Archive for the ‘Inequality’ Category

John Lanchester on the financial crisis

July 7, 2018

John Lanchester

The financial crash of 2008 was worldwide, and the failure of governments to address the causes of the crash also was worldwide.  Because the same thing happened in different countries under different leaders, the reasons for failure are systemic, not just the personal failings of particular leaders.  The solution must be systemic.  A mere change in leaders is not enough.

John Lanchester, writing in the London Review of Books, wrote an excellent article about the crash and its aftermath.  I hoped to call attention to it in my previous post, but, as of this writing, there has been only one click on the link.

I know people are busy and have many claims on their attention.  If you don’t want to bother reading the full LRB article, here are some highlights.  If you’re an American, bear in mind that, even though so much of what he wrote applies to the USA,  his focus is on British policy.

The immediate economic consequence was the bailout of the banks.  I’m not sure if it’s philosophically possible for an action to be both necessary and a disaster, but that in essence is what the bailouts were. 

They were necessary, I thought at the time and still think, because this really was a moment of existential crisis for the financial system, and we don’t know what the consequences would have been for our societies if everything had imploded.  But they turned into a disaster we are still living through.

The first and probably most consequential result of the bailouts was that governments across the developed world decided for political reasons that the only way to restore order to their finances was to resort to austerity measures.  The financial crisis led to a contraction of credit, which in turn led to economic shrinkage, which in turn led to declining tax receipts for governments, which were suddenly looking at sharply increasing annual deficits and dramatically increasing levels of overall government debt.

So now we had austerity, which meant that life got harder for a lot of people, but – this is where the negative consequences of the bailout start to be really apparent – life did not get harder for banks and for the financial system. In the popular imagination, the people who caused the crisis got away with it scot-free, and, as what scientists call a first-order approximation, that’s about right.

In addition, there were no successful prosecutions of anyone at the higher levels of the financial system.  Contrast that with the savings and loan scandal of the 1980s, basically a gigantic bust of the US equivalent of mortgage companies, in which 1100 executives were prosecuted.  What had changed since then was the increasing hegemony of finance in the political system, which brought the ability quite simply to rewrite the rules of what is and isn’t legal.

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Deaths of despair in America

March 1, 2018

Economists Angus Deaton and his wife, Anne Case, are authors of a study showing the increase in the rate suicide, and also of other “deaths of despair,” among middle-aged white Americans.

The mystery is why there’s no such trend among black and Hispanic Americans, or among Europeans, even though many of them are struggling economically as much or more than white Anglo Americans.

Deaton and Case, in an interview shown in the video above, saw the rising suicide rate as a failure of social and spiritual bonds, and not just a failure of public policy.

They speculated that some white Americans are failed by their religion.  He said many evangelical churches downplay social support because they believe salvation is an individual relationship with God.

I think this is a stretch, and they don’t provide any evidence for this.   My impression—admittedly based on limited experience—is that strict conservative churches provide at least as strong social support as mainstream churches.

The isolated ones would be the ones who think they don’t need a church community because they have an individual relationship with God.   This was true of J.D. Vance’s troubled family, which he described in Hillbilly Elegy.  When trouble comes, his family didn’t have any support system beyond each other.

Of course, all other things being equal, unbelievers suffer just as much or more from lack of a church community.

I think we white Anglo Americans are brought up to think that society is basically fair and that anything that happens to us is our own fault.   We’re taught to keep trying despite setbacks, and not to give up.  This is good—up to a point.

My guess is that black and Hispanic people on average are more aware that life is unfair and that they don’t invest so much of their self-esteem in being breadwinners.

My other guess is that life is more meaningful to those who join in solidarity with others to fight for change.

In an interview linked below, Deaton said the problem is not economic inequality as such.   It is fairness, he said.  It is not unjust for someone to get rich by creating something of value.   What matters is how you get rich.

He said the problem is that so many of the economic elite get rich through what he called “rent seeking”—extracting money from people without contributing anything of value.  The health insurance industry is an example of this.

Monopoly or “oligopoly” (control by a small number of firms) are a big part of the problem, he said.  Lack of competition results in lower inflation-adjusted wages, higher prices, fewer jobs and slower productivity growth.   Self-described progressives and conservatives ought be able to in fighting monopoly.

LINK

Angus Deaton on the Under-Discussed Driver of Inequality in America: “It’s Easier for Rent-Seekers to Affect Policy Here Than in Much of Europe”, an interview for Pro-Market, the blog of the Stigler Center of the University of Chicago Booth School of Business.

Mortality and morbidity in the 21st century by Anne Case and Angus Deaton for the Brookings Institution (2017).   This is their most recent study of “deaths of despair.”

Front Row kids and Back Row kids

January 13, 2018

[Updated 1/15/2018]

Photojournalist Chris Arnade believes American society is divided into a Front Row, which is doing well, and a Back Row, which is being left behind. The following is from his Twitter feed.

The prevailing culture honors the Front Row, and public policy rewards it.

The prevailing culture disrespects the Back Row, and public policy ignores it.

LINK

The View From the Back Row, an interview of Chris Arnade for Current Affairs.  [Added 1/15/2018]

Chris Arnade on how the other half lives

January 13, 2018

This includes two updates

Half the world doesn’t know how the other half lives.   (old saying)

Chris Arnade spent 20 years as a Wall Street investment banker, then quit in 2011 to start a new career as a photojournalist, first interviewing and photographing drug addicts and prostitutes in the Bronx, then traveling across the country to talk to working people and poor people who’ve been left behind in the new economy.

Arnade said that what he concluded was that addiction is the result of isolation, isolation is the result of rejection and the chief source of rejection is the U.S. educational system.

The U.S. educational system, he said, teaches that the way to achieve success is to go to a good college, leave home and devote yourself to achievement in your professional life.

Those who do this successfully are the elite in American life.   The problem is that not everybody is able to succeed this way, and not everybody wants to do this.

Some people put family, community and religion first.  In this respect, he said, there is little difference between black people and white people, or between Anglos and Hispanics.

Arnade calls the first group the Front Row and the second group the Back Row. The Back Row are not only disrespected, Arnade said.  The economic system is rigged against them.

Every important decision on national policy, since at least the North American Free Trade Agreement  (NAFTA) in 1994, has put the interests of the Front Row ahead of the Back Row.

The one institution in society that welcomes the back row is the churches, he wrote.  He himself is an atheist, but he said that churches welcome you, no matter what your credentials or lack of them.  I’m not sure that is true of all churches, but his point is correct.

Another place the Back Row is welcome, he said, is McDonald’s restaurants.  McDonald’s original business model was a place where you can get in and get out quickly, but McDonald’s and other fast-food restaurants have become places where you can get a nourishing meal at a low price, charge your cell phone and hang out with friends.  Most of them have an old man’s table that retirees have staked out for their own.

If you’re a Front Row person and want to break out of your bubble, stop having coffee at Starbuck’s (or the equivalent) and stop start spending time in McDonald’s (or the equivalent), Arnade advised,

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Charles Dickens, Little Dorrit and social class

November 21, 2017

I read Little Dorrit as part of a novel-reading group hosted by my friends Linda and David White.   Reading the novel as part of group helped me appreciate how great Charles Dickens was—as a descriptive writer, as a storyteller and as a student of human nature.

The moral center of the novel is Amy Dorrit, a young woman born in the Marshalsea, a famous debtors’ prison in London, where her father has been imprisoned as a result of business failure.

She is called ‘Little’ Dorrit, rather than by her name, because she is small of stature and looks more like an adolescent girl than a full-grown woman.

She embodies the specifically Christian virtues.  She is loving, self-sacrificing, humble, forgiving, patient, devoted, uncomplaining and thankful for every blessing.  This makes her as out-of-place in class-conscious Victorian London as she would have been in the Rome of Quo Vadis or in success-seeking 21st century USA.

One of the themes of Little Dorrit is what we now would call “classism.”   The novel is full of characters whose life revolves around having other people acknowledge their social rank.   This includes, first and foremost, Little Dorrit’s own family

From a young age, she is a virtual parent to her father and her older brother and sister, for which they show little or no gratitude..  She learns how to read and write, learns marketable skills from other inmates and gets a job outside the prison to an elderly rich businesswoman, Mrs. Clennam.

Her father, William Dorrit, over the years creates an identity as “the Father of the Marshalsea,” to whom visitors and other debtors have to pay tribute and acknowledge his superior status.

Despite William’s dependence on Little Dorrit, he condemns her for befriending fellow inmates, such as the mentally retarded Maggie, because this undermines his pretensions to superior social rank.

Amy’s beautiful gold-digging older sister, Fanny, and shiftless older brother, Edward, take the same attitude.

Mrs. Clennam is the other character in the novel whose life is shaped by religion.  In contrast to Little Dorrit’s, her religion consists in obeying strict rules concerning personal conduct and business obligations, and in showing no mercy to those who do not.

Her religion makes her unhappy, and causes her to make others unhappy.

Little Dorrit is sometimes sad, but she is capable of being happy and she does nothing to make herself unhappy.

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The black and Hispanic top 1 percent

October 6, 2017

The disparity in wealth between black and Hispanic Americans on the one hand and non-Hispanic whites is striking.    The disparities in wealth within each racial group also are striking.

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The top 1 percent in Russia

October 6, 2017

I’ve posted many charts about the growing concentration of income and wealth in the United States in the hands of a tiny elite.   Here is a chart illustrating inequality in Russia.

You should take note about what this chart shows and doesn’t show.  The ruling elite in the old Soviet Union didn’t have large incomes, and they didn’t live like American millionaires and billionaires, but they did have special privileges, much like military officers compared to the rank and file or like American corporate executives with huge expense accounts.    They had special stories, special medical care, special schools for their children, etc.

Also, the chart indicates that relative equality isn’t everything.   I don’t think many Americans would have wanted to trade places with the average person in the old Soviet Union.

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Working at Kodak then and Apple now

September 4, 2017

Corporate headquarters of Apple Computer and Eastman Kodak

Neil Irwin of the New York Times wrote a good article about Eastman Kodak, Apple Computer and how the economy has changed for working people.

Gail Evans and Marta Ramos have one thing in common: They have each cleaned offices for one of the most innovative, profitable and all-around successful companies in the United States.

For Ms. Evans, that meant being a janitor in Building 326 at Eastman Kodak’s campus in Rochester in the early 1980s.  For Ms. Ramos, that means cleaning at Apple’s headquarters in Cupertino, Calif., in the present day.  [snip]

The $16.60 per hour Ms. Ramos earns as a janitor at Apple works out to about the same in inflation-adjusted terms as what Ms. Evans earned 35 years ago. But that’s where the similarities end.

Ms. Evans was a full-time employee of Kodak. She received more than four weeks of paid vacation per year, reimbursement of some tuition costs to go to college part time, and a bonus payment every March. When the facility she cleaned was shut down, the company found another job for her: cutting film.

Ms. Ramos is an employee of a contractor that Apple uses to keep its facilities clean.  She hasn’t taken a vacation in years, because she can’t afford the lost wages.  Going back to school is similarly out of reach.  There are certainly no bonuses, nor even a remote possibility of being transferred to some other role at Apple.

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Wealth, risk, and power

August 9, 2017

This is from a Twitter thread by Theresa Nielsen-Hayden.

1.  The rich don’t need federal health insurance. Their up-and-coming competitors, who aren’t rich yet, do: one major illness can wipe them out.

2.  The rich donor class hates social policies that make the non-rich braver and more enterprising. For example…

3.   Social Security, so a lifetime of hard work doesn’t end in misery.  Student financial aid, so that talent + hard work can = achievement.

4.  Bank regulation, so our careful savings and investments aren’t wrecked by irresponsible games the big-money guys play with each other.

5.  Health and safety regulations, because it shouldn’t be okay to maim or poison people who don’t have clout. And so forth.

6.  Us little guys shouldn’t have the nerve to start new businesses, develop new products, or go as far as our work and talent will take us.

7.  Poor whites are supposed to stay poor, and know in their bones that they’re born to sorrow, and their luck will never last.

8.  Blacks should keep quiet, and do first-rate work on jobs that are well below their ability, because things can always get worse, y’hear?

9.  There’s no point in women having ambitions, because one little mishap can wreck everything you’ve worked for.

10.  Keeping the rest of us in a constant state of low-level fear is the one consistent goal of the policies the donor class supports.

11.  Why? Because we have to tolerate some risk in order to successfully compete with them and their less-than-talented offspring.

12.  I’m not talking about rational, calculable risks.  I mean the unforeseeable: illness, accidents, market crashes, natural disasters.

13.  They want us to know in our bones that we have no defense against risk. If *anything* happens, we’ll be stuck paying for it forever.

14.  We’re not allowed to build a more level playing field that we all share.  They want us out of the game entirely, so they can always win.

15.  Meanwhile, they’re always angling to get their own risk reduced.  Always.  Because winning.

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How inequality is growing

August 9, 2017

This chart, from an article in the New York Times, shows the growth of inequality in the past 37 years.

The income growth that took place in 1980 benefited everyone, but primarily those at the bottom of the income scale.   That didn’t mean the rich became any less rich.  In fact, their gains measured in dollars rather than as a percentage probably were greater.   But a rising tide lifted all boats.

By 2004, things were just the opposition.  Most of the income growth that took place in that year was concentrated among the top income earners.

There is an interactive chart in the original article that shows the hockey stick pattern began in the 1980s, but really shot up beginning in the 2000s.

My theory is that the driving forces were (1) the Carter-Reagan era upper-bracket tax cuts, (2) the deregulation of the financial industry during the Clinton administration and (3) the refusal of the Obama-Holder administration to prosecute officers of financial firms “too big to fail.”

Deregulation created new ways you could to get rich in ways that didn’t create value for others.   Refusal to prosecute meant that you could get  rich dishonestly and keep what you had.

The Trump administration will not change this.   It is making things worse by advocating for eliminating what little financial regulation there is, and by granting tax relief that primarily benefits the upper brackets.

LINK

Our Broken Economy, In One Simple Chart, by David Leonhardt for the New York Times.

How Did They Get So Rich? by Matt Breunig for Jacobin.  [Added 8/10/2017]  Breunig shows that the great increase in the income of the wealthy came from ownership of capital.  They became so much richer because they were already rich.

Wall Street versus the American worker

May 1, 2017

American Airlines agreed this week to do something nice for its employees and arguably foresighted for its business by giving flight attendants and pilots a preemptive raise, in order to close a gap that had opened up between their compensation and the compensation paid by rival airlines Delta and United.

Wall Street freaked out, sending American shares plummeting. After all, this is capitalism and the capital owners are supposed to reap the rewards of business success.

“This is frustrating.  Labor is being paid first again,” wrote Citi analyst Kevin Crissey in a widely circulated note. “Shareholders get leftovers.”

Indeed, major financial players were so outraged by American’s decision to pay higher wages that they punished airline stocks across the board.  American itself took it hardest on the chin, of course, but the consensus among stock analysts was that higher pay at American could signal higher pay at other airlines too, with negative consequences for the overall industry.

Source: Matthrew Yglesias -Vox

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The case against the Internet

March 29, 2017

Double click to enlarge. Source: Visual Capitalist.

Andrew Keen’s book, The Internet Is Not The Answer (2015), which I recently finished reading, is a good antidote to cyber-utopians such as Kevin Kelly.

Keen says the Internet is shaping society in ways we the people don’t understand.  Some of them are good, some of them are bad, but all are out of control.

Like Kelly, he writes about technology as if it were an autonomous force, shaped by its own internal dynamic rather than by human decisions.  Unlike Kelly, he thinks this is a bad thing, not a good thing.

He does not, of course, deny that the Internet has made life easier in many ways, especially for writers.   But that is not the whole story.  He claims that—

  • The Internet is a job-destroyer.
  • The Internet enables business monopoly
  • The Internet enables surveillance and invasion of privacy.
  • The Internet enables anonymous harassment and bullying.
  • The Internet enables intellectual property theft

Keen quotes Marshall McLuhan’s maxim, “We shape our tools, then our tools shape us.”

What he doesn’t quite understand is that the “we” who shape the tools is not the same as the “us” who are shaped by them.

Or to use Marxist lingo, what matters is who owns the means of production.

Technology serves the needs and desires of those who own it.  Technological advances generally serve the needs and desires of those who fund it.

Advances in technology that benefit the elite often serve the general good as well, but there is no economic or social law that guarantees this.   This is as true of the Internet as it is of everything else.

Let me look at his claims one by one—

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Wall Street bonuses outweigh minimum wage pay

March 20, 2017

Most Wall Street activity is devoted to diverting money from one person’s pockets to another person’s pockets.   Most minimum wage workers do things that are directly beneficial to people.

The past financial crash was worse because Wall Street bankers and financiers took risks with other people’s’ money.   The coming financial crash will be worse for the same reason.

The Wall Street bonus system is an incentive to take risks, because the managers get to keep the bonuses when they win and they do not have to give them back when they lose.

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Eight people own as much as 3.6 billion do

March 14, 2017
Double click to enlarge

Double click to enlarge

This is old news, I guess, but worth keeping in mind.  In the years right before the French Revolution, did eight aristocrats own as much as the poorest 50 percent of the French peasants?

LINKS

Visualizing a Disturbing Truth: 8 Billionaires Own As Much as 3.6 Billion People for howmuch.   Explains who the eight billionaires are.

Income share for the bottom 50 percent of Americans is collapsing, new Piketty research finds by Steve Goldstein for MarketWatch.

400 years of poor white people in America

January 17, 2017

When I was a boy in western Maryland in the 1940s, I sometimes heard people say things like, “The Negroes aren’t so bad, compared to the poor white trash.”

The underlying meaning was that it was part of the nature of things for black people to be poor and marginalized, but there was something deeply wrong with white people who let themselves sink to the same status.

9whitetrash-iisenberg780670785971I just finished reading a book, WHITE TRASH: the untold 400-year history of class in America by Nancy Isenberg (2016), that tells how these attitudes go back literally to the first settlements at Plymouth Rock, Jamestown and before, and persist today.

Today’s poor rural Southern white people of today may literally be lineal descendants of the convicts, debtors, beggars, orphans, homeless vagrants and unemployed vagrants who were shipped to England’s North American colonies in the 17th century.

Many were victims of the enclosure movement, in which wealthy landowners privatized common lands formerly used by small or tenant farmers, leaving them without an obvious means of livelihood.  These displaced poor people were regarded as useless—much as workers replaced by automation are regarded by economists and corporate executives today.

The prevailing attitude then was that families were “the better sort” or “the meaner sort,” that they were “well-bred” or “ill-bred”.   Today we think of “good breeding” as applied to individual persons as meaning the person has been taught the proper way to behave.   Back then, roughneck poor people were regarded as inherently inferior.

Our American tradition is that the seeds of our nation were planted by freedom-seeking New England Puritans and adventurous Virginia Cavaliers.  This is true, but only a half-truth.    The ships that brought them to the New World also brought penniless, landless English poor people, who were regarded as surplus population.

What set the English poor white colonists apart was that they were not given land.  They were intended to be servants and field workers.  When black African slaves turned out to be more efficient and exploitable workers than indentured English servants, they lost even this role.

Even so some of the poor whites acquired property and a measure of social status.   White Trash is about the descendants of the ones that didn’t.

They fled to the western frontier of settlement.   But the wealthy and well-connected had already obtained title to most of the frontier land.  Poor whites became squatters.  They contended that clearing, improving and planting land gave them the right to have it; title-holders disagreed.  This was the source of much conflict both in the colonies and the newly-independent United States.

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The guaranteed incomes of the top 0.1 percent

January 14, 2017

notwork11

Hat tip to occasional links and commentary.

Radicals propose a universal guaranteed income for all, regardless of whether you are gainfully employed or not.   But as Matt Breunig pointed out, it already exists in the top 1 percent and 0.1 percent income bracket.   They receive income from their financial assets regardless of whether they work or not.

There is a strong argument for a guaranteed.  It is that the reason that the national wealth today is greater than in the past is largely due to the inventiveness and effort of our ancestors, not to anyone living today, and that therefore all of us are equally entitled to the fruits of their effort.

This was the philosophy of the social credit reform movement, which provided the background for Robert A. Heinlein’s great utopian science fiction novel, Beyond This Horizon.

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How much equality do we want?

January 9, 2017

playfair2

average1

Grant that extreme economic inequality is a bad thing.  Grant that ever-increasing economic inequality is a bad thing.

Grant that complete equality of incomes is not feasible and maybe not desirable.  How much equality is enough?

The economist Friedrich Hayek wrote in The Road to Serfdom (as I recall) that it is impossible that people could reach a consensus on what each and every person deserves.   Once you reject complete equality, he  wrote, the only acceptable distribution of income is what results from the impersonal working of the free market.

A democratic government could never determine a distribution of income that is satisfactory to everyone, or even a majority, Hayek thought; if it tries, the result can only be gridlock and a breakdown of democracy.

But there are ways to reduce inequality that neither set limits on any individual’s aspirations nor give some group of bureaucrats the power to decide who gets what.   Some that come to mind immediately are:

  1. Prosecute those who get rich by lawbreaking.
  2. Set limits on unearned income.
  3. Break up monopolies.
  4. Empower labor unions and cooperatives.
  5. Provide good public services to all, regardless of income.
  6. Provide decent jobs for all who are willing and able to work.

What are your ideas?

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How much inequality is too much?

January 7, 2017
incomedistribuiton2014-5-0

This chart from Vox shows how each $100 in Americans’ income was divided among the five main income groups in 2014, and how their shares have changed since 1989

It’s a bad thing when the rich get richer and the poor get poorer.

But suppose the rich got richer, but the poor didn’t get poorer. What would be wrong with that?

Is the problem with economic inequality in and of itself?   Or would extreme differences between rich and poor be bad even if they poor did have enough—whatever your definition of “enough” happens to be.

New Dealers in the 1930s thought that increased incomes for the poor would be good for everybody, including the rich.  If poor people had more money to spend, that would increase demand for goods and services, and get the economic going.

The “supply-siders” in the 1980s thought that increased incomes for the rich would be good for everybody because that would make more capital available for investment.  That turned out not to be true, for reasons I came to understand later, but suppose it had.  Would that be bad?

I think it would be.  I didn’t always think so, but I think so now.

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Wealth and income inequality in the USA

September 2, 2016

wealth-share

These two charts, courtesy of Prof. David F. Ruccio, show the changing distribution of wealth and income in the USA.  Please keep in mind that while the chart below refers to the top 1 percent of income earners, the chart above refers to the top 1/100th of 1 percent of wealth holders.

wagesincomedistributiondownload2

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Race, economic inequality and the 2016 election

August 31, 2016

Pew.whiteblack29187061446_38c36b51a9

During the presidential primaries, Clinton supporters were prone to downplay the importance of economic inequality.

Black people, they said, were only concerned about racism and racial discrimination, not the gap between rich and poor.

But a Pew Research Center survey indicates that economic inequality is in fact the top issue among African American voters.

The survey indicates that 77% of American black voters view the gap between rich and poor as a very big problem, followed by crime (68%), with relations between racial and ethnic groups coming in third (61%).

Black Americans are much more concerned about crime than white Americans, which should not be surprising, because, as a group, they are much more likely to be victims of crime.

Interestingly, black Americans are less worried about immigration than white Americans, or even Hispanic Americans, are.

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USA is on the brink of …… something

August 19, 2016

A blogger named Fred Reed sees parallels between the United States today and France on the eve of the French Revolution.

I know three young women of exceptional intelligence and talent, all of them mature and disciplined.  They cannot find jobs.  It is not from lack of trying, far from it.  One of them is married to a hard-working man in a highly technical field usually associated with wealth.  He is paid a low hourly wage and forced to work on contract, meaning that he has neither benefits nor retirement.  His employers know that if he leaves, they can easily find another to take his place. They have him where they want him.

[snip]  In numbers that a half century ago would have seemed impossible, the American young live with their parents, being unable to find jobs to support themselves.  Waitressing in a good bar pays better in tips than a woman with a college degree can otherwise earn, assuming that she can earn anything at all.  Employers having learned to hire them as individual contractors, they move into their thirties with no hope of a pension for their old age.

Desperation and hatred are close cousins.

Meanwhile, Jeffrey Bezos of Amazon makes spaceships and buys the Washington Post as a toy and the newspapers have reported that a Croesus of Wall Street has bought a Modigliani, it may have been, for $55 million dollars.

[snip]. The homeless in San Francisco are now described as “a plague.”  There seem to be ever more of them.  But not to worry.  Never worry.  The stock market remains exuberant.  In nearby Silicon Valley, a man buys a new Lamborghini every year.

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Highest-paid CEOs are mostly below-average CEOs

July 27, 2016

CEOpayvsstockholderreturenp1-by114-payper-16u-20160724183306

I always thought, based on long-ago conversations with compensation expert Graef Crystal, that the relationship between chief executive officer pay and corporate profitability was random.

But a new study indicates that there is a relationship—a negative one.  The higher-paid CEOs actually deliver less for stockholders than the lower-paid CEOs do.

What’s odd about this is that CEO compensation packages are structured so as to reward them for gains in stock prices.

It’s an example of Goodhart’s Law in operation.   All other things being equal, the rise and fall of a company’s stock price, relative to other companies in the same business, is a measure of how well a company is doing.  But there are ways for a CEO to manipulate the stock price that has nothing to do with company performance.

One is stock buy-backs.  These increase the price of the remaining shares.  But often the money might be better spent on making improvements in the company’s operation.

Another is layoffs or shifts to low-wage locations.  These immediately boost a company’s profitability by reducing the expense of wages.  But sometimes it costs the company in the long run to have the work done by workers who are low paid, but also less skilled, less well-trained and less loyal to the company.

All CEOs of big companies are well-paid—and should be.  Maybe what the chart tells us is that there are those who spend time negotiating or manipulating even higher pay that they should have spent tending to their businesses.

Maybe the best plan is to hire or promote a good person to be CEO, pay that person adequately and leave them alone.  A CEO who needs an extra incentive to do a good job shouldn’t be a CEO.

LINK

Highest-paid CEOs run worst-performing companies, research finds by Peter Yeung for The Independent (UK)

Neoliberal US colleges prefer rich foreigners

July 1, 2016

I came across an article in the Washington Monthly from a few years back as to how many U.S. universities are recruiting rich Chinese and other foreigners who can pay high tuition that middle-class and working-class Americans cannot afford.

This fits the neoliberal philosophy, which measure merit in terms of revenue (in this case, tuition X enrollment) and profit.

LINKS

International Students: Separate But Profitable by Paul Stephens for the Washington Monthly (2013)

How Chinese Students Saved America’s Colleges by Justin Fox for Bloomberg News.

Equality vs. group equality

June 13, 2016

Paul Krugman wrote that the defeat of Bernie Sanders in the Democratic primaries shows the fallacy of trying to appeal to a majority of Americans on the issue of inequality.

History shows that Americans don’t care about individual inequality; he wrote; what we care about is “horizontal” inquality—disparities between racial, ethnic and other groups.   Politicians need to realize this in order to be successful.

Paul Krugman

Paul Krugman

Defining oneself at least in part by membership in a group is part of human nature.  Even if you try to step away from such definitions, other people won’t.  A rueful old line from my own heritage says that if you should happen to forget that you’re Jewish, someone will remind you: a truth reconfirmed by the upsurge in vocal anti-Semitism unleashed by the Trump phenomenon.

So group identity is an unavoidable part of politics, especially in America with its history of slavery and its ethnic diversity.  Racial and ethnic minorities know that very well, which is one reason they overwhelmingly supported Hillary Clinton, who gets it, over Mr. Sanders, with his exclusive focus on individual inequality.   And politicians know it too.

Indeed, the road to Trumpism began with ideological conservatives cynically exploiting America’s racial divisions.

Source: Paul Krugman – The New York Times

Adolph Reed explained the problem with this kind of thinking in an interview on the Benjamin Dixon show.

Adolph Reed Jr.

Adolph Reed

We have a national politics now that has for 20 years at least, longer, given us two choices. And one of them is a party that’s committed to Wall Street and to neoliberalism and is deeply and earnestly committed to a notion of diversity and multiculturalism, and a party that’s committed to Wall Street and neoliberalism, and is deeply opposed to multiculturalism and diversity.

So, if we have to choose between those two, obviously for most of us who are committed to the ideals of justice and equality, the one that’s committed to multiculturalism and diversity is less bad than the one that’s opposed to them. 

But the deeper problem is that they’re both actively committed to maintaining and intensifying economic inequality, and … that ideal of a just society is one in which one percent of the population can control ninety percent of the stuff, but it would be just if twelve percent of the one percent were black, fourteen percent Latino, and half of them were women, and whatever percentage were gay, and what that means, then, is that most Black people, and most Latinos, and most white people, and most Asian Americans would would be stuck holding like the end of the stick with the stuff on it that I assume I can’t call by its right name.

Source: Adolph Reed | naked capitalism

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A reason for Americans to be angry

June 6, 2016

mediannetworth1998vs2013Screen-shot-2016-06-06-at-8.17.24-AM-624x681Chart via nerdwallet.

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