aspirin or a tongue depressor.
Acres of clerks sort checks, fill out forms, check to see who got proper referrals to our
team’s doctors or not, decide who can have another treatment or not, etc. Meanwhile,
another army of clerks in our hospitals assure that each procedure is billed at the highest
possible a la carte rate, broken down into its 678 component parts such as band aids,
gurney rides, Kleenex, shots, etc., and billed separately. The bookkeeping is horrific,
blindly stupid, and terribly expensive to absolutely no purpose that can be construed as
providing health care.
There is an enormous cost to this inefficiency. I was told by a veteran who was stationed
in Washington DC during WWII about a similar situation that occurred while he worked
in the office that handled GI Life Insurance. It paid $10,000 to a family upon the death of
a soldier. It cost each GI only a couple of bucks a month and everyone bought it. After
the war, during which military deaths were at their highest level ever, an analysis of the
program revealed that the cost of collecting the premiums far exceeded the benefits
distributed. Giving the death benefits away free, even during wartime, was more cost-
effective than charging for them, and they have been given free of charge to military
personnel ever since.
Under one alternative, a single payer plan where the government funds healthcare, we
could provide “free” health care to every American for less money than the combined
taxes and premiums than we now pay plus providing greater access to the system. Our
much-maligned government administers Medicare’s with a 3% overhead. Unfortunately
a few billionaire CEOs would lose their cash cows just to make us a healthier nation.
Now that’s really “socialist = communist…” You get the picture.
Further dialogue control comes from inundating us with a Goebbles-like barrage of
propaganda that nobody else can afford to match. Its goal is to keep your eyes off the
ball, which it does very effectively. For example, we see many ads sponsored by the coal
industry that exhort us all to call our representatives to tell them not to raise taxes on
energy companies. There is no worse energy source for the environment than coal.
Those who control the money want us to keep using more and more of it so that they can
collect ever-larger paychecks. They do not care about our environment, much less
developing alternative sources of energy to their poison. They do not care about your
children’s health or the environmental decimation we will have to live with. Why should
they? They don’t even care about their own grandchildren drowning in a fog of coal dust
and smoke. They only ever care about themselves and their grandiose paychecks, and if
the rest of the species has to suffer that’s just tough noogies.
Then there are the endless ads from the U.S. Chamber of Commerce, which sounds as if
it is affiliated with the US Government. It is not; it is the largest lobbying organization in
America, spending $144 million in 2009, five times more than the next largest
organization, Exxon Mobil. It seeks to monopolize the dialogue with positions that are a
litany of support for unrestrained plunder and decimation of the planet for the short-term
enrichment of a few: opposition to any financial regulation, opposes the DISCLOSE Act
that aims to limit foreign influence on U.S. elections, opposition to any action on climate
change, support for unlimited oil drilling, support for corporate personhood and allowing
corporations to spend unlimited sums on electioneering. It is a sociopathic organization.
Decoding the rhetoric and following the money, the propaganda from those who have the
money to pay to control the messages can be interpreted something like this: “Now that
we (The 1%) have lowered our tax rates to where we have won so big time that we now
pay lower rates on our millions and billions than you do on your measly thousands, repeat
after me, ‘All tax increases are evil.’ Otherwise, while trying to raise our taxes yours
might go up too and wouldn’t that be a pity? Government is the enemy and is taxing you
to death. Therefore, we must starve the beast and that means cutting every social
program that is now too expensive since we have destroyed the economy, and we have
already partially starved the beast by: lowering our taxes to sometimes less than yours,
not paying anywhere near our fair share of taxes and choosing to engage in two
completely unnecessary wars from which we make tons of money, without which our
country might be awash in money. By convincing you to starve what you think is your
evil government further (It’s really our ATM.) by not raising anyone’s taxes, and
possibly even lowering taxes further, we can sit back and enjoy the spectacle of the lower
99% cursing the government and worsening its lot by fighting among itself as to which of
your benefits you will cut, be it social security, healthcare, education, whatever, because
we the Capitalistic Monarchs don’t need any of them and will keep raking it in, anyhow.
And of course you will not want to keep spending money on regulating banks, oil
drilling, climate control, or any kind of regulation because that would detract from the
crumbs of what’s left of your social security or health care. Right? And God bless the
Tea Party for doing our dirty work for us and keeping you focused on fighting with each
other for the crumbs while we are so looking forward to a continuing free ride to plunder
your planetary heritage to buy condos in Monte Carlo for our great, great grandchildren.
Your struggle to subsist is our circus. Ha, ha, ha, ha, ha. Our sides ache and our eyes
tear from laughing so hard. You poor dupes can’t even identify your real enemies or
detect class warfare when it’s killing you off. You deserve being in the lower class.”
Rethinking CEO compensation and corporate influence
We need moral and/or legal boundaries for regulating runaway CEO compensation and
corporate influence on our economy. It is perverse that we have instituted a
representative form of government wherein our leaders who wield the most political
power are restrained, yet those who could destroy us monetarily from the inside are not.
Political leaders at every level must periodically stand for election. They can be held
accountable and if they are deemed no longer worthy or less worthy than a competitor
they can be removed from office. They are capped at pay levels that are above average in
some cases, but ludicrous by private executive standards. Yes, they have perks and paid
expenses but they are paupers compared with any major corporate executive. In addition,
the three branches of government act to somewhat balance each other off. We have
already accepted the principle that even the most powerful among us should be regulated
Meanwhile, the captains of the economic engines that can affect our lives as much, or
more, than our politicians encounter no restraints. For instance, though three presidents
of auto companies allegedly hold the fate of 10% of our workforce in their hands, they
answer to nobody. Ditto for the CEOs of our top financial institutions. They "earn"
hundreds, even thousands of times what their average employee earns, who performs
actual, productive work. The Monarchs are rarely expelled for bad decisions, and if they
are ever terminated they walk away, rewarded, with assets that amounting to a king’s
ransom. Their incentives are largely in "bonus" form for achieving extremely short-term,
slam-dunk goals. They have licenses to steal. If, according to their employment contract,
continuing their company in a stable, sustainable way would net them $5 million a year,
that path can be easily eschewed if a completely irresponsible alternative that could easily
destroy the company nets them $50 million, right now, this year. To a sociopath that's a
The Corporate Monarchy contends that to attract the very best people to run our very
largest companies it is necessary to offer the highest possible incentives. That is simply
wealthocrat deceit. We have no trouble finding endless candidates to vie for our elected
offices, who receive a relative pittance to undertake jobs of enormous responsibility,
many of whom are very competent - not necessarily allies of the people, but competent.
Plutocrats with despicable motives are doing despicable things. The successful
dismantling the regulatory environment, which was a reversion to laissez-faire capitalism
and financial industry “self regulation,” i.e., permitting foxes to guard chicken coops.
The Republicans were their original paid mercenaries, but the Democrats became co-
opted and joined the enabler brigades shortly thereafter.
The man-in-the-street’s economic opportunities have diminished and his financial
security has become even more ethereal. Does anyone still believe that we are poised to
maintain our relative leadership position or standard of living vis-à-vis the rest of the
world? Or are we precariously perched on the brink of mediocrity, of being continually
less well off from generation to generation, unsure of where the next job, house, medical
coverage or meal will come from? Will our children enjoy a higher standard of living
than we do? We cannot forecast such things without first realistically facing our
situation; are we in trouble and, if so, how deeply? If we understand how it happened, we
might be able to chart a path toward recovery and prevent future betrayals of the working
people by altering our country’s rules of engagement.
To see how far off track we have been misled, take a quick look back. Hard-working
farm and urban laborers built the US. Entrepreneurs saw opportunities and built
companies to fill the needs of the populace while providing work and income to their
employees. Our infant country was new and empty, so like the rebuilding of a
completely devastated Europe after WWII; we had a clean slate with no baggage or sunk
costs to hold us back. Supported by a situation in which it was almost impossible to fail
and resources that would not be strained for generations we ran with the ball and built the
greatest country the world has ever seen.
Meanwhile, our form of government provided an environment within which its citizens
could universally, individually benefit far beyond any other system ever tried. Our nation
bought into the noble ideals that our system should provide everyone an opportunity to
succeed; hard work (contribution) should be rewarded and sloth (free-loading)
discouraged. The timing of the industrial revolution could not have been more fortuitous.
Our world-class educational system provided the technological and business leadership
required to easily keep us ahead of any other country. We did not squander our
opportunity and built what was arguably the first significant middle class of all time. Our
standard of living and material possessions have been the envy of the rest of the world for
decades. In general, anyone who went out and worked hard could capture a decent
enough share of the pie to live better than anyone anyplace else in the world.
We did not anticipate that leaving the topmost rewards open-ended, i.e., unfettered,
unregulated, and beyond legal or ethical restraints, a tiny few could rise to the positions
of economic kings, tyrants, and dictators. They can view all other workers as simply a
source of income, indistinguishable from machines or materials whose output can be
marked up and sold at a profit to provide the top dogs with obscenely disproportionate
wealth. Even when their actions precipitate the collapse of the economic engine that
produces their wealth that is just collateral damage; it actually distances them even
further, economically, from the commoners, who are now even more destitute and
relatively even worse off. Economic power corrupts and absolute economic power
corrupts absolutely. That's just how some people are wired.
A classic example of economic corruption is our banks. A bank is a place where
depositors place their money for safekeeping, because guarding it themselves in their
own homes is far too risky. The only assets a bank has are its depositors’ money and its
first duty is to protect depositors’ assets. After first assuring that deposits are and will
remain secure banks might consider other transactions.
When the bank plays with instruments such as sub-prime mortgages or hedge funds it
gambles its depositor’s money on highly uncertain outcomes. That is a fundamental
breaking of trust with its depositors. Not one dime of the bank’s assets that the
“successor CEO” is playing with is his money! It is yours and mine, depositors’ money,
every dime! Yet, bankers insist that they should not be regulated in how they might
choose to gamble with our money. After all, any restriction on bankers’ whims
constitutes tampering with the free market, a crime worse than striking the queen!
Unfortunately, without regulatory guidelines bankers make as many bad, never mind
greed-driven decisions as anyone else at a gaming table.
These same gambler executives pay themselves outrageous sums for transferring our
money around, and when they irresponsibly lose it they retain their usurious rake-off
from what used to be ours. What's wrong with this picture? How did we ever agree to let
CEOs, whose first responsibility is supposed to be safeguarding our money, loose it
without constraints, restraints, or any regulations to protect our assets? They should be
regulated right down to their underwear.
To add insult to injury and pour salt into our wounds, when a bank fails, we, the
taxpayers, must bail them out with even more of our money, never their money; they
have complete unaccountability and they are never at risk! How nonsensical is that?
Perversely, the executives who irresponsibly orchestrated this recent debacle see
themselves as more vindicated than ever. Why? While they continue to be paid
obscenely big money for corporate failure, they have built an even greater wealth moat
between themselves and the citizens they caused to lose heir livelihoods, homes and
40lks. Combined with the failures of the small businesses that depended upon them the
Masters of the Universe became relatively Bigger Winners than Ever over the masses of
what they consider to be their legitimate prey, the dumb losers. They have succeeded at
widening the chasm by impoverishing others while they continue to become wealthier.
Lee Iacocca sums it up exquisitely in his book, Where Have All The Leaders Gone?
“We've got a gang of clueless bozos steering our ship of state right over a cliff, we've got
corporate gangsters stealing us blind,”
The bargain of a lifetime
How did the plutocrats pull it off? How would you do it? If you could convince the
government of the wealthiest country in the world to enact policies such that the
government acted as the collection agency to distribute all of the nation’s economic gain
to the economic aristocracy in the top 0.01, that would do the trick. Guess what? That is
precisely the battle plan that they have successfully waged against all other classes since
the late 1970s.
Buying congressmen is a fantastic bargain for the hyper-rich. It is the most cost-effective
path to procuring the most wealth, because they are for sale so cheaply. Since it is illegal
to give them money directly as bribes, the only cost to ensnare them is campaign money
with which to secure their jobs. The cost of acquiring those jobs is a pittance compared
to the extortion the contributors will reap from favorable legislation that will enable them
to control virtually the entire economy. It’s the best investment anyone can make and a
tiny number of capitalist monarchs can negate the best interests of rest of the population.
The total cost of the 2010 congressional elections was about $4 billion, which sounds like
a lot of money. 435 house seats and 36 senate seats were up for grabs. The cost to
completely fund both sides of the 471 elections works out to an average purchase price of
right at $8.5 million per puppet, assuming a cartel paid for everything, which it doesn’t
need to do to control the government.
If a cartel, say the super-rich oligarchy, wanted to pay for everything to assure itself that
no matter who won they would have influence over every legislator, what would that
translate into? Just the Fortune 500 companies, alone, have revenues of $10.8 trillion. $4
billion is less than 4/100ths of a percent of their revenues. Since elections only occur
every two years, that is less than 2/100ths of a percent of revenue per year if only those
500 companies conspired to elect the so-called “representatives of the people,” which the
Supreme Court now permits. For an incidental expense, 500 companies representing
global interests, not just interests of US citizens, can buy every single election for chump
change that they can recover in less than a day from favorable legislation. Don’t assume
they can’t get organized; they can, and have.
An alternative source campaign funding is just the top 1/100th of a percent of our citizens.
Those 15,000 families earn $525 billion per year. Two billion per year is about 0.4% of
their incomes; a pittance when you consider the return on investment from buying their
legislators, which was an income growth of over 600% between 1979 and 2005. That
exceeds 7% growth per year, compounded for 26 years! Nothing is a better buy than
congress. And what have our representatives sold out for? A $174,000 a year job so that
they can enrich people averaging over $24 million a year in income. That is a working
definition of moral bankruptcy.
Between the corporations and the filthy rich families that control them, if they allocate
about 1/100th of a percent of corporate revenues and about 0.2% of personal income, they
can buy our government to sell out its citizens all day long. Those modest percentages
are far too high; it doesn’t take anything like 100% funding of every candidate to control
Is it any wonder that the public’s interests are way down politicians’ to-do lists? That’s
why “our” elected representatives now stand for fiscal policies that always concentrate
wealth upward into fewer and fewer hands. Trickle down and not raising taxes on the
super wealthy because they are the supposed keys to spending and job creation are just
two pet myths they parrot on behalf of their masters. Repealing protections against
mortgage lending abuse that prevented mortgage debacles for over 70 years is another.
America’s upper class warfare practitioners are very successful predators and the
legislators who could protect us from them have become their mercenaries. We, the
99%, are their bayonet dummies.
2 – HOW BAD HAS THE ERA OF INCOME INEQUALITY BEEN FOR YOU?
The economic well being of an “average” family is in a long, slow decline. We have
entered an era of sustained, ever increasing, income inequality that is really bad news for
almost everyone. How unequal have we become and what does that mean to you?
The Gini coefficient is the commonly used, definitive measure of inequality of income or
wealth. It ranges in value between 0 and 1. A low Gini coefficient indicates a more
equal distribution of income, while a higher one indicates a more unequal distribution.
At the extremes, zero would indicate complete equality of income; it’s the socialist’s
dream where everyone earns the same amount. 1.00 would be complete inequality; one
person such as a king would capture everything.
The U.S. Census Bureau graph, Figure 3, is critical to understanding what is happening in
America. It shows that starting with the post-WWII period we gradually lowered our
coefficient from about 0.375 until 1968 when it hit an all time low of about 0.348, a drop
of about 7%. That is a very good trend for the man-on-the-street and it coincides with
what was arguably the time of the greatest expansion of a middle class in the history of
The American dream was alive and well and successive generations could anticipate a
better life than their parents. In the subsequent 40 years the trend reversed and income
inequality has marched steadily upward. This is the smoking gun that supports the sense
Figure 3. The Gini Coefficient of Family Income Inequality, 1947 - 2005
Note: A 1993 survey change led to a one year jump in inequality. Source: US Census Bureau
many have that the middle class is under pressure and shrinking. In 2008 the Index stood
at 0.442, a gain of a whopping 27% and rising.
While most developed European nations and Canada tend to have Gini coefficients
between 0.24 and 0.36, averaging about 0.31, the US’s coefficient since 2007 has been
around 0.45. We concentrate a much higher percentage of our national wealth in far
Our income distribution now parallels that of a Banana Republic or a society ruled by
royalty. Multiplying the Gini coefficient by 100 it converts it to the Gini index, which
many people prefer to deal with because it ranges from 0 to 100. As the table below
shows, it is disheartening to note the 10 countries in the world with which we keep the
Table I - Gini Index
United States 45.0
Cote d’lvoire 44.6
The average index for the European Union is 30.7. Not many Americans would prefer to
live in any of those ten nations versus the European Union (EU) or other developed
countries. Using the Human Development Index as the measure of a “Developed
Nation,” which combines an economic measure, national income, life expectancy and
education - all the things Americans value in their standard of living, none of the other
countries with whom we are keeping economic company is considered a highly
developed nation or considered by the IMF as an advanced economy. It is not just
conjecture; our wealth is now concentrated in so few hands that we find ourselves
grouped economically with second and third world countries ruled by a very few
powerful tyrants in some cases. What happened?
Since 1998, while inflation increased by 31%, inflation adjusted, average, household
income has not increased in the US. From 1998 until 2006, real GDP, adjusted for
inflation, grew by about 29.2% or $2.6 trillion dollars - none of which went to the lowest
90% of American families. We had a roughly 10% increase in population that absorbed
about 10% of the 29.2% gain, so 2/3rds of that money had to go somewhere else. It all
went to the top 10% of our population, with 80% of that going to the top 1%, which is
why our Gini index keeps rising. Our economy is being raped and pillaged by a few
wealthocrats and the effects are devastating a hard working people who deserve better.
Nicholas Kristof, writing for the NY times summed it up nicely, noting that in banana
republic plutocracies, notorious for their inequality, the richest 1 percent of the
population gobbles up 20 percent of the national pie. Such rapacious inequality is now
right here at home where the richest 1 percent of Americans now take home almost 24
percent of income and the United States now arguably has a more unequal distribution of
wealth than traditional banana republics like Nicaragua, Venezuela and Guyana.
Why do we care? As reported in the NY Times on Dec. 11, 2011, the International
Monetary Fund reveals the link between inequality and the sustainability of economic
growth. In high-inequality countries growth spurts ended more quickly, often in painful
economic contractions. Income distribution contributes more to the sustainability of
economic growth than the quality of a country’s political institutions, its foreign debt and
openness to trade, the level of foreign investment and whether its exchange rate is
Extreme inequality blocks opportunity for the poor. It breeds resentment and political
instability – discouraging investment – and leads to political polarization and gridlock,
splitting the political system into haves and have-nots. And it can make it harder for
governments to address economic imbalances and brewing crises.
Our recent economic crisis was triggered, in part, by 1 percenters on Wall Street
persuading regulators to remove restrictions on their casino. It led workers to pile on
debt to supplement falling incomes. It ended with a vast deployment of tax dollars to bail
out fallen plutocrats. And our political system seems unable to deal with the aftermath.
The IMF seems to have ht the nail right on the head.
Since 1970 the top 1% takes it all
From the excellent book, Winner-Take-All Politics, by Jacob S. Hacker & Paul Pierson,
we can learn how the Gini Index translates to what is happening to the average American
and much of what follows on the next few pages is based on their analysis. We saw
earlier how the share of income earned by the top 1 percent has ballooned from around
9% in 1974 to more than 23.5% in 2007 to rival its former on the eve of the Great
Depression when it tickled 24 percent. One could conclude that whenever the income
disparity reaches those levels in the U.S. an economic collapse is likely if not inevitable.
When only 1% captures so much, what does that do the rest of us? Figure 4 shows the
inequality of income distribution that led to our current GINI Index and accumulation of
Figure 4 – Change in real after-tax income, 1979-2006
wealth by a favored few. It illustrates why the middle class feels that it is under pressure
and disappearing. Because it is! All but those at the very top are being squeezed into
ever more difficult economic situations by the class warfare predators at the top.
The average after-tax income of the richest 1 percent of households more than tripled
from $337,100 a year in 1979 to more than $1.2 million in 2006—an increase of nearly
260% in just over a quarter-century. Meanwhile, Joe-in-the-middle only saw a 21%
To discover what is really happening and who is really holding the whip hand we have to
look at the tippy-top of the pyramid. Hacker and Pierson give an outstanding, detailed
account of this. They point out that the top 1 percent is much too broad a category to
pinpoint the most fortunate beneficiaries of the post1970s income explosion at the top.
Data by Piketty and Saez provides evidence of what is happening to the economic
oligarchy in the richest tenth of a percent and even the richest hundredth of a percent of
Americans, or the highest-earning 15,000 or so families in the U.S., the truly opulent.
Adjusted for inflation, and expressed in 2007 dollars, the top 0.1 percent, the wealthiest
one in a thousand, claim over $1 trillion a year. They capture 12.3 percent of America’s
income, which equates to an average income of over $7.1 million, a fourfold increase in
share of income since 1979!
A substantial majority are company executives and managers, and growing numbers of
them are financial company executives. High earners in law, medicine, real estate, and
other potentially lucrative fields pale in prominence to the “working rich” of the
While things have been fabulous for the top 0.1%, they have been spectacular for the
truly, truly rich, the top 0.01 percent. Wow! Their incomes have exploded from less than
$4 million on average to over $24 million. Their take has ballooned from less than
1percent of national income to over 6 percent going to just the richest one in ten thousand
According to Piketty and Saez’s our country has transformed itself from Broadland to
Richistan—from a world in which most of our nation’s income gains once accrued to the
bottom 90 percent of households (the pattern of economic expansion of the 1960’s) to
one in which more then half go to the richest 1 percent (the pattern of the last economic
expansion from 2002 to 2007).
What does moving from Broadland to Richistan mean to you?
What would have happened if instead of concentrating our wealth ever more upward all
classes of society participated equally? What if every income group had grown at the
same rate across all income groups between 1979 and 2006, as they more or less did for a
generation after World War II? How much better off would Americans at different
income levels be if they had remained in Broadland over these 27 years, rather than
moving to Richistan? What would our country look like today?
According to the CBO (Congressional Budget Office) real, average, inflation-adjusted
household income rose by almost 50% across all American households in the 27 years
between 1979-2006. That compound gain of 1.5% per year means that a household
earning exactly the average income had $47,900 in 1979 and should have earned $71,000
in 2006, or half again as much. How did that average gain of 1.5% per year across our
entire economy play out for the average Joe? Not very well.
Table I spells out the price of inequality and fleshes out the underlying cause of our ever-
worsening Gini Index. It shows what would have happened, assuming no change in the
overall growth of the economy, just a broader distribution of the economy’s rewards.
This data accounts for all government taxes and benefits as well as private workplace
benefits. And remember, Broadland is not some hyperegalitarian world in which the rich
get “soaked”; rather it’s a world in which the rich simply experience the same income
growth rate as everyone else, just as they basically had before the late 1970s. All boats
are lifted by equal percentages by rising tides. Except for the richest 10 percent of
Americans, every other income group would have done better if they had experienced the
average growth of household income, that is, if they had lived in Broadland rather than
Richistan – if our government had worked for all the people instead of just those who
bought it off.
Table II. The Penalty For Living in Richistan
The first column lists various percentiles of the population. The first four quintiles are
shown separately, however the top quintile is broken into 5 components, because of the
gigantic variations as one reaches rarer air. The next two columns show what each
segment actually earned in 1979 and 2006. The Broadland column shows what they
would have earned if all boats had risen equally. The next column shows the disparity
between what actually happened in 2006 and what should have happened. Everyone
below the 90th percentile lost money; everyone above gained.
Note that column five only shows the losses and gains for one year, 2006, the last year of
the data. The have-nots lost money in each and every year along the way. Assuming a
steady rate of compound growth, the cumulative, 27-year penalties and rewards shown in
the last column are truly staggering. It amounts to roughly 12.9 times the 2006 disparity!
An average of $126,000 per household was shifted from every household in the
lowest 90% of the population and given to the highest 10%, the vast majority of
which went to the top 1%, and 22% of that went to just the very high-flying top 0.01%.
The poorer you began the worse off you wound up. The average income of the poorest
fifth of American households rose from $14,900 to $16,500, a meager 11% gain over
twenty-seven years, even after taking into account government taxes and benefits and
private employment-based benefits. The poor are getting poorer.
The middle fifth of households, the 27 million that are the backbone of our economy, saw
their average inflation-adjusted income rise from $42,900 to $52,100—a gain of 21%,
which works out to a real gain of just 0.7% a year, a rate of increase less than half the
growth of average income over this period. That won’t keep up with the Joneses, or the
The middle class is under pressure and disappearing. Note that the biggest losers in terms
of total dollars of income measured against a shared economic gain is right in the middle
fifth of our population, the heart of the middle class, which is being systematically
hollowed out, dismantled and sacrificed at the behest of the hyper-rich to benefit
Just follow the money to see who received the gains--those at the top, especially the very
top. Even though the average after-tax income of the richest 1 percent of households
more than tripled, they are pikers! Those in the top 0.01 percent were doing very nicely
at $4 million a year in 1979. They multiplied their income by 600% to over $24 million
per household, or $18 million more per year than if they had shared equally in the
economy. To put that obscenity into perspective, their disproportionate gain equals $1.5
million a month, per family. That is the equivalent of each of those families winning the
lottery every single month! That’s what they are taking away from every other American.
The total effective tax that the hyper-wealthy have levied on the rest of us by tilting the
playing field in their favor and using our government to funnel all economic gain their
way instead of serving the population at large is about $1.1 trillion dollars a year! That is
the equivalent of taking over $3,900 away from every man woman and child in the lowest
95% of the population and giving most of it to the upper 1%, every year. It’s what
sociopaths do. It is the direct result of their perpetual, undeclared, unrelenting class
warfare against us.
These are the Great Americans who keep peddling the donkey poop that giving money to
them is the best way to see that jobs and economic well-being are created, and only by
bailing out big business and enacting legislation favorable to large corporations can we
secure our futures and create jobs. Goebbels would be proud; tell the biggest lie you can
think of often enough and people will believe it. No amount of enabling big business to
gear up to sell stuff will help anyone. That’s called supply side economics where the
prevailing myth is that enabling businesses to build up a huge capacity to supply goods
means that they will have to hire more people, making everything OK.
Not in a trillion years. Until consumers have the money to buy something, to create a
demand, no amount of an infinite supply of anything can be sold. Imagine the explosive
demand this economy would produce if an extra trillion dollars a year, every year, went
to the lower 95% who have long “to buy” lists that they would act on this afternoon,
instead of putting it into the bank accounts of the 5% who can’t spend any more money
on food, shelter, automobiles, vacations, and clothing than they already spend, and who
won’t hire anybody until demand for what they sell forces them to hire more people to
make more stuff than they can already sell.
If you really want to drill down into the hyper-rich, the Internal Revenue Service tracks
the tax returns with the 400 highest adjusted gross incomes each year. The average
income on those returns in 2007 was nearly $345 million. At that rate of income it would
only take 35,263 people to earn all the money in the U.S. For every one of them, 8,500
American people would earn nothing and starve to death. That’s the income side; what
about the tax side? Their average federal income tax rate was 17 percent, down from 26
percent in 1992. Over the same period, the average federal income tax rate for all
taxpayers declined to 9.3 percent from 9.9 percent. In other words, the hyper-rich cut
their taxes by an average of 35%, or $31 million apiece, while the average for everyone
else was a cut of 6% or $313 each – one one-thousandth of what the economic royalty
got! Our government is a Reverse Robin Hood, working almost exclusively for their best
interests by taxing the poor to give to the super-rich.
This is a stunning disenfranchisement of the lowest 90% of Americans who financed a
massive shift of wealth to a few recipients at the top. Americans have always advocated
fairness. Fair is not a word in the vocabulary of the Corporate Monarchy or our elected
officials. Spin is their byword, and spinning fantasies to keep 90% of American’s
satisfied with a losing lot has been their crowning success. Class warfare is what they do
and they are very good at it.
It is worse than just the raw numbers
The raw numbers don’t begin to tell the tale of the disenfranchisement. The CBO
numbers already take into account health and pension benefits, so the anemic gains of
working- and middle-class Americans cannot be explained away by suggesting that they
are getting better and better benefits at their place of work.
Are Americans getting better benefits tied to their jobs? Not when it comes to retirement
benefits. Employers contribute less to such benefits than they did in the 1970s, and the
employer-sponsored, guaranteed, defined-benefit pension that pays a fixed income in
retirement is virtually extinct. Instead, most Americans who have pensions rely on
defined-contribution plans that place all the risk of retirement savings on them. This risk
has been driven home by the recent stock market drop, which reduced the median balance
in 401(k)s by a third between 2007 and 2008. As notable as the decline is, the value of
the nest eggs in a typical 401(k) in 2008 was a paltry $12,655. Given this, it’s no shock
that the share of Americans who are at risk of retiring without adequate income has risen
substantially since the early 1980s.
On the other side of the benefits equation, employers and workers are spending much,
much more on health insurance. What has this spending has bought? Americans are less
well insulated against medical costs than they were a generation ago. They are less
secure against the medical crises and costs that are associated with more than half of the
rising number of personal bankruptcies. The dangers of going bankrupt from medical
costs is so severe that they account for more than half of the rising number of personal
bankruptcies. Health costs that outstrip the growth of earnings year after year after year
and push more people out of coverage and into hardship are not an unqualified benefit for
the middle class.
These numbers look all the more striking when we consider that American households
are working many more hours today than they were in the late 1970s. Women are much
more likely to work outside the home than a generation or two ago, augmenting both
family income and the amount of time that household members spend in the workforce.
Among working-age married couples with children, these extra hours totaled more than
ten additional full-time weeks in the workforce (406 hours) in 2000, as compared with
1979. Without those additional hours and income, households in the middle of the
distribution would have barely budged upward at all. The incomes of households at the
bottom would actually have fallen.
Meanwhile, CEOs of the largest American companies earned an average of 42 times as
much as the average worker in 1980, but 531 times as much in 2001. Perhaps the most
astounding statistic is this: From 1980 to 2005, more than four-fifths of the total increase
in American incomes went to the richest 1 percent. That’s the backdrop for one of the
first big fights in Washington — how far to extend the Bush tax cuts to the most affluent
two percent of Americans. Both parties agree on extending tax cuts on the first $250,000
of incomes, even for billionaires. Republicans would also cut taxes above that. Tax cuts
for the rich provide virtually no economic stimulus, because they are unlikely to spend
their tax savings. So we face a choice. Is our economic priority the jobless, or further
How sociopathic are they? Even in non-election years ad campaigns for business laissez
faire continue. The coal industry and the U.S. Chamber of Commerce continually exhort
us all to call our representatives to tell them not to raise taxes on energy companies or
regulate any businesses. There is no worse energy polluter than coal. Those who control
the money want us to keep using more and more of it so that they can get ever-larger
paychecks. They do not care about our environment, much less developing alternative
sources of energy to the poison they sell. They do not care about your children’s health
or the havoc they will have to live with from their actions. Why should they? They don’t
even care about their own grandchildren drowning in a fog of coal dust and smoke. It’s
not just coal. The only thing the CEOs of every company in the COC ever care about is
themselves and this week’s grandiose paycheck. Business always trumps people, and if
seven billion fellow travelers on Planet Earth and their descendants have to suffer to pad
our few bank accounts this week, that’s just tough noogies.
In short, inequality leaves people on the lower rungs feeling like hamsters on a wheel
spinning ever faster, without hope or escape. Economic polarization also shatters our
sense of national union and common purpose, fostering political polarization as well. So,
let’s not aggravate income gaps that already would make a Latin American caudillo
proud; it’s time to reign in the arrogant and uncaring despoilers among us. According to
Kristof, we’ve reached a banana republic point where our inequality has become both
economically unhealthy and morally repugnant. It’s time to stop being suckers.
The Standard of Living sleight-of-hand; the case for Progressive Taxes
The difference between how much more one person earns than another does not
accurately reflect their differences in standard of living (SOL), because once one meets
basic needs, all additional income is discretionary and greatly magnifies the SOL
difference. Since rich people are better able to give their offspring college educations,
let’s look at this aspect of economic inequality from an educational perspective.
The level of education has profound, real-life consequences. For instance, Figure 5
shows the difference between a HS and a bachelor’s degree is $23,256/year, or almost
exactly a million dollars if you work 43 years from age 22-65.
Figure 5. The effect of education on earnings
It gets worse. From 1973 to 2007, real income of HS graduates only increased by 3.3%.
Income of Bachelor’s increased by 36.3%, 12 times more! And that difference grows
each year. And unemployment for HS graduates is double that of those with college
It gets worse, yet. Suppose you earn $32,862 per year as a HS graduate and it takes
$30,000 to pay for all necessary expenses: taxes, cars, housing, clothing, food, medical,
kids’ educations, etc. That would leave you $2,862 for “discretionary” spending like ball
games, vacations, HD TV’s, bigger cars, etc. The college graduate who makes $56,118
can live on exactly the same $30,000 as a high school graduate except for another $5,268
a year in income and social security taxes. He has $20,850, or almost 7 1/4 times more
discretionary income, which is a great measure of quality of life. He can enjoy 7 1/4
times more ball games, vacations, bigger cars, HD TV’s etc., as the high school graduate!
That’s not because he earned 7 1/4 times as much; he only earned 70% more; it’s because
everything above $30,000 is discretionary income.
That CEO who earns 100 times what a high school graduate earns, or $3,286,200 a year
(not uncommon) has a discretionary income, after the 25% effective tax rate in his
bracket, of $2,434,650, or 850 times as much! He lives so large by comparison that he
does not even know Mr. High School is alive, or care. And that’s just for this year. The
cumulative rewards after 40 some-odd years of labor are as different as living in Valhalla
versus a leper colony. Yet the wealthy have rigged the system so that in some cases the
guy earning $30,000 may pay a higher tax rate on his total income – most of which goes
for necessities - than the Capitalist Monarch pays on everything he earns, 99% of which
is not needed for his survival. It is why progressive tax codes are the only “fair” codes.
The picture of labor and how much it takes to support a family has also changed. Until
WWII, very few women worked outside of the home, which was supported by a single
breadwinner. Today, women are emancipated, career wise, and most couples have
evolved into two wage earners. When only a few women worked outside of the home
many of those “second incomes” were earmarked for vacations, summer homes, or the
camper. Losing her job or being seasonally laid off was not critical to the economics of
the family unit. Today, one spouse’s income goes for the mortgage plus some taxes and
the other’s pays the food, clothing, childcare, private schools, etc. When either one of
them is out of work it spells economic disaster for that family unit. We have worked
ourselves into a situation where a middle class standard of living that could once be
supported by a single wage earner now requires two. Women are now committed to
working outside of the home and there is no realistic “choice” between being a housewife
or a worker; housewife is a disappearing option.
Double income families mean that unemployment also affects many more households
today. When homes had single breadwinners a six percent unemployment rate directly
affected six percent of households. In an economy where all couples both work, a six
percent employment rate is equally likely to affect either breadwinner, so it doubles the
impact, directly affecting 12 percent of homes (11.64%, allowing for random duplication
within homes). That means that managing our economy to avoid disruptions leading to
unemployment takes on ever more importance. Those who would lead our economy
astray become even bigger threats to society.
Rick Newman of US News and world report enumerates seven “stressors” sapping the
middle class. Working harder for less is the new normal--for those lucky enough to have
a job. Record numbers of Americans tell pollsters it's getting harder to get ahead and that
they worry their kids' standard of living may fall rather than rise. Healthcare and college
costs, for example, have been rising unabated. According to a White House Middle-class
Task Force: "It is harder to attain a middle-class lifestyle now than it was in the recent
past." Seven stressors that middle-class Americans need to address in order to maintain
their standards of living are:
Falling income. Incomes have fallen while other unavoidable costs have continued to go
up. From 2000 to 2008, median household income after inflation was basically
unchanged, the weakest performance since at least the end of World War II. Economists
estimate that median real income fell by 5 to 7 percent during the recession and a weak
job market means that even those who have jobs are far less likely to get raises. Many
have absorbed pay cuts or taken new jobs at a lot less pay.
Reduced savings/net worth. When incomes fall faster than expenses, some try to make
up the difference by borrowing. But banks and credit-card issuers have clamped down on
lending, leaving many Americans no choice but to raid their savings to pay the bills. At
the same time, home values have plunged leaving many homeowners with little or no
home equity, and a topsy-turvy stock market has stabilized more than 25 percent below
its peak values from 2007. The result is a net loss of about $12 trillion in Americans' net
worth over the past three years, according to the Federal Reserve--about $102,000 per
High healthcare costs. Healthcare costs have risen far more than any other aspect of the
family budget since 1990, with no end in sight. Healthcare costs rose by 155 percent
between 1990 and 2008, according to the White House's middle-class task force, while
median household income rose by just 20 percent. That means medical costs take an
increasing share of take-home pay for virtually every family. Seniors who are living
longer require more late-in-life care, with the costs often borne by their middle-aged kids.
A separate study from 2009 found that 62 percent of all personal bankruptcies stemmed
from medical problems that overwhelmed family finances.
Child-care/elder-care expenses. Many families have maintained their standard of living
because both parents work. Between 1990 and 2008, for example, hours worked by both
parents in a typical middle-income family increased 5 percent; in a middle-income single-
parent family, hours worked spiked by 13.4 percent. That leaves less time for taking care
of kids, aging parents, and anything else that needs attention--and the added costs of
paying somebody else to do it.
College costs. A typical family with two kids should sock away about $4,200 per year to
pay for college, a tall order. College costs have risen about 43 percent since 1990, nearly
twice the rise in median income. And with state and federal education funds being axed,
public universities are hiking tuition and fees. Private schools, meanwhile, are struggling
with steep drops in their endowments thanks to the financial crisis. The bottom line for
many families is that they'll have to take out bigger college loans, with students working
more to pay for their own education.
Housing costs. The cost of financing and maintaining a home soared by 56 percent
between 1990 and 2008. Families that bought a home near the peak of the market are
stuck with property that's declining in value and in some cases worth less than the
mortgage. That will continue to fuel foreclosures and the stress of making huge housing
payments that the family income can barely cover.
False expectations. For the past 40 or 50 years, Americans have lived by a series of
unofficial tenets: A good education guarantees a good job, hard work will bring
prosperity, and 40 years of 40-hour-a-week work earns a comfortable retirement. Then,
maybe; now, not so much. Workers who believe that somebody owes them a comfortable
life just because they try hard risk bitter disappointment in a Darwinian economy, where
there are likely to be more losers and fewer winners than we're used to. The winners will
be those who learn how to adapt, expect nobody to give them anything, and are prepared
to work harder in the future than they did in the past. That's how it was in America before
anybody ever heard of the middle class, and it may be that way for a while again.
How far astray have CEOs gone?
Somewhere in our legal system or more likely, our culture, the concept of wage fairness
might embrace something like, "No person is worth more than X times another." Perhaps
top executives should be legally and morally constrained – all in, salary, bonuses,
options, the works - to some multiple like 100 times their average paid employee. That
could initially lead to massive outsourcing of low paid employees, but sooner or later the
CEO would be encouraged to focus on the well being of all employees, because his boat
cannot rise until all boats rise. The argument about needing a king’s ransom to hire good
talent would disappear overnight. There won’t be any shortage of highly capable
candidates for the top jobs, caps or not, and those who capture them might take longer-
term views of their companies that actually benefit all of us. And they'd still be
relatively, filthy rich.
Comparing average CEO annual pay to average factory worker pay has been done for
many years by Business Week and, later, the Associated Press and is shown in Figure 6.
The ratio of CEO pay to factory worker pay, based on data from several hundred of the
largest corporations, rose from 42:1 in 1960 to as high as 531:1 in 2000, at the height of
the stock market bubble, when CEOs were cashing in big stock options. By way of
comparison, the same ratio is about 25:1 in Europe.
Domhoff points out that the AFL/CIO provides up-to-date information on CEO salaries at
their Web site. There, you can learn that the median compensation for CEO's in all
industries as of early 2010 is $3.9 million; it's $10.6 million for the companies listed in
Standard and Poor's 500, and $19.8 million for the companies listed in the Dow-Jones
Figure 6: CEO’s pay as a multiple of the average worker’s pay, 1960-2007
Industrial Average. Since the median worker's pay is about $36,000, CEOs in general
make 100 times as much as their workers, CEO's of S&P 500 firms make almost 300
times as much, and CEOs at the Dow-Jones companies make 550 times as much.
Ignorance represses action against the pigs at the troughs. Americans have no idea what
the big guns earn. Asked in 2007 what a CEO of a national company earned, Americans
come up with what must seem to them like a huge number: half a million dollars, less
than 20 times their earnings. Not quite: in 2007 the average CEO of an S&P 500
corporation earned over $14 million, a staggering 28 times what their workers thought
A prime example of pigs running the farm are bankers and financial company CEOs,
many of whom are in the 400-times –the-average-worker income class. Are any of them
worth it? Contrast their self-aggrandizing job descriptions for gambling with our money
with the Secretary of the Treasury, who earns $191,300 a year or about four times the
average household income. For that magnificent sum, about 1% of what some financial
CEOs earn, he is charged with the responsibilities of: formulating and recommending
domestic and international financial, economic, and tax policy, participating in the
formulation of broad fiscal policies that have general significance for the economy, and
managing the public debt. The Secretary oversees the activities of the Department in
carrying out its major law enforcement responsibilities; in serving as the financial agent
for the United States Government, and in manufacturing coins and currency.
As the Chief Financial Officer of the government, the Secretary serves as Chairman Pro
Tempore of the President's Economic Policy Council, Chairman of the Boards and
Managing Trustee of the Social Security and Medicare Trust Funds, and as U.S.
Governor of the International Monetary Fund, the International Bank for Reconstruction
and Development, the Inter-American Development Bank, the Asian Development Bank,
and the European Bank for Reconstruction and Development. Those responsibilities
place him fifth in line to succeed the President of the United States.
Then compare a financial CEO’s work-load with the Federal Reserve Chairman who
earns the same paltry $191,300 a year and who is charged with: heading the central
banking system of the entire country, conducting the nation's monetary policy,
supervising and regulating banking institutions, maintaining the stability of the financial
system that the bankers continuously disrupt, and providing financial services to
depository institutions, the U.S. government, and foreign official institutions. Unlike
bakers who have no oversight and who are accountable to no one, he is monitored by
congress and must report twice a year to Congress on the Federal Reserve's monetary
policy objectives as well as testify several times a year on numerous other issues. Are
any bankers worth 100 times either of those two public servants to whom they run to for
help when they need to be bailed out for their mistakes?
Within the lofty heights of the winner-take-all economy, hedge fund managers hold the
highest perches of all. In 2009, the top twenty-five hedge fund managers earned over
$25 billion, more than they made in 2007 before the crash! Despite their awe-inspiring
incomes, these financiers exploit features of the tax law that predate the rise of hedge
funds to pay only a 15 percent federal tax rate. Yes—15 percent thanks to the “Carried
interest” loophole. They pay a dramatically lower rate than the people cleaning their
It's even more revealing to compare the actual rates of increase of the salaries of CEOs
and ordinary workers in Fig 7. From 1990 to 2005, CEOs' pay increased almost 300%
(adjusted for inflation), while production workers gained a scant 4.3%. The purchasing
power of the federal minimum wage actually declined by 9.3% when inflation is taken
into account. These startling results indicate that when a CEO equates himself to a
business then that business as a source of his income takes priority over people.
Employees become only a line item expense to be dispensed with and reduced in cost
whenever possible, because they negatively impact his compensation. If the welfare of
Americans is to be a higher priority than any single business, then we must find ways to
reorient the CEO’s thinking, because he will never come to that conclusion on his own.
He believes ½ of a truth, “What’s good for GM is good for the country.” He ignores the
other half, “What’s good for the country is also good for GM.” Half-truths serve the
same purpose as lies.
There's a much deeper power story that underlies the self-dealing and mutual back
scratching by CEOs now carried out through interlocking directorates and seemingly
independent outside consultants that involves several factors. On the worker side, it
Figure 7: Change in average pay of CEOs and production workers, the S&P 500,
corporate profits, and federal minimum wage, 1990-2005 (adjusted for inflation)
reflects an increasing lack of power following the all-out attack on unions in the 1960s
and 1970s, which is explained in detail by the best expert on recent American labor
history, James Gross, a labor and industrial relations professor at Cornell. That decline in
union power made possible and was increased by both outsourcing at home and the
movement of production to developing countries, which were facilitated by the break-up
of the New Deal coalition and the rise of the New Right. It signals the shift of the United
States from a high-wage to a low-wage economy.
On the other side of the class divide, the rise in CEO pay may reflect the increasing
power of chief executives as compared to major owners and stockholders in general, not
just their increasing power over workers. CEOs may now be the center of gravity in the
corporate community and the power elite, displacing the leaders in wealthy, owning
families (e.g., the second and third generations of the Walton family, the owners of Wal-
Mart). True enough, the CEOs are sometimes ousted by their generally go-along boards
of directors, but they are able to make hay and throw their weight around during the time
they are king of the mountain. And no other sector of society, like government, is willing
or able to restrain the winners.
Who Rules America? by G. William Domhoff, presents detailed original information on
how power and politics operate in the United States. Most of this data is based on he
fifth edition, which came out in 2006. He also confirms that the power of the corporate
community and the upper class have been increasing in recent decades.
The rising concentration of income is supported in a special New York Times analysis of
an Internal Revenue Service report on income in 2004. They agree that since 1979 only
the top 5% made significant gains, the top 0.1% has more combined pre-tax income than
the poorest 120 million Americans, and as of 2007, income inequality in the United
States was at an all-time high for the past 95 years, and that the rate of increase is the
highest for the very richest of the rich: the top 400 income earners in the United States.
According to an analysis by David Cay Johnston -- recently retired from reporting on tax
issues at the New York Times -- the average income of the top 400 tripled during the
Clinton Administration and doubled during the first seven years of the Bush
Administration. So by 2007, the top 400 averaged $344.8 million per person, up 31%
from an average of $263.3 million just one year earlier (Johnston, 2010).
How are such huge gains possible for the top 400? It's due to cuts in the tax rates on
capital gains and dividends, which were down to a mere 15% in 2007 thanks to the tax
cuts proposed by the Bush Administration and passed by Congress in 2003. See Fig. 8.
Since almost 75% of the income for the top 400 comes from capital gains and dividends,
it's not hard to see why tax cuts on income sources available to only a tiny percent of
Americans mattered greatly for the high-earning few.
That is part of an overall shift in tax policy more favorable to the wealthy since WWII
when the top marginal tax rate was 92%. Their most recent gifts were a pair of rate cuts,
under Presidents Clinton and G. W. Bush. As a result most of the richest Americans pay
lower overall tax rates than middle-class Americans do, further widening the gap between
the wealthy and the rest of the country.
Figure 8. How the tax code has widened the gap
Most Americans rely on wages and salaries for their income. A wage-earner making
over $34,500 is now taxed higher than a billionaire is taxed on untold millions in capital
gains. 80% of those capital gains earnings go to people in the top 5%, and a full 50%
goes to those in just the top 0.1%. As the chart shows, a key factor behind the high
concentration of income, and another likely reason that the concentration has been
increasing, can be seen by examining the distribution of all "capital income": income
from capital gains, dividends, interest, and rents. See Fig. 9. In 2003, just 1% of all
households -- those with after-tax incomes averaging $701,500 -- received 57.5% of all
capital income, up from 40% in the early 1990s. On the other hand, the bottom 80%
received only 12.6% of capital income, down by nearly half since 1983, when the bottom
80% received 23.5%.
Figure 9: Share of capital income earned by top 1% and bottom 80%, 1979-2003
Those with economic might have successfully sold the idea to lawmakers and the public
that money earned through investments deserves preferential treatment over money
earned through labor. Marty Sullivan, an economist and contributing editor to
TaxAnalysts puts it this way; “The way you get rich in this world is not by working hard.
It’s by owning large amounts of assets and having those things appreciate in value.”
Propagating this trend and unashamedly pandering to the wishes of the wealthy has never
been articulated more obsequiously than by Alan Greenspan. In 1997 congressional
testimony, Greenspan said the “major impact” of the capital gains tax, “as best I can
judge, is to impede entrepreneurial activity and capital formation. The appropriate capital
gains tax rate was zero,” he added.
Letting the Bush tax cuts on the wealthy expire would let capital gains return to 20% for
individuals earning over $200,000 or couples over $250,000. It's also worth noting that
only the first $105,000 of a person's income is taxed for Social Security purposes, so it
would clearly be a boon to the Social Security Fund if everyone -- not just those making
less than $105,000 -- paid the Social Security tax on their full W2 incomes.
Opponents cry that it unfairly punishes corporations, because they have to match SS
taxes. True, but it would be trivial to cap the corporate contributions at present levels and
tax remaining W2 wages at current rates. Fairness demands it. It is outrageous that
citizens in the lowest brackets, struggling to get to and stay above the poverty line, are
taxed on income that goes largely for necessities, while those whose income is largely
discretionary escape taxes on that portion of their incomes that only enhances quality of
life. If everyone paid his share on all W-2 income, the SS system would get a very big
shot in the arm that would go a long way toward maintaining solvency. Meanwhile,
purely discretionary income is being treated preferentially over money for necessities?
Two portions of our tax code are morally repugnant. Not only does investment (passive)
income get preferential tax treatment over labor income, money earned as discretionary
income gets even more preferential tax treatment than money earned for necessities.
Both of those shameful preferences are outright betrayals of America brought about by
sociopaths with outrageous wealth buying off government soldiers of fortune. It is a
financial killing field where the rest of us are virtually unarmed.
3 - WHY IS THIS BAD FOR US?
Lessons our ancestors taught us: the dangers of unregulated business, most
Throughout history, visionaries have seen the dangers of monetary power in a few hands
and the evils it procreates. With gratitude mostly to Jacques Barzun who illustrates the
problem brilliantly in From Dawn to Decadence, let’s take a short walk with some people
who have warned us against exactly what this country and our government is sanctioning.
Barzun explains, “When people accept futility and the absurd as normal, the culture is
decadent.” If we are not already at economically decadent, we can see it from here. The
folks we will visit here all have the ring of truth to them, unlike the spinning we hear
from our business leaders and worse, our sold out politicians. They have warned us over
and over again of whom the enemy is and of the dangers they create for us all.
The acknowledgment of the power of wealth was made as far back as Aristotle in his
Politics. He knew that for democracy to be born and survive there must be a large
middle class flanked by as few rich and as few poor as possible, which the United States
did better than any other in history from the end of WWII into the 70s. Aristotle pointed
out that this need justifies the legal and populist resistance to cartels, trusts, and big
business when it gets too big, which vigilance we are not currently pursuing, to our
The Roman priest Plutarch set the tone when he noted, “An imbalance between rich and
poor is the oldest and most fatal ailment of al republics.”
In 1516 Thomas More published Utopia. His thesis is simple and straightforward:
everywhere “a certain conspiracy of the rich” works against the poor and makes it
absurd to call the state a commonwealth. It follows from the indictment that a good
society must rest on holding goods in common, something we are fast abandoning. He
also espoused that social equality is more humane than hierarchy and everybody must
work and earn his living or his honors. Those views are diametrically opposed by any
entitled, economic aristocracy, which does not want to earn anything if it can plot to
confiscate it directly, or better yet, use its government as its private collection agency.
By 1710, Jonathan Swift’s piercing eye had seen the irreversible social and cultural
transformation; the new men of importance are “quite different from any that were ever
known before the Revolution (of 1688); consisting of those…whose whole fortunes lie in
funds and stocks; so that power, which…used to follow land, is now one over into
Giambattista Vico proved prescient in 1725 in The New Science. He saw mankind—
nations, civilizations, and cultures—as going through progressive stages from bestiality
to high civilization and then sinking back into barbarism. From his studies he derived
generalities and issued predictions. His most shocking one was that the second
barbarism that engulfs civilization after it has reached its summit is worse than the first.
The original barbarians possess rude virtues; the later have none left. He listed the
marks of the second and how it came about. Crowded city life produces men who are
unbelievers, who regard money as the measure of all things, and who lack moral
qualities, particularly modesty, duty to the family, and virile courage. Emancipated
from ethics generally, they live by mutual spying and deceit. Sound familiar?
In 1748 Charles de Montesquieu, whose The Spirit of the Laws was a central text for
many of our nation’s Founders, identified “real equality” as “the very soul of
democracy.” Though he conceded that in practice democratic republics could only “fix
the differences to a certain point.” After noting the risks of great inequality to
democratic institutions, Montesquieu argued that “to men of overgrown estates,
everything which does not contribute to advance their power and honor is considered by
them as an injury.” Sound sociopathic?
No less an Enlightenment realist than David Hume observed that, “where the riches are
in a few hands, these must enjoy all the power and will readily conspire to lay the whole
burden on the poor, and oppress them still farther, to the discouragement of all
And how did our own founding fathers feel about this? Their most eloquent spokesman,
Thomas Jefferson put it this way, “I believe that banking institutions are more
dangerous to our liberties than standing armies. If the American people ever allow
private banks to control the issue of their currency, first by inflation, than by deflation,
the banks and corporations that will grow up around the banks will deprive the people of
all property – until their children wake up homeless on the continent their fathers
conquered.” We are well on the way, Tom.
In 1818 a Swiss, Jean Charles Leonard de Sismondi began his Studies in Political
Economy. He had visited England and had been struck by the misery resulting from
industrial progress. Why did the seemingly beneficial production of goods by machinery
bring on “poverty in the midst of plenty”? The answer was, “free competition keeps
wages low, free enterprise makes for overproduction, which leads to recurrent
“crises”—shutdowns or failures entailing unemployment and starvation.
He asked, “What is the object of human society? Is it to dazzle the eye with an immense
production of useful and elegant things? Is it to cover the sea with ships and the earth
with railways? Is it, finally, to give two or three individuals out of each 100,000 the
power to dispose of wealth that would suffice to maintain in comfort those 100,000?”
His detailed criticism of the new society includes the observation that it splits labor from
capital and makes them enemies, with the power all on one side. The idea of their
“bargaining” over wages is absurd. Tyrant and victim describes the relation, yet without
cruel intent of the one or knowledge by the other of who his oppressor is and all the
while a class struggle goes on without end. Nonetheless, Sismondi did not urge
revolutionary massacre. He saw that what is needed is protective legislation.
President Andrew Jackson knew what is wrong with unregulated banking and letting
bankers gain control of the economic system. From Andrew Jackson by H. W. Brands,
Jackson understood that the revolutionaries of 1776 decried the corruption they saw in
British politics: the perversion of government to the illegitimate pursuit of private gain.
They did not want that corruption to cross the Atlantic and infect America.
When our first National Bank wanted to renew its charter he feared the emergence of the
monopoly of money. It was structured as a private bank that included foreign
stockholders, had backed political candidates and was amassing all of the gold and silver
in the country. Jackson clearly saw that the public interest was always outweighed by
the interests of the bank’s private owners, who held tremendous power over the nation’s
economy. “It is easy to conceive that great evils to our country and its institutions might
blow from such a concentration of power in the hands of a few men irresponsible to the
people. Is there no danger to our liberty and independence? Will there not be cause to
tremble for the purity of our elections in peace and for the independence of our country
Jackson already feared for equality in America. “It is to be regretted that the rich and
powerful too often blend the acts of government to their selfish purposes.” Jackson was
no bleeding-heart leveler. “Distinctions in society will always exist under every just
government. Equality of talents, of education, or of wealth can not be produced by
human institutions.” Yet these institutions should not magnify natural inequalities.
“When the laws undertake to add to these natural and just advantages…to make the rich
richer and the potent more powerful, the humble members of society-the farmers,
mechanics, and laborers-who have neither the time nor the means of securing like favors
to themselves, have a right to complain of the injustices of their Government.” In a
sweeping affirmation of the democratic promise, Jackson stated: “There are no necessary
evils in government. Its evils exist only in its abuses. If it would confine itself to equal
protection, and, as Heaven does its rains, shower its favors alike on the high and the low,
the rich and the poor, it would be an unqualified blessing.” The bank renewal bill did
just he opposite and therefore had to be rejected.
Jackson’s struggle against the bankers never ended. When Van Buren succeeded Jackson
and was petitioned to recharter the bank, Jackson told him, “You must meet this with
firmness. Nothing can be more dangerous to a republican government than their
Ferdinand Lassale first named the theory of the Iron Law of Wages in the mid-nineteenth
century. It asserts that real wages always tend, in the long run, toward the minimum
wage necessary to sustain the life of the worker. According to Lassale, wages cannot fall
below subsistence level or laborers will be unable to work to survive. However,
competition among laborers for employment will drive wages down to this minimal level.
Does that sound like our global economy?
This follows from Malthus’s demographic theory that population (labor supply)
increases to meet demand when wages are above the subsistence wage. When an excess
labor supply is created it will depress real wages and population will fall until there is a
shortage that creates an increase in wages. This creates a dynamic long-term
convergence towards a subsistence wage equilibrium with a constant population.
Fortunately for all of us in developed countries, as Lassale’s predecessor, David Ricardo
noticed, this prediction would not come true as long as a new investment, technology,
or some other factor caused the demand for labor to increase faster than the
population: in that case, both real wages and population would increase over time. The
demographic transition from high birth and death rates to low birth and death rates as a
country industrializes changed this dynamic in most of the developed world, leading to
wages much higher than the subsistence wage. Even in countries which still have rapidly
expanding populations, the need for skilled labor causes some wages to rise much faster
than others. The United States is the premier example of this suspension of the Iron Law
of Wages, which created the highest standard of living in the world and the first truly
pervasive middle class. It is also the reason that we cannot sit on our laurels and expect
the rust-belt-driven manufacturing sector to sustain that standard of living. Creating
above subsistence level jobs demands continual progress; failure to do so leads to
stagnation and decay toward bare subsistence. Increasing investment, technology and
innovation, which requires ever better education, prevents the Iron Law from catching up
to us. Railing against NAFTA, cutting investment in technology and/or education, or
throwing out politicians who can’t possibly deliver jobs in autos, steel, or machine tool
trades are pointless, doomsday diversions. That was then and this is now.
Theodore Roosevelt was a more recent crusader against the interests of the elite. From
Colonel Roosevelt by Edmund Morris Teddy is quoted on the subject. “I believe…that
human rights are supreme over all other rights; that wealth should be the servant, not
the master of the people.” He relentlessly railed against the Taft administration, its
corporate beneficiaries and political bosses. “Treason…conspiracy…the led captains of
mercenary politics…the great crooked financiers…privilege in its most sordid and
dangerous form…corrupt alliance between crooked business and crooked politics…an
oligarchy of the representatives of privilege.”
Teddy lost the election, but Woodrow Wilson’s inaugural address echoed his thoughts.
“The great government we loved has too often been made use of for private and selfish
purposes, and those who used it had forgotten the people. There has been something
crude and heartless and unfeeling in our haste to succeed and be great. Our thought has
been. ‘Let every man look out for himself; let every generation look out for itself,’ while
we reared giant machinery which made it impossible that any but those who stood at
the levers of control should have a chance to look out for themselves.” He pledged to
restore our national life to the standards we proudly set up at our founding.
Which brings us to today. In a splendid 1995 editorial describing our state of affairs,
Maureen Dowd wrote, “…publicity over achievement, revelation over restraint,
dishonesty over decency, victimhood over personal responsibility, confrontation over
civility, psychology over morality.” It is a perfect description of our sociopathic CEO’s
and their legislative bag-carriers, what Rousseau called the “elective aristocracy,” as
contrasted to the real powers, the economic aristocracy.
To these thinkers, the danger of class divisions was the prospect of “’perverted’ forms of
government,” in the words of the political theorist Michael J. Thompson, in which “the
few ruled over the many and the public good was trampled by the wealthy, powerful, and
elite.” As Thompson explains, the ancients and their Enlightenment heirs believed that
preservation of democratic practices “required…not a utopian form of equality but a set
of institutions and laws—and hopefully a civic culture as well—that would limit the
excesses of wealth and property.”
Meanwhile, we no only tolerate it, large parts of our electorate are cleverly persuaded to
actually fight to aid their class’s enemies in their undeclared war against all of us. As he
Frenchman, Nicolas Chamfort described such misguided citizens in the late 1700’s, “The
public, the public – how many fools does it take to make a public?”
Who Owns what? Ownership vs. Stewardship obligations.
“Ownership" is a philosophical issue. Who "owns" what? What "rights" does that
ownership convey? Our species operated for millennia pretty much on a finders-keepers
principle. You kill the antelope, its yours; you discover the gold, its yours; you farm the
land first, its yours, etc. That same system inherently permitted someone bigger to
forcefully take it away from someone smaller and claim ownership. We even permitted
ownership of slaves if those who found them were stronger. Eventually, we adopted
rules that pretty much stopped the brute force solutions. The concepts of who owns what,
or what "rights" versus "stewardship" obligations apply center on the question of where
do we draw the line between finders-keepers, ownership rights, and/or requiring
responsible, accountable stewardship from those dealing in what amount to our
communal, planetary assets.
Today, if you find a whale in international waters you can't harvest it without
“permission.” You can build a power plant or a chemical factory, but you can't just use
the air around it or the river running by as your dump. You can discover oil, but you may
or may not be allowed to drill for it. The concept that the resources earth provides do not
"belong" to, nor can they necessarily be exploited by, the first guy who stumbles upon
them is gaining ground. He cannot "process" them in any way he sees fit. We are trying
to come to grips with how to reward those who make our lives better through the benefits
of their enterprises, while not punishing the rest of the species by allowing their misuse,
or fouling our communal nest. That does not mean that those who devise the enterprise
and who bring it to fruition and who manage it well should not be well paid, or even
obscenely well paid for extraordinary performance. It means that we can resist permitting
the self-interest of one individual to outweigh the societal interests of the rest of us. You
can't sell Freon any more just because you can make it, however cheaply.
What should society expect of corporations imbedded within them?
Like people, companies are born, grow, evolve and prosper embedded within a society;
they are in no sense, independent, stand-alone entities; they are dependent on and exist at
the pleasure of the society that nurtures them. They use everyone's money pooled in our
banks to get started and to continue operating. Pre-existing governmental and social
infrastructures provide a relatively stable, predictable, dependable milieu within which a
company can operate. That support, including national defense, comes complete with a
legal system, courts and taxation policies. It supplies access to transportation systems of
roads, bridges, trucks, trains, airports, airplanes, harbors, boats, and automobiles that
support the company. Public utilities supply electricity, gas, water and communications
systems. Public fire and police departments protect their investment and survival while
snow plows clear the roads. Public schools educate the labor supply they need. Garbage
is carted off and disposed of. Medical infrastructure treats the diseased, injured and aged.
The quality of local recreational, entertainment and cultural facilities: parks, lakes,
mountains, restaurants, museums, etc., contributes to the standard of living that helps to
attract and retain potential workers, who could choose to reside elsewhere. Virtually all
of this, without which no major company could develop or exist, is already in place at no
cost to the company, to be shared by all - not exploited to benefit a privileged few.
Companies seeking to start up or relocate analyze these publicly supported “advantages,”
to which they contributed nothing, very carefully when choosing where to set up shop.
Often inducements include preferential tax treatment. Society provides the economic
womb for the birth of a new, embryonic enterprise or the arrival of a fully developed
Once the company begins doing business it becomes a contributor to local infrastructure.
It pays wages and taxes. By providing gainful employment it becomes the source of
incomes to be used to raise standards of living and taxed to continue to support the
common infrastructure, hopefully contributing to a net gain for all. For those companies
that grow to national and international stature, the country becomes the society within
which it is embedded and the consequences of its actions can be staggering. Its capacity
to improve our nation grows and can be absorbed relatively slowly; its potential to inflict
widespread harm can be instantaneous and catastrophic.
In the aggregate, companies also consume and deplete natural resources such as minerals,
petroleum, timber, waterways, fish, lakes, wildlife and oceans, often faster than nature
can replenish them. Meanwhile, they use other natural resources such as rivers, lakes,
oceans, canyons and air as waste sites. Those resources represent the total endowment of
earth’s capital, the reservoir of raw materials that all life forms must draw upon for their
survival. It would seem that the consumers, both corporate and human, should have a
shared say in what is acceptable. When consumption threatens to exceed replenishment
of a limited resource, society should have a say in how it is to be managed. To be fair, if
consumers did not demand a company’s products, it would not be in the resource
depletion business; it is a push-pull affair.
Like an individual, a company can pack up and leave, whereas the local community must
stay put. It is hard to imagine a place in America that has not held up its end in
cooperating with businesses by providing the infrastructure necessary to sustain the
enterprises. Should businesses have moral, ethical, and/or reciprocal obligations to the
communities and countries within which they grew and flourished, or did we agree that
everything public is corporate prey, fiefdoms for corporate aristocracy to use up, trash
and discard according to the divine right of winner-take-all capitalism?
The point is that society, our nation, and its businesses are mutually dependent; neither
can exist without the other at the standard of living we now enjoy and hope to improve.
What might be a company’s responsibilities in this partnership?
One way to approach that is to consider what happens when either a foundering company
fails or a going enterprise pulls up stakes and leaves a location. First, workers lose jobs,
their means of survival. The effects cascade outward from the direct work force,
negatively affecting virtually every other local enterprise engaged in any related activity
mentioned in the first paragraph.
In 2001 Enron had 19,000 employees, Arthur Anderson had 28,000 in the US and 85,000
worldwide. Assuming a $60,000 average compensation for AA and $70,000 for Enron,
that computes to a loss of right at 3 billion in annual salaries, never mind gutting of
401Ks, unemployment, career damages and changes, and pressure on mortgages, tuitions,
travel, and all of those things that ripple out and multiply into the local communities. As
one observer put it, not a single executive of Arthur Andersen has ever been convicted of
any crime, but the firm was destroyed and 85,000 innocent people lost their jobs. Both
companies were led to complete disaster by the greed of no more than a tiny handful of
hyper-paid executives at either company.
In short, companies deserve no special immunity. As ownership diffuses among millions
of transient stockholders, that constitutes "society" ownership, not "buying with intent to
operate the enterprise" ownership. As such, society has the "right" to regulate what are
actually society-owned enterprises for the benefit of all of us. CEOs (custodians) and
interlocking Boards of Directors can be virtually hereditary or oligarchic, money-begets-
money, cartels. They are the least to be trusted folks among us, because the greatest
possibility for financial and economic cancerous, predatory, anti-social, tinhorn
dictatorship behavior rests there, and because it takes so few sociopathic, caretaker CEOs
to destroy us. Not protecting ourselves against those among them who would do us in is
like giving terrorists atomic weapons. It is beyond irresponsible.
We should encourage enterprises such as autos, planes, ships, food, energy, technology,
etc. to prosper and survive. They benefit all of us, immensely. The most moral
approach is to maximize the value to both our species and then to individuals, in
that order. We should try to maximize the area under the curve of self-sustaining,
profitable longevity of the enterprise, as well as the livelihoods of its employees and
suppliers. That's a responsible social goal. Rules and regulations that make it more
difficult for the few to destroy us through exploitation, greed or incompetence can push
the ball up that field toward that goal. If humans did not have a long, rich history of
accomplishing that, none of us would be enjoying the life we enjoy today.
Corporate evolutions and motivations
All animals are selfish and self-serving, i.e., survival-driven. Everything competes with
everything else; it's what makes us all go. Within any species some individuals are more
"successful" than others. In the competition for the resources that benefit them, they do
better. They get more food, mate more often, and grow larger, faster and smarter,
As families, clans and other groupings develop, groups are extensions of the participating
individuals; though there is still competition among group members, the group's
contribution to the survival of its individuals is that it better competes with
surrounding clans, tribes, or family units, as well as with its routine survival challenges.
Upward aggregation of populations continues until nations are formed. Same deal.
Along the way every group and sub-group develops leaders. It seems inevitable that one
person will lead any group of any size, however he/she ascends to the position, and will
represent or command the full power and might of the enterprise. In representative
societies we have also figured out that the general well being of individuals within
the group depends on keeping the hyper-survival-driven, lead animal in check. We have
demonstrated virtually unanimous agreement that no one person should have unrestricted
power to harm others. He can't just call out the security forces on a whim to beat us up,
or pass and enforce any damn fool law he feels like. We have developed to where,
politically, we incorporate checks and balances that attempt to protect the individuals
within the body politic from abuse by its leadership. We can even throw her out. And
we don't pay him an obscene salary.
Enter economics, money, and wealth. These are abstract concepts that are much more
complex than sheer physical power. Money is civilization's kid gloves tool for doing its
dirty work. For example, when each of us takes a little more out of the pile than we
absolutely need to the point where someone starves to death because he does not have
enough, nobody can trace down all of the causes and effects and point to the individual(s)
who killed him, but we all surely contributed. Money (the surrogate for goods and
services) possesses powers as destructive as weapons, but unlike physical power it
circumvents assignment of responsibility as well as conscience.
We haven't figured out how to restrain or regulate economic power as well as we regulate
physical power, even though the dangers for abuse and misuse are quite evident. Our
financial apparatus operates in a primitive state where any hyper-successful individual is
often permitted to wreak havoc on any number of others without penalty. There are
comparatively few restraints or regulations on economic behavior even though its power
to destroy the livelihoods and well being of members of its host society is just as great as
unrestricted political or physical power.
How can we change that behavior? Since corporations and banks constitute the largest
pools of money, and since they are the tools of their CEOs, changing the rules of
engagement that define CEO motivation, i.e., compensation is a place to start. For
instance, caretaker CEOs are forever spouting that they answer to stockholders, the
theoretical owners of the company. Really? Did all of those stockholders desire the
recent, foreseeable, disastrous economic meltdown and loss of value? The only stocks
those CEOs care about are their own stock options and what they can be sold for. All
others trading in the stock only care that someone else will think it is worth more
tomorrow and buy it from them for more than they paid. None of them care about the
company, per se. In fact, the vast majority of stockholders do not have any idea of how
much stock they own in which companies, because they buy mutual funds that swap them
around faster than they could possibly track them.
The 21st century reality is that though the numbers are in constant flux, about 92 million
Americans in 52 million households hold over 60% of all US stocks in 8,000 mutual
funds. They are not betting on GM, or Exxon, or Time Warner. They have no idea how
much, if any, of those stocks they hold, which changes every day. They are betting on
America, on some cosmic average of how well our country performs as determined by
fund managers who have the time and resources to hopefully make better decisions than
they could make themselves. If America does well, they will do well by investing in
America as opposed to putting money in a mattress or a money market account yielding
They are not betting that a tiny cadre of capitalist monarchs will betray them and loot
their companies for personal gain, leaving the investors, their jobs and their savings
worthless. They really did expect that AIG, Merrill Lynch, Enron, Arthur Anderson and
other credible-sounding companies would last more than a week or a month or a year,
and they might have without sociopaths at their helms.
The Medici dilemma
How dangerous can the goals articulated by a CEO be? At a management meeting of a
Fortune 500 size company the topic of company goals came up. The chairman bluntly
stated that the primary goal of the company was to maintain its stock price at obscene
price to earnings levels. When asked what constituted obscene ratios he replied that
normal P/E ratios of 15 to 1 were unacceptable; acceptable goals were at least 20 or 25 to
one. When asked how that was to be accomplished, he responded “By increasing our
profit by 15% per year.” Someone pointed out that gains of 15% per year meant
doubling the size of the company every five years, which might be difficult to do for very
long, because if the Medicis could have successfully invested their fortune at just a
measly 2% they would now own the world. He responded that “The people who succeed
in this company will be the ones who figure out how to do that.”
It is an invitation to unlimited, irresponsible risk taking from a leader who knows that the
stated goals are impossible. Such leaders don’t care. They will push relentless, ever
more risky expansion until the company collapses, because that’s what earns them the
most compensation in the short term, and they don’t expect to be around in the long term,
which is defined as any time after they deploy their golden parachute. And whenever and
however they terminate from the company, they collect prearranged fortunes that will
keep them whole for the rest of their lives regardless of whether they leave behind a
world-class company or a corpse. That’s someone else’s problem to inherit. The well
being of the company, its employees, their families, the surrounding community are not
considerations. Their success is built upon the character traits delineated by G. Edward
Griffin earlier: cold objectivity, immunity to patriotism, and indifference to the human
condition - the sociopath’s tool kit.
4 – HOW CEO AVARICE DEVELOPS
The Paradigm Shift from Founders to Caretakers
All founders retire, sell or die. In time most successful companies become widely held
stock companies. Except for recently established Fortune 500 Companies, such as
Microsoft with Bill Gates still at the helm, most founders of our largest corporations have
disappeared. They have been replaced by successor, or “caretaker” CEOs, who did not
build the companies, but who are excellent manipulators of balance sheets and P&Ls.
Some take very good care of their companies while others rape our largest corporations
for personal gain.
It would be nonsense to contend that all successor CEOs are unproductive parasites.
They are as necessary as line workers. They are not all driven solely by their own
upward spiral with no regard for the enterprise they head and the greater society to which
they belong. There is a spectrum of "responsibility for the enterprise" among corporate
leaders. Many take on a deeply personally felt responsibility for the well being and the
survival of the enterprise and its crew that extends to a genuine concern for their society
and the human condition of others. At the other extreme, some of them fixate exclusively
on their own best economic interests and would never entertain second thoughts about
sacrificing countless others to become the last-standing winner.
All CEOs are not corporate gangsters, however almost all corporate gangsters are CEOs.
The sales clerks, machine operators, and Human Resources folks can't take us down.
Five percent of the CEOs can – and have. It is those I am speaking of and they are
cancers we must protect ourselves against regardless of the motives of the “good guy”
Those CEOs disposed to condone wrecking havoc if it enhances personal gain are
empowered to do so. Some are quite capable of sacrificing all else for their own greedy,
selfish, me-first and only, die-with-the-most-toys self-aggrandizement. Overwhelming
greed is a first step toward total anti-societal behavior. The average CEO compensation
could not rise from about 40 times the pay of an average worker to over 500 times
without the prerequisite of insatiable greed being epidemic among the vast majority of
them, qualifying most successor CEOS as at least entry-level sociopaths. Troublesome,
but not as dangerous as the few full-fledged sociopaths, only a handful of which in the
right places can devastate our economy, the well-being of the rest of us, and our country.
How does such motivation evolve?
Over time, the nation’s largest companies have grown to be immense. Some consider
manufacturing giants like GM and Chrysler to-big-to-be-allowed-to-fail. A few of our
financial companies, banks, insurance and brokerage houses, grew so large and so
intertwined with the nation’s finances that some are even willing to let them hold us
hostage. Some argue that if the largest of them failed the entire economy would fail.
Founders and successors are different animals with potentially very different motivations.
Ownership of almost all Fortune 500 companies has passed from founders who held most
of the stock to widely diffused stockholders who “own” no significant share of them and
jettison stocks as quickly as they buy them. The market cap for all US companies is on
the order of $15 trillion. Average daily trading volume in October 2011 was $32.5
billion. Using a 200-day trading year, that translates to a 100% turnover of the value of
every stock in America every 2.3 years!
Today’s shareholders are not “owners” in the sense that their futures are tied to the
company’s success or that they want to manage the companies; they are “speculators,”
tied temporarily to the hope that others will be willing to pay more for the stock than they
did. As a company’s ownership diffuses among millions of transient stockholders, that
constitutes "society" ownership, not "buying with intent to operate the enterprise"
ownership. CEOs can, and do, safely ignore them.
By contrast, until he sells his company, a founder perseveres through all of the ups and
downs. The best interests of the company and the founder are identical: they succeed or
fail together. Generally, neither the average 21st century stockholder nor any successor
CEO has any significant stake in any significant company. Rational strategies for such
CEOs can be quite different from rational founder strategies and very contrary to the
company’s best interests. How so?
Generally, a founder is a builder who cares about his/her company. He does not have to
take profits out as cash; he usually reinvests them to make the company stronger, because
the appreciation in the company’s value accrues to him if and when he sells it. He cares
about the survival of his company; it is a reflection of him, his legacy, his major asset and
an extension of himself. He will not knowingly do something that will diminish its
success or its ability to sustain itself into the future any more than he would murder one
of his children. By not stripping the company of its assets via dividends or obscene
salaries he keeps the company healthier, more capable of expansion and more valuable.
As a company grows, it becomes integrated into its community, its country and the
financial system. It employs the citizens and utilizes the nation’s infrastructure – utilities,
roads and financial institutions - to produce and distribute its goods. It becomes a
facilitator of opportunity and sustenance for the population within which it is imbedded.
Effectively, it becomes a privately owned community asset and as such it is in the
community’s interest to provide an atmosphere within which it can prosper and flourish.
The populace and the enterprise are both stakeholders in the same benefits package and
have a mutual interest in striving to prolong the duration and sustainability of the
company. Corporate prosperity, longevity and the company’s role as a community asset
are not necessarily the concern of the opportunist CEO who may quite rationally measure
success quite differently.
Successive CEOs have less and less affiliation with the companies they inherit but did not
build. They are less “invested” in the company. Their concepts of measuring success
and how they should be rewarded, however rational, can be completely different from its
founders. Long-term growth of the company’s net-worth to be recovered at time of sale
does not reward short-term stewardship. Caretaker shot-callers may eschew investment
strategies that would provide long-term company benefits to focus exclusively on this
year’s “numbers” as it affects their immediate compensation. Short-term goals become
management’s dominant preoccupation, eclipsing visions for long-term sustainability and
viability. Stripping the company of its cash to pad their private net worth can be much
Such CEOs are not driven to see whose company can succeed and thrive better; they
compete to determine who can capture the most money and die with the most toys. At
the apex of the income pyramid they march to the dogma of “the greatest good for me,
and devil take the hindmost.” Any nurturing, strengthening or building of the company is
a coincidental side-effect.
How CEOs rig the game – Board Capture
The game is rigged. By orchestrating outrageous compensation packages designed to
reward executives regardless of the firm’s success or failure, the Caretakers loot the
companies they run for their own personal gain, because, unlike founders, they have
absolutely nothing to lose. They are past masters at diverting corporate income into their
pockets. If, as they manipulate the company’s performance to provide their maximum
compensation, they take unsound risks and the company fails, that is neither here nor
there to them. They have already milked it dry, celebrated separation bonuses that would
make a Medici blush, and are seeking another victim in which they have no stake to loot.
Unregulated, caretaker, CEO compensation is a major cause of our financial crises.
Defenders of American compensation arrangements argue that they are in the best
interests of shareholders. Boards of directors supposedly act as faithful defenders of
shareholder value by negotiating with executives on behalf of the diffuse interests of
stockholders. Many of those who study how this process actually works disagree.
Political economists Peter Gourevitch and James Shinn argue that a better description is
“managerism,” a system in which managerial elites are in a strong position to extract
resources. The financier John Bogle has contended that instead of an “ownership
society” in which managers serve owners, the United States is moving toward an “agency
society” in which managers serve themselves. Two of the nation’s leading experts on
corporate compensation, Lucian Bebchuk and Jesse Fried, provide many findings more
consistent with a “board capture” view than a “shareholder value” perspective. In their
telling, boards are typically so beholden to CEOs – who influence the nomination of
board members and have substantial influence over those members’ pay and perks – they
offer little countervailing authority.
The proximate, or most immediate, factor in runaway compensation involves the way in
which CEOs are able to rig things so that the board of directors, which they help select --
and which includes some fellow CEOs on whose boards they sit -- gives them the pay
they want. The smoke and mirrors show includes hiring outside experts, "compensation
consultants," who give the process a thin veneer of economic respectability.
The process has been explained in detail by a retired CEO of DuPont, Edgar S. Woolard,
Jr., who is now chair of the New York Stock Exchange's executive compensation
committee and who knows whereof he speaks. He says that the business page chatter
about CEO salaries being set by the competition for their services in the executive labor
market is "bull." As to the claim that CEOs deserve ever-higher salaries because they
"create wealth," he describes that rationale as a "joke," says the New York Times
Here's how it works, according to Woolard: The compensation committee (of the board
of directors) talks to an outside consultant who has surveys you could drive a truck
through and pay anything you want to pay. The outside consultant talks to the human
resources vice president, who talks to the CEO. The CEO says what he'd like to receive.
It gets to the human resources person who tells the outside consultant. And it pretty well
works out that the CEO gets what he's implied he thinks he deserves, so he will be
respected by his peers.
The board of directors buys into what the CEO asks for because the outside consultant is
an "expert" on such matters. Furthermore, handing out only modest salary increases
might give the wrong impression about how highly the board values the CEO. And if
someone on the board should object, there are the three or four CEOs who sit on
interlocking boards of other companies will make sure it happens. The Board of
Directors Club writes an employment contract that virtually guarantees that no matter
what happens to the company, the appointed CEO will profit and be secure for the rest of
his life at a level of luxury kings can only dream of. This elite club proffers employment
contracts to its CEO members that amount to legalized thievery wherein the success or
failure of the company is not material; manipulating the financial numbers to provide
sort-term income for a single individual is the goal of the game. It is a process with a
built-in escalator, a self-licking ice cream cone.
The consultants go along with this scam, because they know which side their bread is
buttered on. They realize the CEO has a big say-so on whether or not they are hired
again. So they suggest a package of salaries, stock options and other goodies that they
think will please the CEO, and they, too, get rich in the process. And certainly the top
executives just below the CEO don't mind hearing about the boss's raise. They know it
will mean pay increases for them, too.
Abolishing Reciprocal altruism
CEOs of large corporations operate in a rare milieu where it pays to suspend the
influence of morality (ethics, fair play, whatever you want to call it) – doing what is good
for one’s species and one’s self, in that order. Beneficial species/self behavior tends to
propagate itself and counterproductive behavior tends to disappear. A beneficial
behavior shared by most civilized people is reciprocal altruism. That’s where we do
things that temporarily put us at risk or benefit others more than ourselves on the
expectation that at some later time when we need help others will act in a similar manner
to our benefit. In the long run, that behavior leads to everyone in the group coming out
ahead. For example, we don’t kill or steal from each other, because there is so much
more to gain through cooperation than pure selfishness. We give to charities because
when our turn at hard luck comes we hope someone will help us.
A key weapon in the sociopathic CEO’s tool kit is his immunity shots against reciprocal
altruism toward anyone with the possible exception of other economic elites. He is so far
up the food chain that it no longer makes sense to him. Who among the 99.985% of the
people whom he has surpassed can help him? What benefit can he derive from helping
any of them? He has no need of anyone but possibly his fellow economic elitists. He can
become completely anti-social and/or amoral, because he is better off focusing
exclusively on himself.
For the leisure class managers, relationships to their underlings are those of predator to
prey. They are the vested interests that live off the work of others by right and tradition,
and not by their functional contribution to the productivity of the system. At the mega-
corporate level CEOs no longer primarily identify with the corporations they run, which
are just tools; they identify with the class of CEOs of which they are a member. Market
capitalization of the companies they run is just the way they keep score. And if the
company disappears while the former CEO’s country house, clubs and boats are still
larger than the other guy's, he still wins. The company is truly irrelevant and their
incentives only fuel and encourage their anti-social, predatory behavior.
To a person who is dependent on nobody, who ascends to where virtually nobody can
help him, behaving to solely optimize his success makes perfect sense. He can forsake a
company, its employees with their jobs and pension plans as well as its position within
the community and his country as expendable baggage, conversation pieces.
What is wrong with this picture? What is wrong is unrestrained capitalism, emphasis on
“unrestrained.” Capitalism with its motivation and rewards benefit the vast majority.
However, abusing any unrestrained power defeats any good idea and winner-take-all
capitalism destroys us. Today, money is the surrogate for power. Leaving unrestrained
management of the assets of multi-billion dollar companies in the hands of temporary
caretakers is a prescription for suicide. Especially when they control managing the
financial assets that belong to the depositors and upon which we all depend.
We do not let individuals drive cars as each one would wish and let “the road” decide, or
fly planes anywhere they want and let “the sky” decide. The rules of the road and the sky
allow the vast majority of people to profit from the convenience and speed of
transportation far better if there were no rules at all, which would collapse the entire
system. Ditto for playing baseball, hunting, marriage, paying taxes, drinking alcohol, and
just about any human activity. We have figured out that a level playing field where
everyone agrees to certain ground rules (restrictions) to remove obvious dangers for the
common good benefits all of us far more than if we did not regulate such activities.
However, the people in the top 0.00015% have managed to sell the absurd idea that no
matter what, money, the “free market” and the absolute God - unrestrained capitalism -
constitute the one area that should be exempt from any and all regulation. The mantra
goes, “The invisible hand of the free market will regulate itself and wipe out all bad
actors while providing the best possible solution to prosperity and material wealth for
all.” Those same con men have successfully conditioned our citizens to believe that
anything smacking of socialism, communism, or any ism other than capitalism is an
inherently subversive, evil, traitorous idea. Then, by labeling anything smacking of
regulation as socialism, communism, anti-growth, anti-free market, anti-American or anti
anything of supposed merit they have kept otherwise sensible people diverted and duped.
Money is the engine of today’s political power and life and death control over others. It
does what guns or sheer physical force used to do. When a caretaker who managed
Enron, Arthur Anderson or AIG failed, tens or hundreds of thousands of decent, hard-
working people lost their livelihood, homes, medical care, dignity, and prosperity in a
single day through no fault of their own. They were reduced to the level of defenseless,
homeless people just as surely as if we sent soldiers into their homes to evict them and
confiscate their bank accounts. Callously causing that much damage to that many
citizens may not violate any current laws, but it is anti-societal, immoral behavior of the
most reprehensible kind.
Unfettered capitalism is like forcing everyone into one big, no-limit, poker game where
nobody can leave. Sooner or later, one person, or some very, very few people will
accumulate all of the money in the game. It cannot turn out any other way. That is
exactly what the Capitalist Monarchy of America espouses - winner-take-all economic
The problem, as always, is where to draw the lines. How do we reward the “responsible”
CEOs, and prevent the economic Hitlers from being successful at the expense of
everyone else, including the entire system. Encouraging motivation that benefits society
and protecting against anti-social motivation is the central issue. Competency is
worthless as a filter; both responsible and predatory managers are equally competent.
Should the president of any company earn, say 50 or 500 or 5,000 times one of its
workers? I don't know where to draw the line, yet, but I favor some consensus limitation
unless the manager is performing at all-time, world-class levels. Just sitting in the CEO
chair and going with the flow doesn't merit outrageous income multiples. The incentives
(motivation) we institute are the pressure point where we should focus on setting the
basic ground rules. First we have to decide what we want from CEOs. Then we might be
able to create a structure within which behavior would be channeled in those socially
productive directions while still rewarding the CEO.
To reintroduce the definition of being a good steward (call it having morals, ethics or
whatever), he does what is good for the species first and the individual second. The
balance between self-interest and group interest is what we are wrestling with. Ideal
economic morality would maximize benefits to both the individuals (CEOs) and the
species (workers and the larger society), simultaneously. The social asset to be managed
is the enterprise. Those that succeed, i.e., profitably flourish by achieving the fullest
potential for their products and services over the life of the company serve society best
and such CEOs should be so rewarded.
For decades our auto industry was a prime example. While some might argue that the
CEOs got disproportionately much, few can argue that the Big Three did not contribute,
if not lead, to the well being of workers and customers and the historically unprecedented
growth of a middle class. As long as the economy could support it, I cannot fault the
unions for achieving substantial incomes that were still but a small fraction of what the
CEOs took home. Our nation’s world-class technology to develop and produce
automobiles, combined with labor’s skill levels that were then the best in the world
negated the Iron Law of Wages and provided wages that produced our middle class
affluence. However, we cannot return to those days in those industries; we must keep
developing new world-class technologies so that we can produce new world-class
products with skilled labor that is worth a middle class salary.
It is not all management’s fault. All Americans must come to grips with the fact that
there is no such thing as a lifetime job doing the same thing for ever more pay. Product
cycles and complexities change faster than ever. Whole industries explode and go extinct
in very short cycles. This puts pressure on innovation and labor to keep up the pace.
That means every worker must continually spend expend some energy to keep current,
develop new skills and basically learn new tricks throughout his/her career. Those who
don’t will continually slide down the economic ladder.
That’s just recognizing the way the world has always been; every day is a survival
challenge. Nobody gets a free ride to just sit on his or her laurels. Every one of nature’s
creatures has to cope with change and adapt and produce every day or die. Productivity
in the manufacturing sector is not going away. It is following the same trend as
agriculture. Though the U.S. is the third-largest agricultural nation in the world,
agriculture is so mechanized that only about two percent of American workers make a
living as farmers. As an economics professor told me back in 1960, “One day it will take
only 5% of the people to manufacture everything and the rest of us will make a living
swapping it around.”
Labor must refocus from seeking the “secure,” comfy, play-this-string-out-until-
retirement spot in a blue-collar work force that is disappearing. It must look forward to
and enjoy solving today’s new challenges so that we can get to tomorrow’s, every day.
The difference between looking backward and looking forward is now the difference
between bare subsistence and living well. Security is best achieved through
adaptability. For labor, that means lifelong learning and that will be a real challenge for
many who instinctively resist change.
And white-collar labor is in exactly the same boat as their blue-collar brethren. They are
as much victims of computer-based tyranny as the latter were of machine based tyranny.
The computer that was to free us of manual labor has simply substituted the ability of
management to convert us to time slaves, available 24/7/365 for a 40-hour per week
paycheck. Their jobs are no more secure than the machine operator’s. In short, part of
America’s future success may be devoting something like 2-4 hours a week, or a week a
year, who knows, to upgrading skills, new training, etc. It is not just to keep the
individual worker valuable; it is to keep our nation as strong and economically viable as
it can be. “Lifelong learning” for our workforce is not just a slogan; it is in the best
interest of both labor and management to insure itself continued employability and
availability of a competent workforce, respectively. And even a college education is not
the kind of protection against job loss or wage loss that it used to be. Advanced degrees
count for more and more these days.
Founders get a pass
Founders are in a different class from all successive CEOs. They created products,
services and jobs that contributed mightily to our society’s economy and our citizens’
well being. Gates, Buffett and Rowling either made money as founders, creators, or with
their own money. Gates founded a company and is still in charge. He gets a free pass. If
he is that good, he deserves the shot at the brass ring. Buffet uses largely his own money,
though he now runs an investment company also, but I think he is pretty much self-made.
Cut him all the slack you want. The product of Rowling's mind, Harry Potter, is purely
her own and if she can cash in before the copyright avoiders get to her, I'm for it. I put
"founders" in a protected class with no upside limits to income, because while they are
making money, they are not sacrificing their major asset – that which they built.
Meanwhile, most large stock companies in America are run by caretakers who did not
start the company and whose job is to run it with a second or third or nth generation
management team. The easiest thing to do is to improve upon something that already
exists; the hardest thing is to create something out of thin air. However he got there and
however well he manages it going forward, the successor CEO took over a gravy train
that he did not create; he does not merit the same free pass as its founders. He could
never have started the business, though he wields all the power as if he did. He earns a
lot more money than he could have earned completely by my own wits. Does he add
value? How much does he deserve? What was fair? I balk at 500 times the average
secretary, editor or mail clerk, who also works hard every day and without whom the
business would perish. Management’s job should be empowering them to do theirs
better, not calculating how to rape the system for more money. One way to reign in
obscene compensation would be to insist that any CEO who contracted for more than 100
times the average worker’s pay must publicly address his employees and state, “I am
worth more than 100 of you.” Then he must explain why. That would stop runaway
compensation dead in its tracks.
One could tie maximum compensation to a lot of things such as total revenue or profit
percentage. Any goal reflecting only a single factor, such as profit is a poor yardstick. It
is too easy to manipulate in the short term while sacrificing the long term. For a
dedicated, competent manager there are years in a bad economy when profit tanks
through no fault of management's. There are years when heavy investments that impact
profits are necessary for future success, and management does not deserve to earn
nothing. A good salary compensates for some of those swings.
What should a company pay a caretaker to do? For all concerned, society’s stakeholders,
he should maintain, strengthen and extend the profitable life of the business, which
benefits everyone inside and outside of the company. An ideal goal is to attain the
maximum integrated profit over the maximum lifetime of the company. The worst
outcome is a short-term spike in profits (or stock price) just prior to collapse.
A real problem is management's incentive structure, compensation over and above salary
for exemplary performance. We pay managers huge incentive bonuses, but incentives to
do what? To improve the performance of the company? On what basis? Short-term
goals are often counterproductive. How can we rely on such a caretaker to run a safe,
sound, long lasting operation that maximizes the company’s lifetime well-being and earn
$5 million a year if we provide him an option, however risky for the company, to net him
ten times that in one year, even if the company fails? That’s a lot of temptation for
someone without any need for reciprocal altruism. Many CEO compensation plans do
not provide incentives for the benefit of the company, its employees, the country's
economy, or penalties for the firm's failure. The firm's well being and management's
objectives can be terribly mismatched.
Company sustainability has to trump sort-term performance. Stock is especially
troublesome. Within the company the stock price only matters to the officers who hold
large blocks that they received, free, via options. While we ask for them to behave as
stewards, we incentivize them to sell their ownership interest in the company! What
could possibly go wrong with that? Manipulating stock by making the company appear
sounder than it is only harms everyone else when it crashes back down to earth as it
inevitably does. For instance, when Enron’s stock fell from above $90 to $1 in less than
a year, did Enron lose $60 billion in value that year? Of course not. Enron never made
money and the stock was never actually worth much more than $1. But Enron insiders
pulled millions out of the market by artificially manipulating its price. Stock price is the
wrong yardstick for measuring or rewarding any executive.
Similarly, every Top Dog on Wall Street knew that those derivative, mortgage
instruments were a farce and did nothing to protect their companies against trading in
them, because they bloated their bonuses so much that it didn't matter to them. They
manufactured a short term, bonus bubble, instead, and damn the torpedoes that they all
knew would strike and sink many of their companies.
Compensation needs a set of figures of merit, based on several factors that define overall
company performance instead of some isolated, virtually meaningless, single line on a
5 – BUILDING AN AGENDA TO GO FORWARD
The tools for regaining control of our country from the hyper-rich, preventing corporate-
generated massacres of our economy, releveling the economic playing field and
rebuilding the middle class are legislation, regulations, the tax code, and culture change –
not the easiest things to deal with. As Don Peck points out in his article, Can The Middle
Class Be Saved?, in the September 2011 issue of Atlantic Monthly, “No single action or
policy prescription can fix the varied problems facing the middle class today, but through
a combination of approaches – some aimed at increasing he growth rate of the economy
itself, and some at ensuring that more people are able to benefit from that growth – we
can ameliorate them. We can adapt, but we have to start now…It is hard to imagine an
adequate answer to the problems we face that doesn’t involve greater redistribution of
wealth.” And we will not get close to solving our problems solve any of our problems
without addressing that problem.
We cannot force, or prescribe behavior for everyone. There is always someone who
either thinks he can beat the system or who is willing to pay the price of breaking any
social contract. Historically, we have progressed from a hyper-dangerous human
relations situation where even when we were sparsely populated, most families, clans or
tribes fought and killed their neighboring counterparts when they interacted. Now, even
at enormously higher densities we are safer than we have ever been. We are 30 times
safer from danger from the rest of our species in the streets of Detroit than on the streets
of London 200 years ago, and that was 30 times safer than living in any hunter-gatherer
society that ever existed. In the US you can accumulate assets without fear of it being
taken from you by the next marauder, something unimaginable to all but your most recent
Our relative safety and life expectancy are testimony to our agreements on cooperative
behavior that yield both positive material and economic results. Just because there are
still bank robbers, and murderers, petty thieves and greedy CEOs does not mean we
should forego strengthening the rules of the game just because some folks will find a new
series of loopholes. We can tweak our system to make it more difficult (not impossible)
for the devious among us to take us down or harm us.
The goal is to modify the distribution of wealth within the country to rebuild the relative
affluence of the average citizen and so that our middle class can prosper as before.
What’s good for the average citizen is also good for GM.
Of course, the easiest prevention is for everyone to behave "responsibly" - for the
common good, not for only one's self - but short of universal lobotomies I don’t have
much faith in that possibility. Here are some suggestions of areas where we can try to
effect better outcomes.
This is the most talked about thing that nobody has been able to do. Everything else we
do will take longer and in the meantime there is nothing that will alleviate our pain faster
or more effectively than putting everyone to work. Then we can argue about how to
better level the rest of the playing field while everyone is at least earning a living. It is a
travesty that we can spend hundreds of billions to rescue the financial sector of our
economy, which is directly responsible for our economic catastrophe, and make
emergency loans that may be in the trillions to keep them afloat, while leaving working
people to fend for themselves. A government that serves its people should reduce its debt
in good times, not start pointless wars and not unnecessarily cut taxes. Then it should
invest in its people in bad times to mitigate against the down cycles, like now.
We need both short and long term programs. In the short term the improving the
infrastructure is an obvious choice that could put many people to work, whose incomes
would create spending that would create even more jobs. We need to streamline the
process for so-called “shovel ready” jobs that can’t get underway even if we gave them
the money, because they are mired down in endless paperwork. Not doing far more of
this three years ago was irresponsible. Whatever money we “saved,” whatever debt we
did not incur, was penny wise and pound-foolish. We can try to catch up as best we can
by funding it right now; better late than never.
In the longer term energy policy and innovations are key factors. Those initiatives dove
tail with energy and education considerations and are treated separately.
Regain control of the election process
This is mandatory if we are ever to level the playing field and stem the flow of wealth to
ever fewer plutocrats via a bought-and-paid-for government. It is painfully obvious that
this can only be done legislatively. We need to pass legislation or a constitutional
amendment that prohibits corporations from contributing to political causes and
campaigns. If we permit the largest pools of money unlimited power to affect voting, as
well as act as surrogates for the will of foreign interests, nothing else matters much. We
will be doomed to become ever more subservient to an ever wealthier few. We will have
to begin practicing our bows and our, “Yes, B’wana.”
We must also put limits on individual campaign spending and donations, PACs, and any
other source of electioneering money. All donors should be made public. This is only
slightly less serious than corporate control, because most of the super-wealthy are the
Reform the tax code to make it much fairer to the middle class
Changes in the tax code were a major contributing factor to concentrating more wealth in
ever fewer hands, so it will also play a large part in redressing the disparity. The
wealthocrat propaganda against their class contributing its fair share will be monumental
and they will resist with all their might, which is considerable, including trying to call in
all their due-bills from our elected representatives to further disadvantage the American
A saddle point is the place that is the best overall solution to a problem or the closest to
equilibrium. There is some set of tax rates that will yield the best tradeoff between
funding desired government services while providing maximum spendable income for the
vast majority of the population and growing our economy. The extremes of 100%
taxation where the government takes all the money and the public starves, or 0% where
there is no government at all, obviously don’t work. Some taxes are necessary, so where
should we set the rates for the most gain with the least pain?
We have proven that at our current tax rates, lowering taxes does not increase revenues or
job creation. Rates are already below the saddle point and further reductions will only
hurt us more if we expect our government to function anything like is presently does.
This mismatch has been compounded by the most recent tax reductions that have only
worsened things by preferentially favoring higher incomes over the lower incomes, i.e.,
by favoring passive income over income earned by labor and by favoring less taxation on
discretionary income than on income required for necessities. Those who still promote
lowering taxes to improve the economy and create more jobs are selling snake oil. They
are revisiting the Bush tax cuts, a deliberate chicanery that penalized the government,
rewarded the wealthy, and disadvantaged everyone else. The middle class is still losing
ground while government struggles harder to satisfy the public with less revenue. Only
the very top earners made out, and they fared extraordinarily well at the expense of
everyone else, as intended. It was the worst possible scenario; the gap between CEOs
and their secretaries widened, the rich got more that they have no intention of sharing,
and the government is forced to increasingly ration what’s left over to help its citizens
amid continuing inflation. Hello, Banana Republic.
It takes a threshold of income to meet necessities; everything earned beyond that is pure
discretionary spending. Fairness demands that some form of progressive taxation be
implemented whereby we don’t tax income that is being spent on necessities as much as
dollars that go for pure discretionary spending. Up to some point, the higher the
discretionary spending, the higher the tax rate.
The overall tax rate should be increased and it is obvious that it should start where the
money is, at the top end where hundreds of billions of dollars are not taxed at rates
Everyman and Everywoman pay. Effective tax rates, the average rate that anyone pays
on total income, all in, should be progressive; earn more, pay more, whatever the income
source. It’s a no-brainer.
Again, every dollar earned beyond necessity income adds almost entirely to disposable
income, i.e., the ability to live higher off the hog. Taxing more of that income always
leaves the higher earner still far better off than anyone lower down the economic ladder.
After all is said and done the combination of all taxes for income, social security,
Medicare, capital gains, deductions, and whatever other taxes and tax dodges get
invented, should yield a higher effective tax rate for billionaires than for millionaires,
which should be more than lathe operators or maids. If workers pay 20%, all in, no class
of people earning more should pay less on everything they earn, combined. That is
immoral; it is not what’s best for the species. It is the justification for the impoverished
to turn on the opulent and return withering fire in the class warfare being relentlessly
waged against them.
Regulate the corporate and financial sectors
Unregulated corporations endanger America for the benefit of a miniscule few. How
might we regulate corporations to receive their benefits as a community asset without
impairing the success of those enterprises? What is their proper place in our society and
how should they be regulated to conform to that?
We put rules in place post-1929 that prevented precisely the debacle we are now in. The
systematic dismantling of those existing rules by 1998 enabled this catastrophe. It is in
some aspects a replay of the original great depression. We had actually figured out how
to prevent a real estate driven depression until we reinstituted "overleveraging," this time
in real estate instead of stocks.
Regulations should attempt to encourage reciprocal altruism, i.e. corporations and CEOs
want to help us as much as we want to help them. We want to encourage that most
beneficial human behavior, while minimizing anti-social behavior and discouraging
unsafe practices that jeopardize both our companies and our economy. Regulations and
compensation schemes should encourage the Top Man to keep his company strong, while
earning a very good living, by optimizing the company’s health and long term
survivability. Making short-term decisions that benefit only one person should be less
desirable and more painful. Not everyone needs such guidelines, but those who don’t
won’t mind them; those who do may be prevented from destroying our country.
Regulation of corporations goes on all the time all over the world. That is simply a
matter of the society within which the enterprise is embedded desiring to do so; such as
we have already done with our military, the post office, railroads, airways and highways.
Corporations have NO, NADA, ZIP, ZERO special rights. They are NOT extra-societal.
Granting corporations extra-societal or super-societal powers, as opposed to treating them
as less than societal or subservient to societal, creates false Gods and cedes to them
powers that citizens don't have. No sane, average person would do that. We (society)
can regulate them and the transactions they engage in exactly the same way we regulate
people in any other activity. Their presence among us is at our pleasure and according to
our caveats, which are modifiable at any time. Webster's defines corporation: an
association of individuals, created by law or under authority of law, having continuous
existence independent of the existences of its members and powers and liabilities distinct
from that of its members.
We, the society that establishes the laws, create the corporations. To assume that we
cannot regulate those entities in society’s interests, or that they have some sacred rights
above thine and mine is delusional. Corporations are answerable first to the society that
created them, then to the fraction of society that may own portions of any single one of
them. We should not give them license to ruin us; they should be answerable to our
Banking should be tightly regulated, including what passes for credit and/or mortgage
thresholds for lending. Rather minimal thresholds could have prevented the entire bottom
layer of insecure loans and virtually eliminated everything that went into default in 2008.
I don't think any of us support continuing the prospect of an unemployed, no-assets
buyer purchasing a $750,000 home on a "postponed first payment, variable" mortgage
just because we eliminated all lending constraints.
Internationally, we are being very undermined by China’s initiatives to keep its currency
undervalued relative to the dollar. We must get China to realign its currency even if that
means threatening sanctions.
Many managers are excellent stewards of their companies, and thereby benefit all of us.
Unfortunately, it takes only a small fraction of them with no passion or regard for their
companies, their employees, or their customers to wreck havoc on the entire economy
and the well being of millions. The danger of an interim hired gun with exclusive say-so
about running a society-imbedded organization that touches the lives and well being of
millions must be considered.
There is nobody who can harm us more than a caretaker CEO, an interim hired gun with
exclusive say-so about running a society-imbedded organization, who considers his
company as just an ATM for him to milk, identifies primarily with the class of look-alike
CEOs, views market capitalization as just a way to keep score while competing for the
most toys, who lives as an overlord off the work of others by right and tradition rather
than by any functional contribution to the productivity of the system, who can strip the
assets from and destroy a benefit to society that someone else built, and is indifferent to
the company’s collapse as long as his estate, country clubs, and yachts are still intact.
That dedicated, self-serving, anti-social, corporate sociopath who looks at underlings as
prey has more unrestrained power than most of our political leaders so it seems prudent
to protect ourselves against potential excesses while still providing a very nice living for
those who exercise broader societal values. We cannot simply trust “market forces” to
keep our sources of livelihood and our country solvent and strong. That rationale is just a
cover to protect scoundrels.
Changing the motivation of people at the top by changing the goals for which they are
compensated might have a positive effect. When a CEO’s incentives do not benefit the
company, its employees or the country's economy, the firm’s and management's best
interests are a mismatch. The first priority is to elevate the importance of long-term
company sustainability over the priority of sort term performance.
Prior to our recent collapse every Top Dog on Wall Street knew that those mortgage
instruments were a farce and did not one thing to protect their companies against trading
in them, because their bonuses and golden parachutes were so big it didn't matter to them.
They took the bonuses generated by the short-term bubble and damn the torpedoes that
they knew would find and sink many of those companies. Not attempting to prevent that
kind of decision-making is foolish and irresponsible.
From society’s point of view, the successful company does not just to enrich the CEO at
the expense of underlings, but enriches all of them at the expense of surrounding
competitors, including foreign. In that contest the underlings naturally must enjoy some
benefit both to motivate their cooperation and illustrate the success of the collective
enterprise. The success of the enterprise, in turn, depends on keeping the predators
(managers) sufficiently in check.
CEO contracts should pay them handsome salaries. After all they are competent enough
to land positions to run our largest enterprises, which is some indication of merit and
should carry some reward. Substantial additional income should be possible but as a
result of orchestrating an overall gain for everyone else in the bargain, not from killing
the corporate geese that lay the golden eggs. We need frameworks wherein a corporate
leader’s self-interest coincides with maximizing the best interests of the enterprise.
Bonuses for "performance-based" income incentives should be determined by "health of
the company" measurements, which, by definition, excludes stock price. We want
valuable CEOs to stick around a while, so rewarding cumulative performance makes
sense. Incentive opportunities could increase each year that he works his magic to the
point where he can do spectacularly well based on the long-term performance of the
company, which is goal one. Focus on compensation is not to prevent CEOs from
making a bundle; it is to remove the temptation for one individual to realize enormous
instant gains by sacrificing an enterprise that is not part of his self-interest equation.
The minimize short-term goals as huge bonus producers the first step is to severely
restrict or eliminate stock options as a measure of performance. Focus on stock prices is
more reasonable when a few long-term investors narrowly hold stock. Today it is far
more likely that stockholders in most large companies include masses of transient,
bundled-in-mutual-funds investors. Other stakeholders include employees who plan their
lives around the company, the local communities, and our economic system as a whole.
Setting the stage for one selfish person to take any company and its many, many
stakeholders down for personal short-term gain is imprudent.
Furthermore, stock price does not necessarily bear any relationship to a company's worth
or health. It is established by outsiders who have no interest in managing the company,
or can be manipulated by insiders. For example, on Sept. 11th 2008 AIG closed at $17.55
per share. On Sept 17th when it sold for $2.05 the actual value of the company had not
dropped 88% in six days. The $17.55 number was a falsehood, off by about 85%, and
AIG had been overvalued for months, if not years. It was just that no outsider knew it,
Any short-term measurement of a single line on a P&L is virtually meaningless in a
vacuum. It is also easily manipulated and may have no correlation with the overall health
of the enterprise going forward. Compensation formulas should probably incorporate
several factors to avoid manipulating any one at the expense of others. For instance,
factoring in share of market, inflation, productivity, capacity utilization, etc. could arrive
at a much more accurate overall measure of the company's health and strength. That
should enable a CEO to earn a ton of well-deserved money if the company were really
thriving. Just sitting in the chair shouldn’t be grounds for earning anything except a
severance notice, and that should not trigger paying him a king’s ransom in golden
parachutes. I would restrict the total value of separation agreements to something less
then two years compensation.
Setting three to five year goals with sliding scales for performance could still allow a
CEO to break the bank. If performance were so good compared with reasonable
expectations, and it provided great benefits to the company in terms of growth,
profitability, and stronger market position, pay the man.
The main thing is to stop compensating CEOs on short-term, artificial, performance
measurements where the incentive to sacrifice the company by manipulating the books to
achieve one year's gigantic payout is an option, while diminishing the company’s
resources and capacity to do business in successive years. That only encourages short-
term thinking. The sociopath manager who negotiated a fabulous golden parachute can
eschew running a safe, sound, long lasting operation that will earn him $5 million a year
if he sees an option, however risky that provides him an opportunity to make a bigger
killing this year, even if the company fails, because he cannot lose no matter what
happens to the company. That kind of unregulated, individual greed of a few CEOs is
precisely what killed the financial companies that recently failed.
Salary caps based on multiples of average employee compensation is a way to rein in
runaway CEO income. Whatever cap may be culturally or legislatively enforced,
founders should be put into a protected class without upside limits. They provide such a
benefit to society by creating whole new industries and so many new jobs and products
that enhance our lives that they should get the brass ring. Their successors, no matter
how good they are, did not originate the success and they are the ones from whom we
have the most to fear.
The tax code can be revised to minimize compensation multiples of several hundred
times an average worker’s income. For instance, to consider one set of rules, let the 35%
maximum tax rate apply to job-related income of up to 100 times the average worker’s
income. In 2010 the median individual income for our 99.2 million, full-time, year-round
workers was $43,062. To round off, a CEO paid 100 times the average worker would
earn four million dollars. At prevailing tax rates for whichever kind of income he earns,
he maxes out at 35%, worst case. After that tax any and all job-related income: salary,
bonuses, stock options, whatever, an extra 2% per million dollars up to 85%. 85% kicks
in at $29 million (725 times the average worker’s income) and beyond.
Under current taxes he will take home at least $2.65 million of his first $4 million. If the
next $25 million were split between capital gains and regular income he would take home
about $18.75 million of the $25 million for a total income of at least $21.4 million or an
effective tax rate of 26%. Under the proposed revised structure, he would take home $15
million of the next $25 million for a total income of $17.65 million and an effective tax
rate of about 39%. How onerous is that?
For the sake of argument, suppose that it takes $30,000 to meet all needs. A median
income of $40,000 provides $10,000 in discretionary income. For the CEO earning $4
million a year, his discretionary, after tax income is not 100 times the average worker’s;
it is at least 262 times greater. If he earns $29 million, the difference between the current
and proposed tax structures reduces his after tax, discretionary, income superiority from
2,137 times the average worker to only about 1,762 times. Most people could manage on
With these changes it may not be as worthwhile for a CEO to divert his focus from
building his company to padding his Swiss bank account. Indexing the threshold for
higher taxes to 100 times median income might even motivate CEOs to get their heads
together to figure out how their average American worker might earn more. That would
be the quickest way to leverage their lower taxed incomes by 100 to1 and earn them more
money. That would be a huge win-win, all around.
Our present system with its mushrooming costs as a percentage of national income is
unstable and unsustainable. It needs revamping to insure that everyone is covered at a
reasonable cost. The only realistic solution seems to be a single-payer system. Though
many find that offensive, our current system provides arguably less of an overall health
benefit than other developed countries, none of which sell healthcare as a product. We
are drowning in paperwork, clerks whose jobs are to see that the highest prices are
charged, doctors who cannot practice medicine because different insurers dictate different
treatment limitations for each patient, non-uniform record keeping, and monumental
unnecessary, duplicate tests to ward off possible lawsuits. It would be hard to create a
less efficient system. The existence of two-tier pricing structure where the “retail” price
of a procedure is $1,000 for the unfortunate uninsured, while the “negotiated” insurance
price is $50, if that, screams that the lunatics are running the asylum. Scrap it and move
Environmental and energy policies
Get on board with the Kyoto Accords. Refusing to commit to reducing greenhouse
gasses because it might decrease profits for fossil fuel and utility companies and bonuses
for their CEOs is criminal.
As pointed out by Tom Friedman of the NY Times on many occasions, those countries
that have adopted measures to go greener are prospering. It is a win-win all around that
we are leaving on the table in the name of shortsightedness.
We should institute cap-and-trade to better enable cleaning up our environment and
providing stimulus for alternative energy sources. We should set meaningful goals for
the reduction and elimination of foreign oil imports as well as higher percentages of
renewable energy and lower percentages of fossil fuel consumption. Government should
take an active part in funding R&D and encouraging entrepreneurship in alternative
energy. It is an area we can develop world-class industries. Growth in new industries,
green or otherwise, is no guarantee of future prosperity, but it is our best bet. We have
accomplished it many times in this country to sustain our advantage.
The Iron Law of Wages seems to be asserting itself and we have lost sight of our
dedication to the principles that might hold it at bay. It is possible that country is past its
prime, priced out of business. Macroscopically, the whole world may be getting richer
and the world’s GINI index may be dropping as many more people advance
economically than decline.
However, there is a prescription to keep the Iron Law of Wages from overtaking us.
Fortunately, as David Ricardo noticed, the slide toward subsistence wages need not come
true as long as a new investment and technology cause the demand for labor to increase
faster than the population: in that case real wages would increase over time. We need
more of that new investment and new technology medicine fueled by well-educated,
continuously educated workers to sustain our middle class; it might not save us, but less
of it will certainly doom us. As product and even entire industry cycles get ever shorter,
continuous education and innovation become ever more critical.
We may suffer from stability disability. A large part of our population may be culturally
averse to participating in careers that demand constant reeducation. They are not lazy. If
you gave them a job resembling what blue collar or farming used to be, a job that they
could learn once and keep doing until retirement, they would work at it forever.
Unfortunately for them the world has shifted toward workplaces of perpetual, intellectual,
white and blue-collar change. That is simply recognition of the way the world always
was, a changing, unforgiving place full of uncertainty. We must get it across to our
workforce that anyone who does not adapt and keep learning will likely slide into
We must make it possible for every American of ability to realize his/her potential.
Today, that means educating our citizens to their potential in order to compete with other
countries that are doing just that. We must not only channel our best and brightest
academic students into occupations that will create prosperity for us, we must also
continually educate every worker in every occupation so that each can survive and
prosper at his/her highest potential and not get trapped in “rust belt” mentalities with
outdated skills that are no longer applicable to the workforce. We may need government
assistance for a college GI bill for all Americans. We also need to make continuing
education a part of every company’s employment contract. It will serve both the workers
and their companies far better than no program at all.
We have cards to play
Meanwhile, social discontent viruses don't go away; they can lie barely alive for decades.
Suddenly, unpredictably, the right, fertile growth medium appears and something
activates them to plague proportions, and presto! A "revolution" occurs.
It appears that the wealthocrats hold all the cards. They have the money, the congress,
the Supreme Court and the president, as well as all of the state legislatures on their side.
Because they are a minority of only a few percent there are two areas where they do not
have superiority - votes and physical power. All the money in the world won't buy
representatives if a large enough segment of the population says, "If you don't do what
we ask, we will find someone else to elect." The plutocrats have pooled their money to
influence public opinion and legislators to implement changes that favor them. Pooling
votes against them can negate that in one election cycle. Whether or not that is likely,
soon, is problematic, but possible. At the very end game, if still dissatisfied, the people
can always eject the establishment by force and rewrite the rules; it has happened all over
the world, multiple times, including giving birth to this country. That form of revolution
is not advocated here.
In an era of sloganeering passing for reasoned discourse it is surprising how rapidly
something can take hold if well presented. Once started, civil rights, disabled rights, gay
rights, women's sports equality, etc., progressed at relatively lightning speed; never to the
complete satisfaction of all backers, but well past the point where their general principles
are any longer an issue. Candidates can rise from virtual obscurity to high office; Carter
and Clinton come to mind. Kings and shoo-in heir-apparants can be taken down of an
afternoon for a misplaced sentence: Bush, "Read my lips." Romney, "I was
brainwashed." Hart, "Catch me if you can." Given the right catch phrases and milieu, a
revolution in income distribution could happen any time.
In 1770, who could have predicted the United States of America and our Constitution, or
that the Czars in Russia would have been supplanted by communism, or that it in turn
would collapse because it spent too much money on defense (if that's really true)?
Nobody that I know of is taking credit for predicting the events in Tunisia, or Egypt.
Somehow, they blossomed, apparently out of thin air. Discontent fuels fires, but it can
simmer ineffectively for decades. When it finds a flash point, something elevates it to
priority status and change happens overnight. Somehow tides for women's suffrage, and
civil rights developed; they could have as easily remained dormant for many more
decades. A fire in a single shirt factory created myriad labor laws. The Russians put a
miniscule, 184-pound ball into orbit and two entire countries become obsessed with a
race to the moon. There is a time and tide for all things and though I don’t know either
how to predict or initiate one the time seems ripe for a sea change in America, by and for
6 – AN ACTION AGENDA
Criticism is easy; art is difficult. We have seen how our present inequitable situation
arose and how the very elite and opulent among us have waged successful class warfare
against at least the lower 90% of Americans. What should America do about it to correct
the imbalance and put our country on more solid footing going forward? Not everyone
agrees with everything. Everyone may not to agree with these proposals, but we must
1) Crate jobs
Stop talking about tax breaks and incentives for corporations, none of which create jobs.
The inability of our citizens to earn enough money to spend on goods and services dries
up the demand for products no matter how many tax breaks or subsidies corporations get
for CEOs to siphon off. Government is supposed to put money aside in good times and
use it to stoke the economy (demand side) in bad times. Put one trillion stimulus dollars
into infrastructure building and repair and public works (water, sewer, rail, roads and
bridges and electrical grid) spending, now. This is not money to be used to maintain
existing staffs of teachers and policemen; it is to be used to create new jobs. Streamline
the process for “shovel ready” jobs and put people back to work so that we can create
more demand for the rest of the economy’s goods.
Put another trillion stimulus dollars into alternative energy funding and research ASAP.
Change the definition of what a recession is to be an unemployment level above 6%.
Using the stock market as a gauge is not accurate. A recession does not start when the
stock market takes six months to lose money, nor is it by any means over when stock
prices rise and bankers and CEOs resume collecting their outrageous bonuses; it is when
most people who want jobs have jobs. Until then, we are in a recession.
One thing that would help our job creation/retention would be if China’s currency were
properly valued. It should be a national priority to seek an equitable exchange rate with
China by any means possible.
2) Regain citizen control of the election process in America.
The first step is to reduce and hopefully eliminate the cancer of the influence of
corporations, along with their foreign interests, on any elections. Reverse the effects of
the Citizens United Supreme Court decision, which is a betrayal of the American people,
and eliminate corporate personhood by either passing legislation, or a constitutional
amendment. Prohibit corporations from making any political donations, whatsoever, in
Campaign financing should be overhauled. Super PACs that are permitted to raise
unlimited funds from corporations, unions and other groups, and individuals should be
banned. No single group or person should be able to “buy” and election. Any PAC
should have definite limits on donations from a single source and disclose its contributors
and their contributions.
3) Reform the tax structure and make it much fairer to the middle class.
That means increasing the progressiveness of the tax code. Reductions in maximum tax
rates from 70% in the 70s to 35% today largely benefited only the top 10% of the
population and provided gigantic windfalls to the upper 1%, as intended by the upper
class warriors who passed them. Reductions in capital gains from 35% to 15% were even
more discriminatory against the lower 90% and even more favorable to the upper 1%.
It is abhorrent that in America passive (capital gains) income should get preferential
treatment (lower tax rates) versus income earned by labor. Capital gains can be adjusted
in two ways. It can be taxed s regular income. That would raise taxes on capital gains
considerably and essentially tax them at the current maximum of 35% for those with
significant holdings. The effective tax rate on all incomes hovers in the 22% range.
Raising capital gains taxes into the 25% - 30% range, minimum, would assure that they
are being taxed at rates higher than most people’s effective tax rates, eliminating the
preferential treatment for passive income over income earned from working. Including
them as income removes all doubt.
It is also unconscionable that discretionary income should be given preferential treatment
(no taxes at all) versus income required for life’s necessities. Social Security taxes
should be extended to all W-2 income and not capped at $110,100 in 2012, above which
every dime earned is discretionary income. Corporations can be excused from having to
match contributions over $110,100. This would also move the needle substantially
toward conferring solvency on social security, immediately.
Rescind the Bush tax cuts for all those making over $200,000 or couples over $250,000.
They were neither necessary nor productive and only benefits those who don’t need the
money for necessities, as was intended by the upper class warriors. See Section 5 for
regulating CEO incentives.
4) Regulate Corporations
Congress pass HR 1489, “Return to Prudent Banking Act.” This restates many
provisions of the Glass-Steagall Act, which repeal directly contributed to the financial
crisis of 2007 by allowing Wall Street investment banking firms to gamble with their
depositor’s money hat was held in commercial banks owned or created by corrupt
investment firms. Banks should have as their number one priority the safety of all
deposits and be regulated to be risk averse. The derivatives market should be tightly
regulated and hedge fund tax loopholes should be closed.
5) Regulate CEO incentives
To curb excessive CEO compensation we can consider several changes. Founders of
companies are exempt from these restrictions and any income from a company they
founded can be taxed at existing rates, including capital gains. No such exemptions apply
to any non-founder.
Stock options cannot be more than 10% of any employees total compensation package.
No separation agreement (golden parachute) can pay the departing corporate officer a
total of more than twice his annual income.
The tax code should be revised to minimize compensation multiples of several hundred
times an average worker’s income. Exceeding a threshold of 100 times the median
worker’s income should kick in escalating tax rates on all job-related income regardless
of its source.
Pass universal, single-payer healthcare for every American. Congress should have the
same health care plan as all other Americans. Make all health records electronically
accessible to all practitioners within 3 years.
7) Policies related to the environment and energy
Decrease dependence on fossil fuels in general and foreign oil in particular. Set a goal of
oil consumption for transportation cut in half within 10 years, while reducing foreign
imports by at least 50%.
Invest $1 trillion in sponsoring US renewable energy development, which can lead to a
better environment and stronger US industries. Pass cap and trade, which will also help
drive new renewable energy development.
Reduce all greenhouse emissions substantially and join international accords. Set a goal
of reducing coal emissions by 50% and/or reduce the use of coal by a like amount.
8) Policies to reform education
The GI Bill was probably the most successful government program ever in terms of
return on investment for our country. Education is one of the vital keys to our
international competitiveness and keeping the Iron Law of Wages at bay. Implement a
College Education Bill for all Americans similar to the GI Bill. If we offered to
completely pay average public college tuition to all undergraduates in both public and
private 4-year colleges, it would cost on the order of $90 billion. Add another $13 billion
for the average cost of a community college student and the total is around $105 billion
per year. To encourage more students to shift from “soft” to “hard” curricula we could
implement sliding scales that provide more financial support for those courses of study
that will benefit our worldwide economic competitiveness, such as math, science,
computers, etc. For-profit schools would not qualify. One way or another, we must get
our best and brightest the best educations they can absorb and raise the qualifications of
our entire workforce.
7. - QUESTIONS FOR CANDIDATES FOR PUBLIC OFFICE
The one thing that the wealthy do not have is a lot of votes. What the 99% of us don’t
have are candidates to represent us in the class war, so for the time being whom we vote
for does not matter much. One way to encourage more candidates to represent the 99%
and return the class warfare fire is to make it uncomfortable for a candidate to openly
oppose the well being of the majority and appear un-American. If enough people, and
the media, kept asking them the right questions every time they showed their faces they
would either have to publicly side with us or some other candidate would see that it was
to his/her advantage to support the majority views on a more “populist” platform. We
can change the choices available to us and elect representatives who will actually
represent the 99% of Americans.
Here are some questions that we could ask any candidate that would make a lot of them
squirm. If they answer that they will support the question, then follow up by asking them
if they will sign a pledge to work for that issue. That will make it even more interesting.
It won’t take long to think up your own questions. It’s easy once you get the hang of it.
The key is to ask about one of the key issues every time a candidate surfaces.
Q. Do you believe that it is the American way that money earned passively by those who
just sit around wait for it to grow should get preferential tax treatment over money earned
by those who work for it and actually produce goods and services? If not, then will you
sponsor legislation to right this inequity so that the wealthy pay at least as much on their
unearned income, such as capital gains, as workers do on their earned income?
Q. Do you believe that it is the American way that income that is needed for necessities
by the less well off is taxed while pure discretionary income earned by the wealthy is not
taxed? If not, then will you sponsor legislation to right this inequity where ordinary
people are taxed for social security right from dollar one, which has to go for necessities,
to survive, and the wealthy get a preferential free ride on all of their W-2 income above
$110,100, which is pure discretionary income? Do you further understand that if you
passed such legislation, social security would become more solvent, overnight? Isn’t that
the fair and just thing to do?
Q. Do you favor economic slavery of the majority of Americans for the benefit of the
opulent few? If not, will you sponsor legislation so that people earning millions should
pay at least the same effective tax rate, or more, on their total income, including capital
gains, as their secretaries and cleaning ladies?
Q. Do you believe that in our country non-citizens, such as corporations and foreigners,
should have more influence in our elections than American citizens? If not, then will you
sponsor legislation or a constitutional amendment to protect our democracy by reversing
the effects of the Supreme Court decision that betrayed American citizens by allowing
corporations to spend as much as they want to buy elections? Will you act to prohibit
corporate spending, influenced by their foreign customers and board members, from
placing business and foreign interests ahead of citizens’ interests?
Q. Do you think it is the American way to let super PACs with unlimited contributions
buy our elections with contributions from a few individuals, corporations and foreigners
buy our elections with more money from about 10 people than everyone in this room
earns? If not, will you sponsor legislation to eliminate super PACs and stop supporting
this heinous betrayal of the average American that glorifies the influence of the super-
rich and give our democracy back to our citizens?
Q. Do you believe that demand is as important to our economy as supply? If so, are you
going to stop wasting money on supply side tax breaks and stimulus for corporations and
banks and doesn’t generate one single job. No amount of tax relief and incentives
generates one single job until some man-on-the-street buys what that company has to sell.
When that happens companies won’t be able to get out of the way of having to expand
and hire more workers. Will you sponsor an immediate stimulus package at least as large
as what we gave to the banks that puts people to work, rebuilds our infrastructure, makes
us energy competitive and independent and pulls us out of this economic doldrums
caused by those running the supply side? It is government’s job to pay down debt in
good times and stimulate the economy in bad times. Well, this is bad times and it’s your
job to do the right thing. Will you?
Q. Do you believe that demand is as important to our economy as supply? If so, then
will you sponsor programs to put at least as much stimulus into the demand side, the
creating jobs side, as the supply side and the banks? Build it and they will buy is a
bankrupt philosophy that has never worked. When we consumers and workers have jobs
and money to buy things, companies won’t be able to get out of the way of hiring more
people to do the work to produce the goods and services we will buy. Will you sponsor
an immediate, trillion dollar, stimulus package to put workers to work who can actually
buy something and create demand that builds our economy?
Q. Our future depends on having a highly educated work force. The GI bill that
educated WWII veterans was probably the best money our government ever spent,
propelled us into quantum leaps in science and technology, and has been repaid a
hundred times over. Would you sponsor a bill that guaranteed an education to every
qualified American, especially in areas such as science, math, engineering and computer
science, so that we can utilize our citizens’ full potential to continue to drive our
economy and remain competitive in the future?
Q. Do you believe it is the American way to have a tax code where billionaires pay a
lower overall tax rate then their secretaries or cleaning women? If not well you support
tax reform legislation that insures that the higher one’s income, from whatever source,
the higher his/her effective tax rate on total income will be? Shouldn’t billionaires pay a
higher overall tax rate than millionaires, who should pay a higher effective tax rate than
the rest of us?
Q. Do you believe that America should continue its dependency on foreign oil and keep
sending American dollars to fund unreliable, unstable political areas of the world? If
not, are you willing to support a trillion dollar alternative energy program development
such that we will be independent of foreign oil within ten years? This is the race to the
moon of our times.
Q. Do you believe that the United States should be virtually the only developed nation
that does not support reductions in emissions of greenhouse gasses? Do you think it is
right that we keep polluting our own atmosphere to the detriment of us, our children and
our grandchildren and the world’s climate? If not, will you support legislation declaring
war on fossil fuel usage in our country and support developing renewable energy sources
for America and technology to make us an economic leader in the energy arena?
Q. We regulate things that are known dangers to the people. Our military reports to
civilian authority. We don’t let people drive cars however they want and let “the road”
decide the outcome, or fly planes and let “the air” decide the outcome. The biggest
danger to any society today is the power of money. Do you believe that it should be the
only dangerous thing to go unregulated and let “the market decide” the economic
outcome for all of us, by permitting a few, unregulated, sociopathic bankers and CEOs
take us all down, privatizing all of their billions in bonuses and socializing the carnage
they leave behind for us to pay for and clean up? If not, are you at least supporting HR
1489, the Return to Prudent Banking Act, as just the very firsts step of many to get us
started toward reining in those loose financial loose cannons, and passing regulations on
things like derivatives so that they cannot hurt us any more with their risky, self-centered,
anti-American, upper class warfare to benefit the 1 percent and humiliate the rest of us?
Do you represent the 1 percent or the other 300 million of us?
Q. Do you believe that anyone who did not found a company that created wealth and
jobs, but who just sits in the chair as a successor CEO or caretaker CEO is worth 100 or
200 or 1,000 times more than other Americans who work for a living? If not, will you
sponsor legislation, including tax reform, to prohibit such ungodly multiples, including
golden parachutes that kick in whether or not the company fails? We need those
companies to survive to benefit all of us. Will you help prevent CEOs from “stealing us
blind” as Lee Iacocca says, with their inflated compensation that encourages sociopathic,