February 12, 2007
Can learning make us less unequal? Some of America's most powerful political figures have spent the last two weeks urging Americans to put all their anti-inequality eggs in an education basket.
Are these top politicos and their pals on to a cure for what ails a top-heavy America? Or just creating a distraction? We explore these questions in this week's Too Much.
Also this week: A leading academic is asking us to give our CEOs a break. And speaking of breaks, the House Ways and Means Committee appears ready to kill a proposed cap, already passed by the Senate, on how much pay corporate executives can have deferred tax-free. The panel will reportedly vote this coming week.
In Shenzhen and Guangdong, southern China’s two top boom towns, they’ve now carted away the last of the exhibits that filled China’s recently completed, first-ever “luxury fairs.” The invitation-only shows drew a respectable chunk of the 27,000 Chinese deep pockets “now worth $6 million or more.” Visitors could get up close and personal with luxury goods and services that ranged from $49,000 circular beds to $50,000 memberships in private flying clubs. Some guardians of public order feared these displays of ostentatious excess might set a spark to the “powder keg” of frustration among average Chinese families. But the impresario behind the fairs, Liu Jidong, isn't worrying. Says Liu: “There is still a big gap between the rich and the poor in our country, but maybe if people learn more about these luxury products, they will begin to believe that if they work hard, they too can enjoy these better things in life. This kind of event might encourage them.”
CEOs now have one less reason to feel guilty. They can now bop about town cutting merger deals, in America's greatest cities, without adding much at all to global warming. PlanetTran, the “nation’s first all-hybrid executive car service,” last week opened operations in San Francisco. Similar services are already ferrying busy execs in Boston, Los Angeles, and New York. The new Bay Area effort can whisk wheeler-dealers from the San Francisco airport to the nearby Google world headquarters for a mere $75, just two-and-a-half times the normal taxi fare. PlanetTran is expecting considerable demand in the Bay Area. Notes executive VP Knox McMullan: “There are certainly those people who want to be driven around in big fancy cars, but there are plenty of other people out there.”
Wheeler-dealers, both inside fancy cars and out, have become a familiar site these days on the road to Google’s executive suites in Silicon Valley. What’s the attraction? There’s merger gold in them thar hills, and no one, news reports last week revealed, seems to have collected more of that Google gold than Chad Hurley, the 30-year-old CEO of the YouTube video-sharing Web site. Hurley and two buddies launched YouTube three years ago. Last fall, they sold their 70-employee company to Google. Hurley inhaled $345 million in Google shares from the deal. He now holds, in Google shares alone, a net worth 24,000 times larger than the $14,200 net worth of the typical U.S. family headed by someone under 35 . . .
This past year hasn’t been a particularly upbeat one for the home-building industry. Permits for new homes dropped by nearly a quarter in 2006, and analysts are predicting, for 2007, a 20 percent plunge in residential construction employment. An estimated 600,000 constructon workers will lose their jobs. Robert Toll, the CEO of home-building giant Toll Brothers, feels their pain. Last month, Toll declined to take home $4 million in bonus due him. “Given the slowing of the economy,” a company flack explained, Toll felt that $4 million represented “too big a number” to pocket. This self-sacrifice left Toll, for the year, with only $29.3 million in total compensation, a sum 680 times the annual pay of construction workers lucky enough to labor year-round at the $20.51 industry average hourly wage . . .
University of Chicago professor of finance Steven Kaplan, a widely quoted national expert on executive compensation, is sick and tired of watching America’s CEOs get “picked on.” Investment bankers and hedge fund managers, Kaplan told Reuters last week, make just as much as corporate chief executives. And, besides, CEOs only make what the market says they should make. What about European CEOs, who labor in the same global market as U.S. CEOs but take home much less in compensation? That European executive crowd, came Kaplan’s answer, “trails the United States in creativity.” Kaplan may have a point. Precious few European CEOs have cooked their corporate books anywhere near as creatively as American CEOs.
“For some it's just a whim. Others just say, 'I haven't got that model in my collection.' It's a wonderful world.”
A salesman at Stratstones of Mayfair, a London Aston Martin dealer, explaining his six-month waiting list for the $255,000 V12 Vanquish and other fine motorcars in the Aston Martin line. Independent, February 10, 2007
New Wisdom
on Wealth
Congress and Excessive CEO Pay: A Summary of Legislation Proposed, Enacted, and Under Discussion. Institute for Policy Studies and Center for Corporate Policy, February 6, 2007
Education and the Inequality Debate, Jared Bernstein and Larry Mishel, Economic Policy Institute, February 8, 2007
Washington officialdom — from the White House to the Senate to the Federal Reserve — seems to have suddenly discovered inequality.
Week before last, President George W. Bush pronounced that “inequality is real.” Last week, inequality-is-real declarations came from a conservative Republican stalwart in the Senate and the nation’s top central banker, Federal Reserve Board chairman Ben Bernanke.
The conservative Senate stalwart, Texas Republican Kay Bailey Hutchison, lauded the President for bringing “much-needed attention to the issue of income inequality in America.” Bernanke, in an address on Tuesday, decried the “long-term trend toward greater inequality” that has now “been evident for at least three decades.”
Hutchison and Bernanke also advanced a remedy for inequality, the same exact remedy that President Bush had proposed the week before: more education.
Hutchison cited education as the “clear” reason why America’s “distribution of income has become more disproportionate.” Bernanke called education “likely the single greatest source of the long-term increase in inequality.”
Are President Bush, Senator Hutchison, and Fed chief Bernanke on the right track? Is getting more Americans educated and trained all we need to do to make the United States more equal?
We can give this proposition an easy test. If getting people more educated automatically reduces inequality, than inequality should fall over periods of time when people become more educated.
Interestingly, we have experienced just such a period over the last three decades. Since 1970, Americans have become significantly more educated.
In 1970, the National Center for Education Statistics reports, only three out of four Americans aged 25-29 had completed high school. In 2004, nearly nine of ten Americans that age sported a high school education.
In 1970, only 16 percent of Americans in their late 20s held a four-year college degree. By 2004, that share of college-educated young Americans had nearly doubled, to 29 percent.
Something else has nearly doubled since 1970: the share of national income that goes to America's richest 1 percent. The share going to average Americans, by contrast, has dropped. The average Americans who make up the bottom 90 percent of the nation's income distribution took home 67 percent of U.S. income in 1970, only 53 percent in 2004, despite their many more years of education.
We’ve become, in other words, more unequal at the same time we've become more educated. Why? We’ve become more unequal because education doesn’t determine how income and wealth get distributed. Politics does, and, over the last 30-odd years, a series of political decisions — on taxes, on trade, on labor rights, on regulating corporations — have tilted income and wealth to the top.
Our political elites don’t need to be “educated” about this reality. The rest of us have some learning to do.
If President Bush and company seriously believed in education as the ultimate antidote to what ails the top-heavy American economy, then the single most important expression of the federal government’s priorities — the annual federal budget — would reflect this seriousness.
Instead, the latest federal budget proposal out of the White House, released last Monday, mostly reflects only a serious commitment to keeping the wealthy wealthy.
“Government programs that serve middle-class and low-income Americans,” as the New York Times notes, “would be slashed to offset the cost of extending tax cuts that favor the rich.”
Education would bear a serious share of those slashes. The President’s budget would drop federal support for elementary and secondary schools by $2.8 billion, or 6.8 percent, notes a Center on Budget and Policy Priorities analysis. The budget does boost college aid available via the Pell Grant program. But the budget subsidizes that increase by “cutting entirely” other student-aid programs.
Americans making at least $1 million a year, meanwhile, would by 2012 see an average $162,000 — per year — more in their pockets if Congress swallows this new White House budget.
“The President says he wants to promote fiscal responsibility and address growing inequality, but his budget fails on both counts,” sums up Robert Greenstein of the Center on Budget and Policy Priorities. “In fact, it would make both problems worse.”In 2012, if Congress were to adopt the latest White House federal budget plan, aid for child care and other discretionary domestic programs would be cut $34 billion off the funding levels Congress has already okayed for the current year. In that same 2012, the extension of the Bush tax cuts the White House is proposing would save households with incomes above $1 million an esimated $73 billion.
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