TOO MUCH: Chronicles of Inequality

This Month

A little historical context makes that figure even more impressive. Forbesbegan its annual top 400 tally in 1982. Our top 400 averaged back then, in today’s dollars, $570 million. In effect, after inflation, our wealthiest have multiplied their wealth more than tenfold since 1982.

And the rest of us? Forbes doesn’t count our fortunes. Economists Emmanuel Saez and Gabriel Zucman do, and they’ve just updated their stats. Between 1982 and 2012, their figures show, households in America’s bottom 90 percent saw their average net worth, after taking inflation into account, increase less than 1 percent per year.

How did our most fabulously rich manage to multiply their wealth ten times over while average Americans barely kept even? Do the super rich simply have that much more smarts than the rest of us? In this month’s Too Much, we put that question — and more — to a global business analyst with a new book out that spills our world’s deepest wealth secrets.

Images of Inequality

Above the skyline of Singapore’s financial district, a gentleman of means floats in an infinity pool that graces the 57th floor of a local luxury hotel. This image from photographers Paolo Woods and Gabriele Galimberti appears in a new exhibition, 1%: Privilege in a Time of Global Inequality, that began a worldwide tour last month in China. Notes exhibition curator Myles Lyttle: “I think the privileged these days speak a different language, live in a different part of the world, play by different rules.”

Inequality by the Numbers

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The Too Much Interview

The Real Secrets to Grand Fortune

The moneymaking techniques today generating mega millions and more, the global business analyst Sam Wilkin is wittily making plain, almost all rest on schemes for defeating the forces of honest market competition.

Americans have been searching for the secrets to grand fortune ever since the days of Benjamin Franklin, and today, over 250 years later, the genre of get-rich literature Franklin began with The Way to Wealth is still going incredibly strong.

Our wealthiest today, meanwhile, have amassed fortunes Benjamin Franklin could never have imagined.

These two phenomena related? Of course not. None of our contemporary billionaires started their road to riches in their local bookstore business book aisle. No one gets really rich reading how-to-get-rich handbooks.

So how do our billionaires make their billions? Business analyst Sam Wilkin offers up the scoop in his new Wealth Secrets of the One Percent: A Modern Manual to Getting Marvelously, Obscenely Rich, a delicious — and insight-packed — send-up of the genre old Ben Franklin bequeathed upon us all those many generations ago.

Wilkin has a day job that helps uncover the real-life secrets he’s sharing. He’s a senior adviser at Oxford Economics, a forecasting venture the Oxford University business school helped create in 1981. Wilkin used to direct business research at the venture, and these days he also advises at Oxford Analytica, a network of experts that extends geopolitical and strategic advisory services to a broad roster of global corporations and world governments.

Wilkin lives in both New York and Oxford. Too Much editor Sam Pizzigati caught up with him last month for an exchange on his new book — and our deeply unequal world.

Too Much: Behind every great fortune, Honoré de Balzac quipped back in the 19th century, lies a great crime. How might you edit that aphorism for today?

Sam Wilkin: Balzac was onto something. Most of the best wealth secrets from back in the age of the “robber barons” — Rockefeller, Carnegie, Morgan — would today be illegal.

The vast fortune of the Rockefeller clan, to somewhat oversimplify a fascinating story, was arguably built on cartels — not illegal at the time, but made illegal shortly thereafter. Pierpont Morgan’s “money trust,” which helped make Andrew Carnegie the world’s richest man, was constructed in part via interlocking directorships that were, shortly thereafter, outlawed.

A lot of what went on in the modern banking sector in the 2000s, and that to some extent still goes on today, probably won’t be legal five to ten years from now.

So, to update Balzac: “Behind every great fortune lies something that was not a crime when it happened, but probably should have been.”

Too Much: When did you first start suspecting that maybe sheer brilliance doesn’t explain why people can become fabulously wealthy?

Read the rest of the full Too Much interview . . .

Petulant Plutocrat of the Month

Former hedge funder Martin Shkreli never saw the firestorm coming. In August, his start-up pharmaceutical company bought the rights to a 62-year-old drug that can mean life or death to AIDS and parasite-infected patients. The drug had long been selling at $13 a pill. Shkreli hiked that to $750, and his stark price gouging quickly became a media sensation. A besieged Shkreli scrambled to calm the fury: “I can see how it looks greedy, but I think there’s a lot of altruistic properties to it.” He called one reporter who couldn’t see that “altruism” a “moron.” Eventually, Shkreli backed down somewhat off his price hike. But the larger problem — the price gouging of the entire U.S. pharmaceutical industry — remains. Americans pay up to ten times what Europeans pay for the same drugs.

Antidotes to Inequality

At the UN, Much Less than Meets the Eye

Presidents and prime ministers abounded in Manhattan late last month as world leaders gathered to ratify a new global agenda for sustainable development. At first glance, the 17 new United Nations goals these leaders blessed appear cause for no small egalitarian celebration.

Sustainable development goal number ten, for instance, explicitly calls on nations to “reduce inequality within and among nations.”

“Evidence shows,” this new sustainable development goal points out, “that, beyond a certain threshold, inequality harms growth and poverty reduction, the quality of relations in the public and political spheres, and individuals’ sense of fulfilment and self-worth.”

The agenda adopted at the UN Sustainable Development summit gives nations 15 years to achieve the 17 new goals and, in the process, “end poverty, protect the planet, and ensure prosperity for all.”

But don’t hold your breath. The new goals, critics are charging, “will not deliver the new economy that the world so desperately needs.”

What’s the problem? The goals’ creators, notes London School of Economics analyst Jason Hickel, are aiming “to reduce poverty and inequality without touching the wealth and power of the global 1 percent.”

The new goals, Hickel adds, fail to understand that “mass poverty” reflects “extreme wealth accumulation and overconsumption by a few.”

Instead of taking on that accumulation and overconsumption, the new UN goals rely on big boosts in economic growth, on “ever-increasing levels of extraction, production, and consumption,” to reduce poverty.

But between 1999 and 2008, the globe’s poorest 60 percent only received 5 percent of the income that global growth generated. At that ratio, eradicating global poverty would take 207 years.

And the enormous industrial growth needed to reach that eradication, Hickel points out, “would drive climate change to catastrophic levels.” Global production and consumption levels, he explains, are already “overshooting our planet’s capacity by about 50 percent each year.”

Sums up Hickel: “You can’t solve the problem of poverty without challenging the pathologies of accumulation.”

Reports

A quick look at major new inequality-related research efforts

Stealth Politics by U.S. Billionaires
American Political Science Association, September 2015
Benjamin Page, Jason Seawright, and Matthew Lacombe

“The poorest billionaire,” these three Northwestern University political scientists remind us early on in this important new contribution to understanding plutocracy, “has more than one hundred times the wealth of the poorest one-percenter.”

That reality helps explain why these researchers have trained their sightson how America’s 100 top billionaires — combined wealth, $1.3 trillion — go about practicing politics.

Do our wealthiest billionaires, the three scholars ask, speak out on political issues in a way that lets the public “judge the reasoning behind their stands?” Or do top billionaires “act quietly, even secretly” and push unpopular policies without “exposing themselves to judgment or debate?”

For answers, the Northwestern researchers went looking for public comments by our biggest billionaires in two prime issue areas, taxes and Social Security. They looked back through ten years of public debate. They found, from billionaires, a deafening silence.

On taxes, for instance, only 26 of the 100 billionaires made even one public utterance about tax policy over the course of the decade studied.

The billionaires showed no such reticence with their wallets. The vast majority give generously to both candidates and political organizations.

The patterns of billionaire political involvement, the Northwestern researchers note, appear to indicate that many billionaires “deliberately pursue the strategy we are calling ‘stealth politics,’ attempting to influence public policy in directions not favored by average Americans while avoiding public statements about policy.”

Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay: Why It Matters and Why It’s Real
Economic Policy Institute, September 2, 2015
Josh Bivens and Lawrence Mishel

Why is corporate executive compensation soaring while worker pay stagnates? In a nutshell: Most all the gains from the increasing productivity of America’s workers are going to America’s bosses.

Between 1973 and 2014, the latest Economic Policy Institute data document, productivity in the United States jumped 72.2 percent. Hourly worker compensation nudged up just 9.2 percent.

And what if increases in hourly pay had matched increases in productivity? In that case, EPI researchers conclude, the United States would have seen “no rise in income inequality” since 1973.

What Does Inequality Have to Do With Human Rights?
Political Economy Research Institute, August 2015
Radhika Balakrishnan, James Heintz, and Diane Elson

Conventional economic thinking, observes this wide-reaching new paper, “sidesteps the question of the consequences of inequality.” And no consequence may be more sidestepped than the impact of economic inequality on basic human rights.

Everyone in the world, the Universal Declaration of Human Rights states, “has the right to life, liberty, and security of person.” Top-heavy distributions of wealth, authors Balakrishnan, Heintz, and Elson show, undermine all those rights. Nation states, they conclude, have “an implicit obligation within the human rights framework” to consider inequality’s impact and “move towards a more just distribution of income.”

Also newly released: Corporations that lavish stock options on their top executives, Notre Dame business school researchers detail in a study published this past summer, expose their customers to more unsafe products. The study traced the pay and performance of 386 CEOs over eight years. Hefty option grants, the researchers suggest, give CEOs an incentiveto take risks because they benefit enormously from future increases in share prices but lose nothing if share prices tumble . . .

Americans believe that rich households making over $2.5 million a year should be paying three times more of their income in state and local taxes than families making $30,000 a year, says new research from Wallet Hub, the online personal finance site. In contemporary real life, Americans in the top 1 percent pay state and local taxes at about half the rate that middle- and low-income Americans pay . . .

Sociologists at Yale University’s Institute for Network Science have foundthat the more the rich flaunt their wealth, the more the social fabric tears. Wealthy people who “find out that their neighbors don’t have the resources they do,” the study shows, become less likely to help them — “or anyone else.”

Retorts

Handy rejoinders to the apologists for our top-heavy status quo

The claim: Paying corporate chief executives a lot less than they currently make wouldn’t put a dent in income inequality.

America’s corporate execs and their cheerleaders regularly assure us that we need not worry about all those millions that top execs are collecting. The latest to make this case: JPMorgan Chase CEO Jamie Dimon.

“It is true that income inequality has kind of gotten worse,” Dimon told an audience of movers and shakers at the Detroit Economic Club last month. But “you can take the compensation of every CEO in America and make it zero,” he continued, and that “wouldn’t put a dent” into inequality.

Dimon happens to be totally wrong in his arithmetic — and his analysis.

The arithmetic first. The nation’s top 3,000 CEOs, a new ISS Corporate Solutions analysis shows, averaged $6.4 million last year. The typical American woman working full-time earned $39,621 last year.

If we zeroed out the $19.2 billion that went to those 3,000 CEOs, we would have enough cash to give nearly 6 million women a bonus that equals one month of their pay. That qualifies as a “dent” on inequality.

But the problem with over-the-top CEO pay goes far beyond the sheer immensity of the mega millions CEOs are collecting out of corporate coffers. The even bigger problem — for average workers — remains what CEOs are doing to claim those mega millions.

Most corporations tie CEO compensation to their share prices, earnings per share, or some other “performance” metric. The outrageously high rewards top execs collect when they hit their targets on these metrics give the execs an irresistible incentive to behave outrageously.

Average workers bear the brunt of that outrageous behavior. They see their jobs downsized, outsourced, or turned into part-time employment. They see their wages stagnate. Since 2000, median inflation-adjusted full-time wages for U.S. men have dropped from $51,227 to $50,383. Median wages for full-time women have dropped nearly $500 since 2007.

Books

Class War:
The Privatization of Childhood
Megan Erickson
Verso, 240 pp.

The more wealth concentrates in a society, the more pressure parents feel.

That shouldn’t surprise us. In a relatively equal society, without a great deal of difference between life at the top and life everywhere else, parents don’t have to angst about where their kids will end up. Kids can be kids. If they slip up on occasion, no big deal. They’ll end up okay.

But in any society becoming ever more unequal, the dynamic changes. With the gap growing between the few choice slots at the top and the squeezed situations everywhere else, parents can’t afford to see their kids slip up. One slip, after all, may doom them to an eternally second-class future.

So parents worry and hover and stretch their finances in a never-ending race to keep up with the parental spending of those already at the top.

Amid “increasing wealth inequality,” as Megan Erickson puts it in herjust-published Class War: The Privatization of Childhood, “a shift has taken place.” Childhood has come to be seen “as a period of intense preparation for the competitive pressures of adulthood.”

Erickson knows of what she speaks. She has worked as an administrator for preschool and after-school programs. She has taught in public and private schools. She understands the pressures parents feel.

She understands something else, too. Kids need parents who care. Parents need a more equal society.