economic inequality

Detroit 'Rebuild America' March, King's Dream And The Tea-Party Hijack

Isaiah J. Poole — Thu, 26 Aug 2010 13:04:41 -0400

A number of cities around the country are turning off their street lights, unpaving their roads and rolling back what used to be sacrosanct public services because they can no longer afford to provide them. The New York Times reported recently that students at a Hawaii public school are being asked to bring their own toilet paper to school and that public school students in other states are also being asked to bring their own paper towels and cleaning supplies.

Then, on Wednesday, USA Today reported this:

Budget cuts are forcing police around the country to stop responding to fraud, burglary and theft calls as officers focus limited resources on violent crime.

Cutbacks in such places as Oakland, Tulsa and Norton, Mass. have forced police to tell residents to file their own reports — online or in writing — for break-ins and other lesser crimes.

"If you come home to find your house burglarized and you call, we're not coming," said Oakland Police spokeswoman Holly Joshi. The city laid off 80 officers from its force of 687 last month and the department can't respond to burglary, vandalism, and identity theft. "It's amazing. It's a big change for us."

Conservatism's trashing of the economy and of the government resources We the People need for our well-being has brought us to a new level of homeland insecurity. Working people see no job security on the horizon, thanks to economic policies written by corporate lobbyists that sent jobs overseas. Their retirement security has been eviscerated by an orgy of Wall Street greed. And now some of them are losing their personal security as the conservative attack on all levels of government continues apace; they are being told that if someone breaks into their home and steals what little they have, don't bother calling the police.

WAYS TO HONOR KING'S LEGACY ON AUGUST 28

March in Detroit

The "Rebuild America" march will be led by the Rainbow PUSH Coalition and the United Auto Workers, commemorating a new campaign calling on our leaders to unleash the skills and talent of the American workforce. Featured speakers include Rep. John Conyers, Rev. Jesse Jackson, UAW President Bob King and SEIU President Mary Kay Henry.

The Dream In D.C.

The "Celebrate the Dream" event on the National Mall near the Museum of Natural History features a sculpture by artist Michael Murphy paired with audio of Dr. King's greatest speeches, providing a powerful, positive counterpoint to the words of Glenn Beck.

Watch This Video, Then Act

Sign this petition by Brave New Films to let Glenn Beck and the conservative ideologues who back him that you do not support their attempts to hijeck Dr. King's vision. Campaign for America's Future is among several progressive organizations supporting this petition drive.

Of all the reasons for thousands upon thousands of people to be marching the streets of a major American city, the Third -Worldization of America by conservative ideology has to be at the top of the list. Fortunately, there is a place where that can happen on Saturday: Detroit.

The Rev. Jesse Jackson has spent the past few months focusing attention on the real-world consequences of Tea Party anti-government rhetoric, and not just on ordinary citizens who now walk darkened streets, can no longer take public transportation to their jobs or have to pay higher fares to do so or are finding cash-starved public services they depend on stretched beyond their limits, with potentially hazardous results. When the budget knife slashes public workforces, the workers who lose are usually either middle-class people or people a rung or two above the poverty line. Particularly in urban areas, a disproportionate number are people of color.

These are some of the issues driving the "Rebuild America" March in Detroit on August 28. In a joint statement with United Auto Workers President Bob King, Jackson laid out the goal of the march:

We need a plan for recovery. We need economic reconstruction. We need urban policy geared toward reindustrialization. We need fair trade policies that will even the playing field for American companies and workers and, as more and more people face greater economic need, it’s time to revive the War on Poverty.

In concrete terms, we need such initiatives as the Local Jobs for America Act, which is being held up by conservatives in both parties in Congress, so that states don't have to continue to cutting public services and laying off employees, thus worsening the impact of the recession. We need the "Make It In America" initiative that House Democrats are currently advancing, only bolder and more expansive than what is currently on the table to jumpstart manufacturing. We need immediate action on a currently stalled transportation reauthorization bill to get dollars flowing into highway construction and public transportation systems. We need to build on the Wall Street regulatory and health care reforms that Congress has passed this year. And we need to allow tax rates for the wealthy to revert back to where they were in 2000, so that the funds will be available to invest in an economy that will allow everyone to prosper, not just a lucky few.

The Detroit march ties itself to a 1963 visit Dr. Martin Luther King Jr. made to Detroit in advance of his historic "I Have a Dream" speech at the Lincoln Memorial in Washington on August 28 of that year. His Detroit speech previewed the themes and now-familiar phrases that would sear the nation's conscience later in Washington. And while the subject of King's speech that day was the sin of racism, it still rings true in the context of today's economic inequality and in the face of powers resistant to every effort to address that inequality:

And so we must say, now is the time to make real the promises of democracy. Now is the time to transform this pending national elegy into a creative psalm of brotherhood. Now is the time to lift our nation. Now is the time to lift our nation from the quicksands of racial injustice to the solid rock of racial justice. Now is the time to get rid of segregation and discrimination. Now is the time.

And so this social revolution taking place can be summarized in three little words. They are not big words. One does not need an extensive vocabulary to understand them. They are the words "all," "here," and "now." We want all of our rights, we want them here, and we want them now.

Meanwhile, Fox News provocateur Glenn Beck and his Tea Party followers are hosting their own event in Washington Saturday at the site of and on the anniversary of Dr. Martin Luther King's 1963 "I Have A Dream" speech. But don't expect the actual words of King to be evoked at that speech in the spirit in which King intended. In particular, don't expect Beck to talk about what happened to the "promissory note" that King said then was past due:

In a sense we have come to our nation's capital to cash a check. When the architects of our republic wrote the magnificent words of the Constitution and the declaration of Independence, they were signing a promissory note to which every American was to fall heir. This note was a promise that all men would be guaranteed the inalienable rights of life, liberty, and the pursuit of happiness.

It is obvious today that America has defaulted on this promissory note insofar as her citizens of color are concerned. Instead of honoring this sacred obligation, America has given the Negro people a bad check which has come back marked "insufficient funds." But we refuse to believe that the bank of justice is bankrupt. We refuse to believe that there are insufficient funds in the great vaults of opportunity of this nation. So we have come to cash this check -- a check that will give us upon demand the riches of freedom and the security of justice. We have also come to this hallowed spot to remind America of the fierce urgency of now. This is no time to engage in the luxury of cooling off or to take the tranquilizing drug of gradualism. Now is the time to rise from the dark and desolate valley of segregation to the sunlit path of racial justice. Now is the time to open the doors of opportunity to all of God's children. Now is the time to lift our nation from the quicksands of racial injustice to the solid rock of brotherhood.

One Tea Party activist told visitors to the Beck rally to avoid the Washington Metro Green or Orange lines. In doing so, they were in effect telling people to not risk exposing themselves to the effects of a still unpaid promissory note. They apparently don't want to encounter the consequences of telling a segment of the American population—not just African-American citizens but citizens of every color who do not have access to the wealth and privilege needed to survive in an on-your-own-we're-not-our-brethren's-keeper America—that we have money for neoconservative military adventures, we have money to subsidize the nation's multinational corporations, we have money to lavish tax cuts on the wealthiest Americans, but we have insufficient funds to provide our people with a good education, help them get productive jobs, ensure they can have good homes in safe neighborhoods and protect them and their property.

And yet, along the Green Line there are faint glimpses of the America that is possible: entrepreneurs setting up new businesses on Martin Luther King Jr. Avenue in Anacostia, community groups preserving affordable housing in the rapidly gentrifying Columbia Heights, a dizzying blend of cultures invigorating the night life of U Street NW. This is possible because in the District progressive government policies work hand in hand with the private sector to help foster an atmosphere of shared prosperity and shared opportunity. It is an endeavor that has been made more difficult by the general collapse of the economy. But still, one reason D.C. is as safe and prosperous as it is in the face of the Great Recession is that it has rejected the current core precepts of conservatism, that the poor should be left to their own devices and the wealthy should be relieved of any government-imposed obligation to contribute to the public good or act in good faith.

Meanwhile, in Detroit this weekend, thousands will march to demand that America not accept a new normal of high unemployment, decimated cities, despoiled rural areas and a yawning gap between the rich and the other 98 percent of America. You can be sure to find the spirit of Dr. Martin Luther King there on Saturday, as well as the alternative to the conservative vision of an increasingly insecure America.

Economic Inequality: The Wall Street Journal is Just Wrong

Bruce Judson — Wed, 23 Sep 2009 23:52:18 -0400

For anyone with even a passing familiarity with issues associated with economic inequality, The Wall Street Journal front page story last week was shocking. Its use of bad data was a misuse of this important forum. In effect, the article says that economic inequality was never really a problem, and even if it is we no longer have to worry about it. These conclusions are just plain wrong.

The Journal article effectively leads the reader to two conclusions: First, any issues that may exist around economic inequality are disappearing, because of the likely decline in the outsize incomes of the top 1% of Americans, those with a minimum income of $400,000. Second, the problem was never really that bad in the first place. Using Census Bureau data, which has been widely discredited for this type of analysis, the article asserts that growth at the top of our society was only slightly higher than for the nation as a whole, saying

The gains at the top didn't necessarily come at the expense of others, because the economy expanded greatly after 1980, letting incomes grow across the spectrum. But those at the top end rose more rapidly. In 1980, for instance, the income of the top 5% of households was 2.86 times median incomes; by 2007, it was 3.52 times the median. In other words, the gap widened by 23%, Census data show.

Unfortunately, few conclusions could be further off the mark.

In some eras, when America did well everyone did well. However, this has been far from true for the past thirty years. Moreover, as a result of the Great Recession we may have to worry more about economic inequality rather than less.

First, let’s start with what we know about economic inequality. Scholars have, with few exceptions, reached a consensus that Census Data is not appropriate for measuring high incomes. To ensure the privacy of individuals, the census assumes a maximum individual income of $999,000 or less. So, it does not capture the true income of oil traders or anyone else earning $100 million, $50 million or five million per year. Second, the Census data does not include capital gains, a central source of the wealth created in private equity and hedge funds. Finally, the Census is based on samples, and the small proportion of wealthy Americans, as compared to the total proportion, further limits the accuracy of its projections.

In response to these limitations, two economists, Professor Emanuel Saez at Berkeley and Professor Thomas Pickety at the Paris School of Economic developed a highly regarded technique for measuring the distribution of income, including capital gains, by using IRS data. So, the Saez-Pickety data goes back to 1913, when the modern income tax was introduced. Saez updates the data each year, and the analysis of the most recent data, for 2007, was released in early August of this year.

The validity of Census Data for measuring economic inequality was the subject of intense discussion several years ago, when Alan Reynolds. of the Cato Institute, wrote an article in The Wall Street Journal, titled The Top 1%... of What? in December, 2006 similarly asserting that economic inequality had been overstated. In response, Saez posted a detailed open letter on his Web site, explaining why Census Data was entirely inadequate for measuring income inequality and refuting Reynold's claims. In the open from Saez and Pickety, they state:

"The ... Census Bureau estimates are based on survey data which are not suitable to study high incomes... In contrast, tax return data provide a very accurate picture... Our key contribution was precisely to use those tax data to construct better inequality estimates."

"In sum, our work has shown the top 1% income share has increased dramatically in recent decades... [C]onservatives like Alan Reynolds ... prefer to dismiss the facts about growing income inequality rather than face the debate on income tax progressivity at a time of growing economic disparity."

Before joining the Obama Administration, an independent study by Larry Summers based on Congressional Budget Office data, similarly concluded that economic inequality had increased massively in past decades. In a June 2007 article in the Financial Times Summers wrote:

Indeed, in a recent paper on tax policy prepared for the Hamilton project, my collaborators and I concluded from Congressional Budget Office data that, since 1979, changes in income distribution had raised the pre-tax incomes of the top 1 per cent of the population by $664bn or $600,000 per family – an increase of 43 per cent.By definition what one group gains from changes in the distribution of income another group must lose. The lower 80 per cent of families are $664bn poorer than they would be with a static income distribution, which works out to $7,000 less in income per family or a 14 per cent loss.

To put this in some perspective, the total gain in median family incomes adjusted for inflation between 1979 and 2004 was only 14 per cent. If middle income families had shared fully in the economy’s income growth over the past generation their incomes would have risen twice as rapidly!

With few exceptions, scholars have concluded the Saez-Pickety data is correct. The basic conclusion of this data, that the nation suffers from extreme and growing income inequality is essentially irrefutable. Moreover, when the latest data was released a few weeks ago, Paul Krugman called the findings of growing income inequality "truly amazing" in a blog post titled Even More Guilded.

So, the Journal based it's claims on data that is, with very few exceptions, considered essentially worthless for measuring income inequality.

Now, where do we really stand: The data released in August showed that, by some measures, the nation was at its highest level of income inequality in its history.

In 2007, the percent of total income received by the top 10% of families was 49.74%, or effectively one-half of the nation’s total. This compares to 1980, when the top 10% received 34.63%, or about one-third of all income.

By looking at Census data, the Journal article finds that “the gap” in median income between the top 5% of households and all U.S. households “widened by 23%” since 1980. Such a finding may not be good, but it does not seem so extreme. This supports the unconscionable conclusion that "The gains at the top didn't necessarily come at the expense of others, because the economy expanded greatly after 1980, letting incomes grow across the spectrum." Of course, as already noted, the Census Data is completely unreliable for measuring these types of changes.

The Pickety-Saez data paints a very different picture. It shows that the average income in 2007 dollars (which adjusts for inflation) for the top 5% of households grew from $134,800 in 1980 to $220,100 in 2007; an increase of 63%. In contrast, over this 27 year period, the average real household income of the bottom 90% of families increased from $29,800 to $32,400; less than 9%.

So, real income among the top 5% grew at seven times the rate of income of the bottom 90% (63% as compared to less than 9%), an extraordinary difference of 600%. Second, these percentage increases reflect much higher absolute numbers. The average income growth of the top 5% in a single year between 1980 and 2007 was almost $3,200, which is more than the $2,600 average income growth of the bottom 90% for the entire 27 years. As others such as Joseph Stiglitz have noted, the vast majority of Americans have been waiting three decades for a decent raise.

It is also impossible to understand how The Journal could seriously assert that the income gains at the top occurred because of a widely shared growing pie, as opposed to one group taking a far larger piece of the growth.

Once again this is at odds with the Saez-Pickety data, whose conclusions are far more consistent with the real life experience of today’s struggling middle income households. The data released by Saez in August shows that between 1993 and 2007, the top 1% of Americans received 50% of the entire income gains in the nation. In the shorter period between 2002 and 2007, the top 1% received an even more concentrated 65% of the entire income gains in the nation. In fact, on September 9th, the day before the Wall Street Journal article ran, the Council on Budget Priorities and Policies, released a detailed analysis of this data, titled, Top 1 Percent of Americans Reaped Two-Thirds of Income Gains in Last Economic Expansion. This analysis, or its implications, was nowhere to be found in the Journal story.

In addition, I am forced to wonder about what interviews the reporters conducted before releasing the story. The central argument in the article, that the percentage of total income received by the top 1% will decline, gains enormous legitimacy by stating near the start of the piece that “Mr. Saez and other economists expect income going to the top 1% of taxpayers…will drop..by 2010.” I cannot speak for Professor Saez, and I don’t know whether he was interviewed for the Journal article, but any reading of his work suggests that the article provides a skewed representation of his views.

In a short paper accompanying the updated August data, Professor Saez concludes that “the most likely outcome is that income concentration will fall in 2008 and 2009.” But, he follows this conclusion by stating that in the absence of significant policy actions such declines will be temporary:

“Based on the US historical record, falls in income concentration due to recessions are temporary unless drastic policy changes, such as financial regulation or significantly more progressive taxation, are implemented and prevent income concentration from bouncing back. Such policy changes took place after the Great Depression during the New Deal and permanently reduced income concentration till the 1970s. In contrast, recent downturns, such as the 2001 recession, lead to only very temporary drops in income concentration.” (references to charts omitted).

My intense study of past history, which will soon be released in It Could Happen Here is in line with Professor Saez's conclusion. Once income concentration becomes a reinforcing cycle of the kind we are witnessing, it is never stopped by pure market forces. Only extensive government intervention, of the kind that will inevitably create high controversy, reverses this trend. Indeed, the policies of the New Deal, which led to the rapid decline of inequality, reflected bitter and hard fights. Time magazine reported in April 1936, that:

Certainly no President in recent times has so bitterly aroused the enmity of a whole class as Franklin Roosevelt has aroused the economically substantial element of the U. S. Regardless of party and regardless of region, today, with few exceptions, members of the so-called Upper Class frankly hate Franklin Roosevelt.

It's possible that the growth in income concentration may take a brief respite, but without substantial intervention the long-term trend toward ever greater concentration will march forward.

When the historians Will and Ariel Durant completed their massive multi-volume study of history, encompassing the broad sweep of time from ancient Greece to the modern United States, they subsequently wrote a short book of 102 pages titled The Lessons of History, in which they sought to identify the broad trends that are common to civilizations. The chapter economics and history is all of six pages, and the bulk of it addresses the inevitable concentration of income that occurs in societies over time. The Durant's bluntly conclude that such concentration ultimately leads to redistribution of some type, by "violent or peaceable" means.

We conclude that the concentration of wealth is natural and inevitable and is periodically alleviated by violent or peacable partial redistribution. In this view, all economic history is the slow heartbeat of the social organism, a vast systolic and diastole of concentrating wealth and compulsive recirculation.

The Journal article give us the false impression that, counter to all historical evidence, we no longer need to worry about economic inequality. It will take care of itself.

Finally, it is not even clear that the central point of the article is correct. Yes, the rich are suffering relative to the past. However, the middle class and underclass are suffering as well. Jobs continue to disappear and housing could still decline substantially. With each job loss or foreclosure, another family joins the ranks of the former middle class. Simon Johnston, in a New York Times blog post, The Two-Track Economy: Inequality Emerging From Today’s Recession, among others, has pointed out that the Great Recession may be creating an even less economically equal society:

The overall numbers on outcomes by groups can get complicated (here’s a partial guide), but the simple version is: The top 10 percent of people are going to do fine, those in the middle of the income distribution have been hard hit by overborrowing, and poorer people will continue to struggle with unstable jobs and low wages.

Can the richest people spend enough to power a recovery in overall G.D.P.? Perhaps, but is that really the kind of economy you want to live in?

The United States has, over the past two decades, started to take on characteristics more traditionally associated with Latin America: extreme income inequality, rising poverty levels and worsening health conditions for many. The elite live well and seem not to mind repeated cycles of economic-financial crisis. In fact, if you want to be cynical, you might start to think that the most powerful of the well-to-do actually don’t lose much from a banking sector run amok — providing the government can afford to provide repeated bailouts (paid for presumably through various impositions on people outside the uppermost elite strata).

All of this suggests that we have a lot to worry about. On its front page, The Wall Street Journal may say that it never happened, and even if it did it is fixing itself. Everything we know suggest that this reading of the past is wrong, and such a future --without determined government action -- is unlikely. The larger worry is that we will emerge from the Great Recession as a society sharply divided between a small privileged upper class, and an underclass that lacks basic economic security. What happens then?

Bruce Judson

Bruce Judson — Wed, 23 Sep 2009 16:10:16 -0400

Rush and Reparations

Isaiah J. Poole — Wed, 13 May 2009 12:06:13 -0400

Did Derivatives Drive the Meltdown?

Sam Pizzigati — Wed, 06 May 2009 21:05:54 -0400

A World Bank economist is suggesting we need to concentrate less on the complexities of high finance and more on the noxious simplicity of our deeply unequal income distribution.

Our high priests of high finance — the bankers and traders of Wall Street — take great pride in the complexity of their endeavors. Single-tranche collateralized debt obligations. Contingent conversion triggers. Credit default swaps. Incantations like these leave most of us bewildered. Not them. They understand. And they deserve, the argument goes, all the big bucks this understanding may bring.

At AIG, we learned Tuesday, this understanding brought $454 million in “performance” bonuses to the company’s power suits last year — on top of the $165 million in post-bailout bonuses that we already knew about.

AIG set aside still another $1 billion for “retention payments.” The company, we’re assured, had no choice. It could not afford to lose people who understand the “complexity” of AIG’s business.

The well-intentioned journalists and academics who’ve tried to explain just how this business drove the global economy over the cliff have not for the most part, unfortunately, been able to escape this complexity.

To understand what has gone so horribly wrong with our economy, these analysts inform us, we need to train our brains on the complexities of contemporary high finance — and how Wall Street so recklessly manipulated them.

The end result of all this concentration on complexity? Most Americans remain utterly bewildered about exactly what caused our current crisis and what we need to do to end it.

Enter Branko Milanovic. A lead economist at the World Bank, an expert on financial globalization, Milanovic can do complexity as well as anybody. But he chooses not to. In a just-published manifesto, he’s urging the rest of us to junk the concentration on complexity, too — and focus instead on one simple phenomenon we can all understand. That phenomenon: inequality.

We won’t find the real cause of our current economic meltdown, Milanovic argues, in “the arcane of how ‘derivatives’ work.” That real cause “lies in huge inequalities in income distribution.”

Yes, Milanovic readily acknowledges in the latest edition of the Yale Center for the Study of Globalization flagship economic review, financial manipulations have certainly done our body politic grievous harm. But explanations of our current predicament that focus on “feckless bankers, financial deregulation, crony capitalism, and the like” overlook our far more fundamental problem, our increasingly unequal distribution of income “across individuals and social classes.”

Milanovic has spent a good chunk of his professional career tracking this rising inequality. In the United States, he notes, our most affluent 1 percent have doubled their share of the national income since 1976 and, in the process, “eerily replicated the situation that existed just prior to the crash of 1929.”

What makes rising inequality so toxic to our economic health? In any society growing wildly unequal, Milanovic explains, the rich can only physically consume just so much of their new-found fortune. Life simply limits how many “Dom Pérignons and Armani suits one can drink or wear.”

That reality lives the rich sitting on “a huge pool of available financial capital,” hankering for profitable investment opportunities. They need help putting their excess cash to work. They ask their friends in high finance for it.

But these friends — investment bankers, hedge fund managers, and assorted other financial wizards — quickly become overwhelmed. In a top-heavy society, with wealth packed in precious few pockets, financial movers and shakers simply can’t find enough “safe and profitable investment opportunities” to handle the enormous quantities of cash at their disposal.

What do these financial wizards do? They’re certainly not going to walk away from all those astounding investment fees they can charge their wealthy clients. So they take their only other alternative. They steer the wealth of the wealthy into unsafe investments. They invent ever more exotic securities. They endlessly repackage high-interest loans to borrowers at high risk of default.

In the end, observes Milanovic, Wall Street’s kings of complexity would create a financial system that boiled down to “basically throwing money at anyone who would take it.”

But this recklessness could only get traction in a society where large numbers of people felt they had to borrow, at any terms lenders demand. In the United States, over recent years, large numbers of Americans felt just this way. Rising inequality left them little choice.

Real median wages in the United States, Milanovic details, have been “stagnant” for the past 25 years, “despite an almost doubling of GDP per capita.” The gains from America’s economic growth have gone overwhelmingly to the top. Between 1976 and 2006, he notes, the nation’s richest 5 percent pocketed nearly “one-half of all real income gains.”

To chase the American Dream, amid this inequality, average Americans had to borrow — and keep borrowing. Household debt in the United States quickly soared from “48 percent of GDP in the early 1980s to 100 percent of GDP before the crisis.”

That crisis came — the entire financial system collapsed — when great numbers of middle class Americans began defaulting on their debts, as they inevitably would in a society where income was furiously concentrating not at the middle of the economic ladder but at the top.

A simple story to understand. And the key to recovery? That’s equally simple. Rising inequality created the crisis. More equality, Branko Milanovic's work suggests, will end it.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality.

The 'Risky' Business in America's Executive Suites

Sam Pizzigati — Sun, 03 May 2009 12:23:08 -0400

Who takes more of a risk when they wake up in the morning and go in to work? Laborers at construction sites? Or CEOs? Statistically, the answer could hardly be any plainer. Just over 1,200 Americans, notes a new report that surfaced last week, died on the job in construction in 2007. The risk of getting killed or injured in an executive suite, by contrast, remains infinitesimally tiny.

Yet CEOs don’t just make much more than laborers — or miners or truck drivers or emergency room nurses or any other Americans who regularly face real workplace danger. CEOs actually cite the “risk” they face as a justification for their ample rewards.

Top execs, throughout Corporate America, love to think of themselves as risk takers. Ordinary mortals crave the security that comes with regular paychecks. Not executives. The regular salary checks they get make up only a minor share of their total compensation. Most executive pay comes, as executives and their cheerleaders like to note, “at risk” — in the form of stock option awards and other incentives.

And that “risk” keeps rising. Back in 1992, notes a new study by Stephen O’Byrne, a pay analyst with Shareholder Value Advisors Inc., the five top execs at major U.S. companies had 48 percent of their pay “at risk.” Last year, these execs faced “risk” on nearly two-thirds — 65 percent — of their pay.

For tolerating this increasing “risk,” observes O’Byrne, top executives have been “richly rewarded.” These rewards, to be sure, do seem to be shrinking of late. Last week, the Associated Press and USA Today both released new surveys that showed 2008 CEO pay down 7 percent from 2007.

Even so, cautions USA Today, “don't go looking for CEOs in bread lines just yet.” The reason: Corporate boards have been busy “creating ripe conditions for huge potential paydays.” Boardroom decision makers, agrees AP, are “setting CEOs up for a potential windfall.”

“Potential”? Guaranteed might be the more appropriate word. Corporate boards and their CEOs have co-created an approach to “risk” that makes top-dollar executive earnings a virtual lock no matter how well or poorly companies actually “perform” in the marketplace.

According to boardroom theory, of course, stock options and other executive incentives aren’t supposed to guarantee executives anything. Options, the corporate line goes, only reward executives who deliver for shareholders.

And this boardroom theory, at first glance, certainly appears reasonable enough. An executive gets an option to buy company stock a few years down the road at the stock’s current price. If the stock’s share price rises, the executive can down the road exercise that option, buy the stock at the old low price, and then immediately turn around and sell it at the new — and higher — market price.

Executive and shareholder, under this scenario, both win. The executive has “performed” and been “rewarded.”

But this theory only truly aligns “reward” with “performance” — notes Stephen O’Byrne of Shareholder Value Advisors — if companies limit “their incentive compensation to an annual stock grant of a fixed number of shares.”

Here’s why. Imagine yourself a newly hired CEO granted an option to buy a million company shares at $50 each. A year goes by. Your company’s share price has dropped to $25. Your options have gone “underwater.” They hold no value. But you’re not fretting — because your board of directors has just granted you a new option to buy 2 million shares at the now current $25 price.

Another year passes. Your share price has bumped up to $30. Your first batch of options remains worthless. But your second batch — the options granted at $25 — can now deliver you a $4 million personal profit. Not bad for an executive whose company share price has sunk from $50 to $30.

How often do corporate boards engage in this sort of behavior? Boards regularly bestow on their execs annual option awards, Stephen O’Byrne’s new study shows, and rarely keep the options to a fixed number.

O'Byrne examined executive pay records for 2,618 companies from 1992 through 2008. In all, he parsed out 95,476 “executive-years” of compensation data — and found 55,002 cases where companies had granted executives option grants in three consecutive years. Corporate boards kept these grants to a “fixed number of shares” less than 5 percent of the time.

And this option gamesmanship is roaring along in 2009. One beneficiary: James Wells, the CEO of SunTrust Banks. Back in February 2008, SunTrust granted Wells an option to buy 250,000 shares at $65. By February 2009, SunTrust shares had swooned to about $9 a share. The SunTrust board’s reaction? Directors gave Wells an option to buy another 1.1 million shares at the $9.

That decision, not surprisingly, caused a little ruckus among shareholders. Wells agreed to accept “only” half the 1.1 million-share option grant. SunTrust shares are currently selling at about $15. The bottom line for Wells? He’s now sitting on a personal $3 million option profit for managing SunTrust through a period of time when the bank's shares lost 77 percent of their value.

Or take American Express CEO Kenneth Chenault. In January 2009, American Express granted Chenault 1.2 million options at just under $17 a share. The company's shares, at one point in 2008, had been trading at over $49.

Since January, American Express shares have nudged up to $25. The gain for Chenault’s personal portfolio: $10.2 million. Chenault, notes USA Today, will continue to gain $1.2 million for every $1 that American Express shares rise. If the shares get back to last year’s $49, he’ll clear $39 million on the stock options American Express dropped on him in January.

Most of America’s CEOs love to play golf. Corporate boards, for their part, love to hand out “mulligans,” executive suite do-overs. A company’s share price down? If you’re the CEO, no need to worry. Your thoughtful board will give you a new batch of options, all exercisable at the current low share price.

And if share prices sink even lower next year, your board will give you still another batch of option incentives, all exercisable at an even lower price. Your board, in effect, will keep lowering the performance bar until it finds a height you can jump over — and win the windfall that is your due.

So where’s the “risk” in all this? Corporate boards and corporate execs do, in fact, have one reason to worry. The rest of us, after all, may one day wise up to the “risk” racket they've all been running.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality.

Marjorie Schaafsma

Marjorie Schaafsma — Tue, 13 Jan 2009 11:06:49 -0500

Maud Schaafsma is a sociolgist and lawyer interested in family and child policies that will address problems of widening economic ineqaulity. She is a visiting scholar in Sociology at Northwestern University. She has previously been a post-doc fellow at the University of Chicago Sloan Center on Working Families and a legislative fellow on the staff of the Democratic Policy Committee in the US Senate.

The New Surge in CEO Self-Sacrifice

Sam Pizzigati — Mon, 12 Jan 2009 10:27:03 -0500

Beware of CEOs who feel your pain. These days, that's not easy. They seem to be just about everywhere. With the economy in free-fall, CEOs all across the United States have begun waging a veritable empathy offensive. From Wall Street to America’s ultimate Main Street — in Peoria, Illinois — top execs are announcing what appear to be painfully deep pay cuts in their own personal compensation.

That’s the least we CEOs can do, the message goes, in these most difficult of economic times. You average folks may be hurting, but we’re hurting, too.

In Peoria, the CEO of the world’s biggest construction equipment company will this year see his total pay drop by up to 50 percent. The company, Caterpillar Inc., announced this executive pay slash in December, along with plans to trim employee wages by up to 15 percent, lay off workers, and subject plants to temporary shutdowns.

“We understand these decisions will disrupt the lives of many of our employees and their families,” Caterpillar CEO Jim Owens noted apologetically, “and we regret the need to take these steps.”

At Citigroup, the flailing global banking giant, top executives are regretting their plans to lay off 52,000 workers so much that they're denying themselves all the 2008 bonus cash they’re entitled, by contract, to collect.

“The most senior leaders,” Citi CEO Vikram Pandit nobly announced in a new year’s memo, “should be affected the most.”

Last week, Bank of America CEO Ken Lewis joined the ranks of CEO self-sacrificers. He’ll be asking Bank of America’s board of directors not to award any bonuses to the bank’s top executive team.

“It is only fair,” proclaimed Lewis, “that our most senior executives, who have been rewarded in past years when our company and stock price performed, should now share in the pain as performance has lagged.”

Overall, notes the corporate consulting firm Watson Wyatt, about half of 264 recently surveyed major U.S. companies say they’ll be cutting executive compensation in 2009. Another corporate consulting firm, Equilar, has found that 26 major companies actually filed papers locking in CEO salary cuts in 2008’s final weeks.

So have we all become just one big economic family, with everyone sharing the sacrifices that hard times demand? Not exactly. The paycheck hits that CEOs have been so proudly announcing turn out, upon closer inspection, to be a lot more pinprick than pain.

Take, for instance, the 20 percent “salary cut” that FedEx CEO Fred Smith is now swallowing. Or the 25 percent salary dip for Motorola co-CEOs Greg Brown and Sanjay Jha. Or the 33 percent ax to the salary of Western Digital chief exec John Coyne.

These all seem serious sacrifices. But salary cash only makes up a minor part of CEO pay packages. Top executives take in much more in stock and other incentive awards than they do from straight salary.

Essentially, notes Equilar research manager Alexander Cwirko-Godycki, CEOs who announce “salary cuts” are merely “cutting a portion of the smallest part of the pay package” that comes their way.

And all those bonuses that the top execs in high-finance are giving up? Maybe not such a mammoth sacrifice either. Consider the now bonus-less Citigroup CEO Vikram Pandit.

Citi’s share price last year plunged from just under $30 to just over $3. The stock is currently trading under $8. Last January, Citi rewarded CEO Pandit with a grant of 1 million Citi shares. If taxpayer bailout billions help the Citi share price rise just another $5 in 2009, Pandit’s personal portfolio — from that share grant last year alone — will gain $5 million.

Situations like Pandit’s abound. The Conference Board, a business research group, last month revealed that CEOs at the largest 10 percent of U.S. corporations are holding stocks and stock options in their companies worth “about 100 times” the value of their annual salary.

In other words, even modest increases in company share prices — and experts expect modest increases as the stock market begins to recover from last year’s record plunge — can translate into huge windfalls for company CEOs.

Some companies are already turbocharging these windfalls. Mike Ullman, the CEO of the J.C. Penney retail chain, last month received a new pay deal that guarantees him $25 million in cash if the Penney share price rises from its depressed $20 December level to $32.75 over the next three years.

The Peoria-based Caterpillar, at first glance, doesn’t seem to be playing by the same CEO pay cut scam playbook. Caterpillar CEO Jim Owens is facing a 50 percent cut in his total pay, not just salary and bonus. But shed no sympathy for Owens. He's coming off a 15 percent pay hike in 2007 that brought his total take-home to over $17.1 million.

Actually, we need to go considerably further back than 2007 to understand the colossal emptiness of Caterpillar’s current share-the-pain rhetoric. In the 1990s, Caterpillar helped lead Corporate America’s assault on the good union jobs that created modern America’s middle class.

Caterpillar prepped for that assault, in the 1980s, by expanding operations overseas to gradually reduce the unionized share of its workforce. Then, in 1991, Caterpillar execs provoked a strike by demanding the right to hire new workers at half the going rate.

In April 1992, five months into the strike, the union’s walkout ended — after Caterpillar threatened to hire permanent replacements for all the strikers. The union would strike again two years later, but no contract would be signed until 1998. By that time, Caterpillar annual profits had soared nearly four-fold and the company’s share price had tripled.

Caterpillar's CEO at the time, Donald Fites, did quite well, too. Over the course of Caterpillar's five most bitter years of 1990s labor strife, he collected $10 million. Workers, meanwhile, ended up with a contract that allowed Caterpillar to replace retirees with new hires paid 70 percent of the old wage.

Fites himself retired in 1999, but he re-emerged in the news this past November — just a month before Caterpillar’s current CEO announced his personal pay cut — as the latest inductee into the Association of Equipment Manufacturers hall of fame. Fites, noted one tribute at the hall of fame induction, guided Caterpillar “through some very difficult times.”

Those difficult times left Fites with a handsome personal fortune. His CEO successors, in our current “difficult times,” see no reason to settle for anything less.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality.

Detroit's 'Underpaid' Top Auto Execs

Sam Pizzigati — Mon, 01 Dec 2008 11:07:19 -0500

All eyes this week will be on the return of the auto industry’s Big Three to Capitol Hill. No one knows for sure what will happen with the industry’s bailout request. But one thing seems certain: The Big Three’s CEOs couldn’t possibly give another performance as dreadfully disastrous as their appearance before Congress last month.

The auto chiefs started that fiasco by flying down to Washington on private jets. Then, in their testimony, they came across as arrogantly greedy when asked if, in return for a bailout, they would consider dropping their salaries to $1.

“I think I’m OK where I am,” pronounced Ford CEO Alan Mulally, who took home $21.67 million last year.

Detroit’s Big Three all, of course, maintain small armies of PR consultants, and these PR types have no doubt been advising their chief executive clients that insisting on CEO pay business-as-usual may not be the best way to win friends and influence people. So how could Detroit’s top execs have behaved, in public, so cluelessly?

The simple answer: Detroit’s top executives simply don’t understand the fuss about their compensation. Deep in their hearts, they consider themselves underpaid.

Ford's Mulally and his automaker CEO peers actually do have some reason to feel that way. Other executives at U.S. enterprises just as troubled as theirs make far more money than they do. Last year, for instance, Merrill Lynch CEO John Thain pocketed $83.1 million, and the melting Merrill certainly had no better of a year than GM or Ford.

In 2007 overall, CEOs at America's 10 top financial services firms collected a combined $320 million, in a year that the companies they led “reported mortgage-related losses that totaled $55 billion.”

On the other hand, by any rational yardstick, U.S. automaker top execs have absolutely no reason whatsoever to feel put upon at pay time. They take home far more in rewards than auto executives outside the United States who compete in the same global marketplace.

Just how much more first became vividly evident ten years ago when Chrysler merged into Daimler-Benz, the world-class German car company.

Daimler-Benz, at the time, outpaced Chrysler on every standard corporate performance measure from revenue to profit. But executives at Chrysler, remarkably, were taking home considerably bigger paychecks.

In 1997, Daimler’s top gun, Juergen Schrempp, earned an estimated $2.5 million. Chrysler’s Robert Eaton that same year took home $16 million, over six times more. Chrysler’s top five execs, together, collected $50 million in 1997 compensation. Daimler’s top ten execs pulled in only $11 million.

Pay differences between American and Japanese auto executives run even wider.

In the fiscal year that ended in March 2007, Toyota’s top 32 executives — a group that included CEO Katsuaki Watanabe — together pulled in $7.8 million in bonuses on top of salaries of $12.1 million. For the comparable period, one single GM exec, CEO Rick Wagoner, raked in $10.2 million.

Ironically, Ford’s current CEO, Alan Mulally, came into the auto industry from Boeing, a company with a relatively egalitarian — by American standards — pay tradition. In Boeing’s golden years, observes author David Kusnet, whose new book explores the aircraft giant’s history, a Boeing CEO would never have considered flying into Washington in a luxurious private jet.

“Even though Boeing makes jets,” Kusnet noted last month after the Big Three’s initial bailout request, “flying around in corporate ones would have been as alien to them as wearing Gucci loafers.”

Back in 1969, Kusnet relates, Boeing CEO T. A. Wilson took a regular commercial flight to Washington to testify before a congressional committee.

“Instead of a limousine,” he adds, “Wilson was met at the airport by Geoff Stamper, the son of Boeing's second-in-command, Mal Stamper. Geoff Stamper was a student at American University, and he drove Wilson into town in a rusted jalopy.”

America’s automakers, lawmakers are now declaring, are going to have to transform their industry if they want to get their hands on taxpayer dollars. But America needs a transformation that goes far beyond how the auto industry makes cars. We need a transformation of our entire CEO pay culture.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality.

Moguls Steal Home While Companies Strike Out

Bill Moyers — Fri, 19 Sep 2008 14:28:27 -0400

From our offices in Manhattan, we look out on the tall, gleaming skyscrapers that are cathedrals of wealth and power -- the Olympus ruled by the gods of finance, the temples of the mighty, the holy of holies, whose priests guard the sacred texts of salvation -- the ones containing the secrets of subprime lending and derivatives as mysterious and elusive as the Grail itself.

This last couple of weeks, ordinary mortals below could almost hear the ripcords of golden parachutes being pulled as the divinities on high prepared for soft, safe landings -- all this while tossing their workers like sacrificial lambs into the purgatory of unemployment.

During the last five years of his tenure as CEO of now-bankrupt Lehman Brothers, Richard Fuld’s total take was $354 million. John Thain, the current chairman of Merrill Lynch, taken over this week by Bank of America, has been on the job for just nine months. He pocketed a $15 million signing bonus. His predecessor, Stan O’Neal, retired with a package valued at $161 million, after the company reported an eight billion dollar loss in a single quarter. And remember Bear Stearns Chairman James Cayne? After the company collapsed earlier this year and was up for sale at bargain basement prices, he sold his for more than $60 million.

But let’s change the metaphor for a moment and go to our sports desk, because if religion is no longer the soul of capitalism, as Max Weber once taught us it was, we have to venture somewhere else to try to understand the continuing follies of the new Gilded Age. And so we travel just a few miles north of Wall Street to the House that Ruth Built. Yankee Stadium, as fabled a place to Americans as Ilium was to the ancient Greeks, is about to be demolished and replaced next year by a brand new ballpark.

In 1930, the year after the market crashed, as the Great Depression began, Babe Ruth was taking home $80,000 a year, more than the President of the United States, Herbert Hoover. "Why not?" Ruth asked. "I had a better year than he did."

Yankee star Alex Rodriguez had a better year than both of them. This season, A-Rod is making $28 million, just part of an annual Yankee payroll of $209 million, the richest in baseball. Their owner, George Steinbrenner, is among the Forbes 400, one of the country’s richest tycoons.

But when it came to paying for the new, $1.3 billion pleasure dome, the millionaires on the field and King Midas in his skybox came up with some razzle-dazzle plays to finance their new wealth machine -- tax-free bonds, requiring ordinary citizens to subsidize the construction, and hundreds of millions more for new parking garages, a train station and parks that supposedly will replace the ones seized by the city to make room for the new stadium..

There will be 5,000 fewer seats in the stands. And while the Yankees reportedly promise that half of what’s left will cost $45 or less, those seats that used to cost $250, right behind the dugout, will now cost you $850. And if you want to be near home plate, you’ll have to cough up $2500 -- per game.

Meanwhile there will be more luxury suites and party rooms where fat cats can gather, safely removed from the sweaty masses. Corporations and wealthy individuals will be able to rent the luxury suites for anywhere from $600,000-$850,000 a year – tax deductible.

Why aren’t the fans and taxpayers giving the Yankees a Bronx cheer? They did, but city officials rolled over them while making sure local politicians stay in the lineup. The pols are getting their own luxury suite at the new stadium for free -- and first shot at buying the best available seats.

The new colossus will cast its majestic shadow across the South Bronx, one of the nation’s poorest neighborhoods. The residents will watch from the outside as suburban drivers avail themselves of 9,000 new or re furbished parking spaces. Never mind all the exhaust, even though in this part of New York City, respiratory disease is already so high they call it "Asthma Alley."

Not that the well to do in the infield seats will have to hear the wheezing. They’ll have exclusive access to a private club, a private entrance and a private elevator, totems of this Gilded Age. Let the games begin.

Written with Michael Winship.

Bill Moyers is managing editor and Michael Winship is senior writer of the weekly public affairs program Bill Moyers Journal, which airs Friday night on PBS. Check local air times or comment at The Moyers Blog at pbs.org/moyers.