This Week

Did Ronald Reagan drink Pepsi? We don't know. We do know that Ronald Reagan, exactly 25 years ago this month, helped trigger the biggest explosion of inequality in modern world history.

We also know that PepsiCo last week named a new CEO and, in the process, inadvertently raised a question that Ronald Reagan, a supply-and-demand man through and through, would never have been able to answer.

Inside this week's Too Much: the full story on Pepsi, Ronnie, and the ever-growing gap between our wealthy and everyone else.

Greed at a Glance: The Great Yacht Race

Realtors in Snohomish County, north of Seattle, listed 140 homes on sale for over $1 million earlier this month. But the former mayor of the city of Snohomish, Liz Loomis, says majestic manses may be losing their allure. The wealthy in today's Northwest, she told the Seattle Times last week, would rather spend on “lavish vacations and personal services” than “expensive, hard-to-care-for homes.” How does Loomis know? She runs a concierge service that “helps wealthy clients” with lining up personal chefs and other everyday chores. Local real estate agents sure hope Loomis has everything wrong. They're still trying to find a buyer for Westwold, a nine-acre estate overlooking Puget Sound that features a 2,400-bottle wine cellar, a koi pond, and his-and-hers marble bathrooms. The price: just $8.95 million . . .

The Pacific Northwest's second-richest resident, Microsoft billionaire Paul Allen, doesn't have to choose between lavish homes and lavish vacations. He can afford both — and a good deal more. Allen's personal yacht, the $300-million Octopus, stretches so long that Allen can't dock it in any port on the Riviera. Instead, the London Telegraph reports, the 414-foot-long boat stops a few miles out at sea, then uses a satellite-navigation system to “float in the same place without an anchor.” And if Allen and his guests want to step ahore? The Octopus has its own helipad for the high-flying set — and its own submarine for those who prefer travel down under . . .

The most amazing fact of all about Paul Allen's Octopus? Allen's floating city doesn't even rank among the world's three biggest private yachts. The Octopus currently stands fourth, but will fall to fifth later this year when the crown prince of Dubai launches a new 518-foot pleasure cruiser. But the crown prince's boat will enjoy only a short reign. Billionaire Russian oilman Roman Abramovich is having an even bigger boat built. Abramovich, who splits his land time between a villa in St. Tropez, a palace in St. Petersburg, and an English estate with a $947,000 kitchen, already owns four yachts — and is thinking about buying a $40 million castle on the island of Capri . . .

This past June, executives at Northwest Airlines forced their workers to accept an 11.5 percent pay cut — and over 1,000 job cuts. Early this month, the ever-thoughtful Northwest distributed a list of 101 money-saving ideas to workers about to be canned. Among the tips: “Don't be shy about pulling something you like out of the garbage.” Within days, workers throughout the company were angrily protesting what Machinists union leader Bobby De Pace called a “very callous” gesture. Last week, Northwest apologized. The incident didn't particularly surprise De Pace. Three years ago, amid an earlier round of pay and job cuts, Northwest more than doubled top executive pay. Northwest, De Pace observed at that time, had become a company that expects employees to pay “while the rich get richer.”

Workers outsourced out of their jobs at Northwest do, of course, have options other than rummaging through garbage. They can always attend a wealth-building seminar, the hottest new category in America's tradeshow industry. In 2006, notes Michael Hughes of Tradeshow Week magazine, convention halls will be hosting 119 shows devoted to one or another variant of getting rich rather quickly. These shows have lined up 16,000 exhibitors and often feature mega celebrities. Donald Trump, for instance, headlines the Learning Annex Real Estate & Wealth Expo series. That show's not-so-subtle pitch: “One Weekend Can Make You A Millionaire!”

Remembering Ronald Reagan's Ultimate Triumph

Exactly 25 years ago this month the United States — and all humankind — took a giant leap to a noble future.

What step? Have you forgotten what happened 25 years ago? The free-marketeers who run the Wall Street Journal editorial page haven't.

A quarter-century ago, a new Journal editorial reminds us, President Ronald Reagan signed into law the landmark Economic Recovery Tax Act of 1981 — and gave birth to an economic creed “worth commemorating as a seminal moment that continues to influence policy for the better in the U.S., and around the globe.”

That creed, Reaganomics, holds that tax cuts, especially tax cuts that benefit society's “successful,” can cure whatever ails our body politic.

The Reagan 1981 tax act did more to benefit America's “successful” than any single piece of legislation in modern American history. The act sliced the top tax rate on most income over $200,000 from 70 to 50 percent and, in the process, set the nation on a course that would lower this top rate all the way down to our current 35 percent.

That's not all. Before the 1981 Reagan tax act, the top tax rate on capital gains income — income from the sale of real estate, stocks, or other property — stood at 50 percent. The current top rate: 15 percent.

All this tax cutting, huzzahs the Wall Street Journal. has produced results “better than even” Reagan's cheerleaders had hoped.

“American living standards,” asserts the Journal, “have risen steadily.”

The Reagan tax cuts, adds the Journal, totally reframed the America's national discourse over taxes and wealth. Even the nation's most “ardent liberals,” the Journal crows, no longer dare to “propose to return to the top pre-Reagan income tax rate.”

And “the rest of the world,” the Journal notes triumphantly, “has followed the Gipper down the tax-cut curve.”

The Journal couldn't be more on the mark with that observation. The rest of the world has followed the U.S. tax-cutting lead. The top tax rate on high incomes has dropped, since 1980, in every indusrial nation in the world.

But that's about all the Journal has right. The last 25 years have brought “rising living standards” only at the top of America's economic ladder. Average wages, after inflation, have actually fallen since the 1970s. Average Americans are working more hours, sinking in record debt, and facing considerably less job, health, and retirement security.

The political and economic trends that beget these realities began, to be sure, before Ronald Reagan entered the White House. But Reagan's 1981 tax cut act does still stand as a “seminal moment.”

The Gipper didn't create the gaps in income and wealth that divide us. He made the gaps that divide us bigger. Much bigger.

Pepsi and the Paradox of CEO Surplus

PepsiCo last week named a new CEO. Indra Nooyi, the new chief exec, will be the first woman to ever hold Pepsi's reins.

PepsiCo's announcement brings the number of women topping Fortune 500 companies to an even dozen. That's not much, of course, less than 3 percent of the major CEO universe. But the faces in Corporate America’s executive suites are indeed changing.

A generation ago, no woman led a Fortune 500 corporation. And Indra Nooyi isn’t just a woman. She’s a woman of color, born, raised, and educated in India. In effect, in her one person, Nooyi symbolizes the deep changes percolating in America’s Fortune 500 CEO job market.

That job market now includes not just white American males, but women, people of color, and even foreigners. The supply of prime CEO material has never been streaming stronger.

So how can CEO pay, year after year, still be rising?

We live, after all, in a market economy, ruled by the laws of supply and demand. According to these laws, if supply outpaces demand, prices should sink. But that’s not what’s happening in the CEO pay market.

In this market, we have a soaring supply of potential CEOs — as Indra Nooyi’s hiring so aptly illustrates — and a steady demand (we still have, last time anyone looked, only 500 Fortune 500 companies). Yet CEO pay keeps climbing, at a clip far faster than the pay of average corporate employees.

So what happened to supply and demand? Apologists for contemporary CEO pay levels have an answer. People with the smarts to become quality CEOs, they insist, still don’t grow on trees.

True enough. Trees don't grow CEOs. But business schools do, as we can see clearly from a look back at Indra Nooyi, PepsiCo’s new CEO. Pepsi didn’t bring Nooyi to the United States. Yale did. Nooyi, after completing undergrad and grad work in India, earned a master’s in management at Yale's business school.

Lots of people have been earning business degrees from elite American universities like Yale, 65,000 from the Harvard Business School alone. In all, the available supply of executives trained at top-notch business schools easily approaches several hundred thousand.

How many of these executives have the skills and experience needed to run a Fortune 500 company? Let’s assume that only 1 percent of the alumni from America’s best business schools have enough skills and experience to run a big-time enterprise.

If this assumption were accurate, then the seven or eight dozen Fortune 500 companies that go looking for a new CEO every year would be able to choose, at minimum, from between 2,000 and 3,000 eminently qualified candidates. No supply shortage here.

The laws of supply and demand clearly do not set executive pay. Today's top executives essentially set their own pay. They sit on each other's corporate boards. They seldom face pushback from an organized workforce. And they have precious little to fear from shareholders or government regulators.

Indra Nooyi has joined the ranks of a most fortunate bunch. We have more on the strange paradox of CEO surplus.

Stat of the Week: The Big Apple's Big Cheeses

New York City, with 285,354 local residents worth at least $1 million, boasts a larger millionaire population than 46 entire states. Only four states have over 200,000 millionaires: California, New York, Texas, and Florida.

Los Angeles, the nation's second-richest city, holds 175.948 millionaires, according to Claritas, a national marketing research company.

Quote of the Week: Are We Waking Up to Inequality?

“For the last few decades, even Democrats have been afraid to make an issue out of inequality, fearing that they would be accused of practicing class warfare and lose the support of wealthy campaign contributors.

“That may be changing. Inequality seems to be an issue whose time has finally come, and if the growing movement to pressure Wal-Mart to treat its workers better is any indication, economic populism is making a comeback.”

Paul Krugman, Wages, Wealth, And Politics, August 18, 2006

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