In the News

Bigget News of the Last Half-Century

The Yard (Fall/Winter 2007, not available online)

"Many social scientists believe this sudden rebirth of economic inequality is the biggest news of the last half-century," Robert Putnam notes in a recent Harvard faculty roundtable discussion. (It was published in the Fall/Winter issue of The Yard, which is not available online.)

"That fact has not been fully understood," he continues, "... because too often in our public discourse in America class is taken as code for talking about race. In fact, class isn't race.... The numbers on racial segregation are actually moving in the right direction, but on class segregation, the numbers are moving in the wrong direction. Interracial marriages are increasing, but inter-class marriages are decreasing&

"Work we're doing now shows that, among white high school seniors, there's a growing class gap.... White working-class kids go to church a lot less than working-class kids used to; they are less involved in community activities; and their parents spend less time with them, partly because, unlike middle-class kids, they are likely to have only one parent in the home. They have lower self-esteem than working-class kids used to, less social trust, and lower academic aspirations.

"...[T]he fundamental bargain, the core of America, has always been that we can live with big gaps between rich and poor as long as there is also equality of opportunity. If that is no longer true, then the core bargain is being violated."

Rising-Tide Economics

(Gene Sperling, Democracy, Fall 2007)

From now on, economic policy must point toward equality as well as growth, the author argues. "The strength of the economy should always be measured by how it is affecting the majority of the people."

Millionaires Who Don't Feel Rich

(Gary Rivlin, New York Times, August 5, 2007)

Fifty-one-year-old Hal Steger is a "self-described geek" with more than $2 million in the bank and a Pacific oceanfront home valued at $1.3 million. Steger is also one of a growing number of single-digit millionaires living in places like Silicon Valley where others have vastly more. In his world, says Steger, "a few million doesn't go as far as it used to."

Richest of the Rich, Proud of a New Gilded Age

(Louis Uchitelle, New York Times, July 15, 2007)

Corporate CEOs are overpaid and undertaxed, in the opinion of former American Airlines chief Robert Crandall. "The way our society equalizes incomes," Crandall says, "is through much higher taxes than we have today. There is no other way." Crandall says he waited until retirement to express these "radical views," lest they do damage to American Airlines or any of the companies that used to have him on their boards of directors.

Costco CEO James D. Sinegal is also critical of current CEO pay levels. "Obscene salaries," he says, send a message "that all brilliance emanates from the top; that the worker on the floor of the store or the factory is insignificant."

Crandall and Sinegal provide two voices of dissent in the otherwise unapologetic chorus of current and former CEOs interviewed by Louis Uchitelle for his remarkable look at the top .01 percent of American earners. While some corporate leaders feel they owe a debt to society, most say it should be up to them to determine the size and form of payment.

"I want to give away my money rather than have somebody take it away," says retired Citigroup CEO Sanford Weil.

Uchitelle's article reveals an interesting inconsistency. While most CEOs say it would be a mistake to interfere with the current pay-setting process, several insist that money is not a big motivator for them personally. "I worked hard because I loved what I was doing," says Weill.

Money, says Kenneth C. Griffin (who collected more than $1 billion last year as chairman of the Citadel Investment Group hedge fund), is merely "a byproduct of passionate endeavor."

Falling Behind Dad

(St. Louis Post-Dispatch, May 30, 2007)

"For generations, it has been an article of faith among American parents that their children would be better off economically than they were. That may be changing," according to this editorial in the St. Louis Post-Dispatch.

"At least one group of Americans, men in their 30s, now are earning less than their fathers did at the same age. In 1974, the U.S. median income for men in their 30s stood at $40,210 in today's inflation-adjusted dollars. In 2004, median pay in that age group stood at $35,010."

Mitt Would Give Away Prez Pay

(Associated Press, May 30, 2007)

During a Q-and-A session with employees of Liberty Mutual Insurance in Dover, NH, Mitt Romney was challenged to defend a political process in which most of those running for high office are millionaires. Romney, the richest of all the current presidential aspirants, said he "wouldn't disqualify somebody by virtue of their financial wealth or their financial poverty." As President, he added, he would probably donate his $400,000-a-year salary to charity.

Clinton Channels Robin Hood

(Jennifer Hunter, Chicago Sun-Times, May 30, 2007)

"For the past six years, it's been like going back to the era of the robber barons," said Hillary Clinton, speaking at the Manchester (NH) Institute of Technology. Clinton called for the elimination of President Bush's tax cuts for high-income families in order to help fund a "shared prosperity" agenda whose elements would include affordable health care, expanded unemployment insurance, and universal pre-kindergarten. Her program would make it easier for workers to join unions and college students to get loans. "Her plan is wide-ranging and so ambitious it will take the determination of a Robin Hood," Sun-Times columnist Jennifer Hunter concluded.

Spreading the Wealth

(Floyd Norris, New York Times, May 11, 2007)

At certain chic nightclubs in Manhattan, 'bottle hosts' are expected to "spot, and give the best tables to" people who look like they wouldn't mind buying a few $350 bottles of liquor or Champagne. With some Champagnes going for as much as $1,600, the average alcohol tab at one such club, Norris reports, is $3,500; some tables bring in $12,000 or more. Decadence? Well, it depends on your point of view. Norris prefers to regard it as "a classic example of private enterprise stepping in to fill a void left when the government no longer fills a role it once did. That role," he explains, "is income redistribution."

With government no longer in the game, the private sector has stepped fotward. "The wealthy are persuaded that they simply must be in hedge funds and private equity funds -- and should pay a fee to a bank for getting them into such funds," Norris writes. "That is on top of the high fees charged by the funds themselves. The investments may or may not do well, but those collecting the fees are sure to prosper... In that context, outrageously priced drinks at fancy clubs can be seen as simply taking money from those with too much of it, and passing it on to others."

Gilded Once More

(Paul Krugman, NY Times, 4/27/07). John D. Rockefeller's income for 1894 - $1.25 million - was almost 7,000 times the national average at the time, making him "a mere piker by modern standards," according to Krugman. To illustrate, he cites the contemporary example of hedge-fund manager James Simon. Last year, according to Institutional Investor's Alpha magazine, Simons "took home $1.7 billion, more than 38,000 times the average income. Two other hedge fund managers," Krugman adds, "also made more than $1 billion, and the top 25 combined made $14 billion." To bring some larger meaning to that sum, Krugman points out it would be more than sufficient "to provide health care for a year to eight million children -- the number of children in America who, unlike children in any other advanced country, don't have health insurance."

Middle-Class Squeeze Comes With Nuances

(David Leonhardt, NY Times 4/25/07). On orders from Sens. Charles Schumer (D-NY) and Jim Webb (D-VA), the Congressional Budget Office looks for evidence of growing economic volatility, and finds little. Leonhardt offers a few reasons. "Manufacturing, where furloughs and layoffs have always been the norm, accounts for a much smaller part of the work force than it used to," he writes, "while more stable industries, like health care, have grown. This is one reason that recessions, and the job cuts they bring, haven't happened as often as they once did." Leonhardt postulates that growing inequality - and the lack of substantial economic gains for middle- and low-income Americans - may have created the impression of sharply increased volatility. "When people are stretched -- when their pay has been stagnant, when they're worried about health insurance, when they don't know what the future holds -- a jolt to their income is harder to handle."

Scandals of Higher Education

(Andrew Delbanco, New York Review of Books, 3/29/07)
The richest kids going to the richest colleges - "It has always been so," says Delbanco. "But today's students are richer on average than their predecessors. Between the mid-1970s and mid-1990s, in a sample of eleven prestigious colleges, the percentage of students from families in the bottom quartile of national family income remained roughly steady- around 10 percent. During the same period the percentage of students from the top quartile rose sharply, from a little more than one third to fully half." As a practical matter, Delbanco concludes, 'need-blind' is a slogan that does not mean much except in relation to the needs of the applicant pool. If most applicants come from places like Greenwich or Grosse Point, a college can be "need-blind" without having to dispense much aid."

Billionaire Boom

(Arnaud de Borchgrave, Washington Times, 3/13/07) "In the mine-is-bigger-than-yours mega-yacht race," de Borchgrave reports, "Russian oil tycoon Roman Abramovich, 40, the world's 11th richest billionaire at $18.2 billion, is in the lead with a $330 million, 525-footer -- the 40 knot "Eclipse" -- that has a 40-member crew, 22 staterooms, a swimming pool, two helipads, a private submarine, and bulletproof glass. Annual running costs: $20 million, including $120,000 to refuel. He owns three other giant boats in the plus 300-foot class for his friends to tag along and recently gave a 370-footer to a friend."

Of Private Equity, Politics and Income Taxes

(Andrew Ross Sorkin, NY Times, 3/11/06) The private-equity industry recently formed a Washington lobbying group known as the Private Equity Council. One possible reason for that move: growing restlessness in Washington with the IRS rules that currently allow most of the fees generated by corporate buyouts to be taxed at the 15 percent capital-gains rate rather than the 35 percent ordinary-income rate. The very thought of a crackdown has "armies of private equity lawyers in a tizzy - a $700-an-hour tizzy," according to Andrew Ross Serkin, writing in the Sunday business section of the Times. Calling such fees capital gains is a "charade," Sorkin says. To justify it, fund managers "invest a nominal amount of their own money to demonstrate that they have put something at risk..."

Frankly Demagogic

(Dick Armey, Washington Times, 3/9/07) "Clearly the top-performing CEOs in corporate America earn every penny of their compensation and then some," writes the former House majority leader, now running an advocacy group called Freedom Work. "They create wealth, and by doing so create shareholder value, increased consumer welfare and higher standards of living." While some firms will "inevitably employ poor managers and occasionally a really bad actor," the market can usually be counted on to set things right. The "misguided congressional meddling" advocated by "my old friend" Barney Frank, he continues, will tend to "insulate bad actors from market forces and perpetuate poor performance." By the logic of Frank's proposal, Armey adds, the American people should be entitled to vote directly on congressional pay, too.

Social Inequality vs. Income Inequality

(Robert Siegel, Michele Norris, All Things Considered, NPR, 2/8/07) Recent public statements by Virginia Senator James Webb and President George Bush, among others, inspired NPR to ask a sampling of economists whether Americans should be worried about increased inequality. No, answered the University of Chicago's Gary Becker. Most of today's inequality, he explained, is the "good kind" which "gives more rewards to people with more education, more skills and a greater ability to create value in the world." Robert Solow, professor emeritus at MIT, came down on the other side of the question. The U.S., he said, has been seeing too much of "the bad kind of inequality, the kind that breeds resentment, even despair, among the less well-off..." Despair, he added, could be the worst result.

The Grand Bargainer

(Steven Pearlstein, Washington Post, 2/7/07) America needs a "trustworthy moderator" for the inequality debate, says Pearlstein. He nominates Fed chairman Ben Bernanke, citing a speech in which Bernanke "cut through all the usual cant of the left and right and & gently, but deftly, dismissed the favorite conservative arguments that the story is not one of greater inequality so much as one of greater mobility. At the same time, Bernanke exposed as myth all those overblown fears about the broad decline in standard of living and the death of the American middle class."

Fed Chief Warns of Widening Inequality

(David Wessel, Wall Street Journal, 2/7/07).

Addressing the Greater Omaha Chamber of Commerce, Federal Reserve chairman Ben Bernanke cautioned that widening economic inequality may make Americans "less willing to accept the dynamism so essential to economic progress." Rather than impose rules that might make labor markets less flexible, however, Bernanke "said a wiser approach to the problem would be to improve education and training and to cushion dislocations caused by technology and globalization." (Text of Bernanke's speech.)

Plutocrats of the People

(Daniel Gross, Slate 1/29/07).
The ultra-rich have begun to speak out against rising inequality, says Gross, pointing to recent statements by Mortimer Zuckerman, Wilbur Ross Jr., and Stephen Schwarzman, the 117th and 322nd richest Americans, respectively. Schwarzman, co-founder of the Blackstone Group" - one of the toniest hedge funds - is "an unabashed economic royalist" who "lives in a $30 million apartment once owned by John D. Rockefeller Jr." Yet, in a December interview with the Financial Times, he deplored the economy's failure to deliver more of its rewards to the struggling middle class. "What gives?" asks Gross. He answers: "The very rich are just as trendy as you and I. [T]hese guys don't need their own personal weathermen to know which way the wind blows." Gross goes on to note, however, that when hedge funds and private equity firms get into the corporate-restructuring game, "they use the same playbook" as everyone else: "Cut benefits and jobs, relocate factories to cheaper offshore locations, replace pensions with 401(k) plans, and increase co-payments for health care.

Private equity firms and turnaround artists aren't the cause of stagnant wages and disappearing benefits," Gross concludes. "But they are frequently the agents that implement the changes, and they have been among those that benefit most gaudily from the ongoing cram down."

Larry Kudlow Interviews Tony Snow

(CNBC News, 1/11/07) In this brief exchange, we get the only official hint to date of what President Bush might do if Congress passes a measure limiting CEO pay. "Would that kind of bill be veto-bait?" Kudlow asked. "Well, let's see if it gets through both houses of Congress," Snow replied. "As you know, Larry, when something comes to the president's desk, then we do start making veto suggestions or threats. We're not going to threat yet. We're going to kind of see how this debate starts to play out. But, again, the president's position's clear. The government shouldn't be setting compensation levels."