Back a century ago, in carnival-like medicine shows that regularly rolled across America, bogus doctors pitched concoctions they claimed could cure most anything. Real scientists would eventually expose these cure-alls. No swig from any patent-medicine bottle, the scientists would show, could ever cure all the ills that ail us.
Now today, a hundred years later, real scientists are once again talking cure-alls. Only this time they’re talking about a cure-all that seems to work: greater equality. Want to live a longer, healthier, happier life? Get your society, scientists are saying, less unequal.
Epidemiologists — scientists who study population health — have been documenting equality's amazing efficacy ever since the early 1990s. The most compelling of these epidemiologists, the UK’s Richard Wilkinson, has just upped the ante. His new research actually extends the list of ills that greater equality seems to cure.
We have that that story, and much more, in this week’s Too Much.
Earlier this year, Omaha billionaire Warren Buffett, the world’s third-richest man, raised some eyebrows when he noted that he paid less 
of his income in taxes than his secretary. Last week, in an NBC News interview with Tom Brokaw, Buffett revealed that he actually pays less of his income in taxes than everyone else in his office, too, his receptionist included. Buffett last year paid a mere 17.7 percent of his total income in federal income and payroll tax. His office average: 32.9 percent. Buffett told Brokaw he’d like to see Congress boost tax rates on the nation’s richest. Last Thursday, the House Ways and Means Committee did a bit of obliging. The panel voted to move along legislation introduced by Committee chair Charlie Rangel that would jack up the tax rate on the earnings of hedge and private equity fund kingpins from 15 to 35 percent . . .
Last Thursday’s House committee action on private equity tax rates came on a straight 22-13 party-line vote, with all Republicans opposed. The private equity tax changes in the Rangel legislation, charged House GOP leader John Boehner, amount to “job-killing tax hikes on entrepreneurs and risk-takers who invest and create family-wage jobs for working families.” No one apparently gave Chrysler CEO Robert Nardelli a heads-up on Boehner’s lofty praise for the private equity industry’s employment sensitivity. On Thursday, the same day as the House committee vote, Chrysler — now owned by private equity giant Cerberus Capital Management — announced plans to eliminate 12,100 jobs. Private equity companies, Wharton business school analyst Michael Useem noted after the announcement, are “much better equipped” to make “Draconian cuts” than publicly held companies like General Motors and Ford . . .
Is America waking up to inequality? Princeton economist Paul Krugman thinks so. Last week he told a University of California audience at Berkeley that the “long-delayed populist backlash against inequality is now visible in polls.” One sign of that backlash: The number of Americans who feel their nation stands sharply divided between “haves” and “have-nots” has nearly doubled over recent decades, from just 26 percent in 1988 to 48 percent today, reports the Pew Research Center for the People and the Press. In 1988, add Pew Research analysts Jodie Allen and Michael Dimock, 61 percent of middle class Americans considered themselves as among America’s “haves.” The current total: 43 percent . . .
Have an idea for a new magazine? America’s publishers would love to hear what you have — so long as you’re aiming to reach into America’s deepest pockets. This fall has seen an unprecedented explosion in new “glossies that cater to the ultra-rich.” Already launched: Terrace, a “travel and lifestyle quarterly” bankrolled by Mercedes-Benz, Executive Woman from Forbes for the distaff side with “extraordinary economic power,” and a totally overhauled Art & Antiques that aims to “serve the ultra-affluent.” These new titles are jostling for wealthy eyeballs with already existing — and prospering — elite magazines like Vogue and Harper’s Bazaar. The September Vogue carried a remarkable 727 ad pages. Observes Reed Phillips, a media investment banker: “Luxury continues to be a lush tropical island” in a troubled publishing industry’s “sea of complaints.”
Try denying evolution or al Qaeda’s role in 9/11 and you’ll get nothing but totally appropriate scorn from the vast majority of America’s media outlets. But “experts” who deny that the United States has become substantially more unequal continue to get a respectful media hearing. In Alabama last week, for instance, a Mobile Press-Register editorial cited the work of the Cato Institute’s Alan Reynolds, an active inequality-denier, to argue that the rich today “probably control less of the nation's total wealth than they controlled 30 years ago.” Dissections of denials by Reynolds, fortunately, do abound. Last week, in fact, Alabama readers didn’t even have to go out of state to find one. On Sunday, the Decatur Daily’s Eric Fleischauer crunched data from a variety of sources, from Census data to stats on school free lunch eligibility, to show “an increasingly divided” local economy, with “more rich people and more poor people, but fewer in between.”
Quote of the Week
“The clock is ticking faster for private equity CEOs — and their millions of employees — all over the world. Coming soon to business pages and water coolers near you: tales of quick and brutal corporate breakups, rollups, and reorgs, an onslaught that could rival the downsizing binge of the early 1990s.”
Emily Thornton, Business Week, November 5, 2007
New Wisdom
on Wealth
Danny Dorling, Richard Mitchell, and Jamie Pearce, The global impact of income inequality on health by age. BMJ, October 22, 2007. This British medical journal study concludes that “social inequalities as reflected through unequal incomes are damaging to health for those living in both rich and poor nations.”
Girish Mishra, Implications of Plutonomy. ZNet, October 27, 2007. An analysis of the notion that the intense concentration of wealth in the United States and elsewhere is creating a global marketplace where only the rich really matter.
Fox Business News, CEO Pay Debate, October 30, 2007. Sarah Anderson from the Institute for Policy Studies takes on a fan of executive compensation excess.
Apologists for our current economic order have a ready rejoinder whenever anyone dares suggest that top CEOs just might make too much. These execs, comes the retort, are creating wealth. They deserve a decent chunk of whatever wealth they create.
E. Stanley O’Neal, the embattled Merrill Lynch CEO forced to resign last week, could certainly claim to have “created” wealth back last year when critics blasted his $46.4 million take-home. Merrill made $7 billion wheeling and dealing in 2006, over triple the $2.2 billion the company raked up in 2002, the year O’Neal became Merrill’s CEO.
But this year, unfortunately for O’Neal, Merrill Lynch lost $2.3 billion in just the third quarter alone.
So what does the short, sad story of E. Stanley O’Neal tell us, in the end, about CEOs and wealth creation?
Let’s first acknowledge that top executives can indeed help create wealth — if they’re serious about building truly effective enterprises. Executives can help nurture effectiveness, management researchers tell us, by fostering enterprise-wide teamwork, by promoting initiatives that tap employee wisdom and grow employee skills.
But all this nurturing can take time, much too much time for executives larded with princely incentives to show results fast. Not surprisingly, few of our contemporary big-time CEOs take this slow-and-steady, effectiveness-building approach to wealth creation.
Instead, top executives gamble. They roll the dice with big, bold business moves. They might orchestrate a major buyout, for instance. Or order a huge downsizing. Or plow corporate cash into incredibly complex speculative financial instruments.
Stanley O’Neal, as Merrill Lynch CEO, took all three of these gambles. He started out by axing employees right and left, in the process shredding the little that remained of his company’s no-layoff “Mother Merrill” institutional culture.
Then O’Neal speculated. He boosted “Merrill’s exposure to the volatile and ultimately toxic market for complex debt instruments” from $1 billion to $40 billion, in just 18 months, right as the sub-prime mortgage market was beginning to melt. Oops. In quick order, Merrill would see the biggest losses in the company’s 93-year history.
Finally, with Wall Street’s walls beginning to crash down upon him, O’Neal played his third wealth “creation” card. He tried to finagle a last-minute merger between Merrill and the Wachovia bank.
For O’Neal, this merger made eminent sense. Under his CEO contract, any merger that led to his exit from Merrill’s top executive suite would entitle O'Neal to “a potential $274 million payout.”
O’Neal, alas, had waited too long to start his merger dance. The merger scheming blew up in his face. O’Neal will now to settle for an exit package most analysts peg at $161.5 million, but could, says Reuters, “easily top $200 million.”
Whatever sum O’Neal eventually reaps from his resignation will come, of course, on top of the $160 million his five years of CEO labor have already earned him.
Shad Rowe, the president of the watchdog group Investors for Director Accountability, sees all this as nothing short of disgusting. O’Neal, he charges, “was paid a tremendous amount of money to create a loss that is mind-boggling, and he obviously took risks that should never have been taken.”
But why should anyone be shocked? Top executives today routinely take outrageous risks because, in today's Corporate America, outrageous risks can pay off in outrageously huge rewards. Sane people don’t take huge risks for small rewards. Huge rewards, on the other hand, can leave nearly anyone giddy — and greedy.
That won’t change until we start, as a society, reining in CEO pay. In Congress, Rep. Barbara Lee from California last month proposed a step in that direction, a bill that would deny corporations tax deductions on any executive pay that runs over 25 times the pay of a company’s lowest-paid worker.
E. Stanley O’Neal, for the record, last year pocketed over 2,300 times more than workers earning $20,000 a year.
British epidemiologists Richard Wilkinson and Kate Pickett start their fascinating new paper in the November “Placing Health in Context” issue of Social Science and Medicine with what we already know, from years of previous research, about inequality and health.
In a nutshell: The wider a society’s gaps between the affluent and everyone else, the more sickly the entire society, or, as Wilkinson and Pickett put it, “as inequality increases so does poor health.”
Levels of ill health, the epidemiological research also shows, drop as you rise up the class ladder. At each rung, people have better health than the people below them and worse than the people above.
What explains this “social gradient”? Some theorists posit that healthier people just naturally gravitate toward the top of the economic ladder, more sickly people to the bottom. In this view, inequality doesn’t lead to ill health. Ill health leads to inequality.
Wilkinson and Pickett's new work disputes this contention — by going “beyond health.” If other social problems show the same strong association with income inequality, they note, that would suggest that inequality can indeed trigger processes that leave us sicker.
In their new paper, the two researchers pore through data from 24 major developed nations on social problems that range from drug abuse to educational performance. They find in this voluminous data the same strong association with income inequality.
The evidence, Wilkinson and Pickett conclude, helps establish “the simple but important point that numerous social problems associated with relative deprivation — from ill health to poorer educational performance — are more common in more unequal societies.”
And not trivially so. The two British researchers find, for example, “ten-fold differences in homicide rates between more and less equal countries and U.S. states, six-fold differences in teenage birth rates, six-fold differences in the prevalence of obesity, four-fold differences in how much people feel they can trust each other.”
These findings, Wilkinson and Pickett provocatively argue, hold important public policy implications. Raising national standards in health, education, and other fields “may be substantially dependent on reducing inequalities in each country.”
“Rather than providing ever more prisons, doctors, health promoters, social workers, educational psychologists, and drug rehabilitation units, in expensive and at best only partially effective attempts to offset the problems of relative deprivation,” they sum up, “it may be cheaper and more rewarding to tackle the underlying inequalities themselves.”
Stat of the Week
State Farm insurance is dropping windstorm coverage for 74,000 Florida homeowners and renters, the St. Petersburg Times reports. The move appears to be part of an industry-wide offensive to cut losses “from future storms.” Not getting cut: insurance industry executive pay. State Farm CEO Edward Rust Jr. pulled in $11.7 million in salary and bonus last year.
Too Much is published by the Council on International and Public Affairs, a nonprofit research and education group founded in 1954.
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E-mail: editor@toomuchonline.org.
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