This Week

For anyone concerned about inequality, the week ahead figures to be fairly fascinating. We're going to see a rush of new reports and studies.

From the Census Bureau will come the latest annual figures on incomes in the United States. From two top independent chroniclers of inequality, the Institute for Policy Studies in Washington and United for a Fair Economy in Boston, we'll have the latest edition of Executive Excess, the annual report that goes behind the executive pay headlines.

Finally, at week's end, the Economic Policy Institute will be releasing its invaluable biennial sourcebook, The State of Working America. In this week's Too Much, we highlight a little preview from the EPI research. In next week's edition, we'll bring you up-to-date on all this week's new research.

Greed at a Glance: Mr. Generosity at Work

In all of Corporate America, about 50,000 people sit on corporate boards of directors. Only 350 of these sit on four different boards. James Johnson sits on six. What makes Johnson so popular? The Barron's business journal has just bestowed upon Johnson a new nickname — “Mr. Generosity” — that offers a clue. Wherever Johnson goes, notes Barron's, executive salaries go up. A lot. Johnson, for instance, chairs the Goldman Sachs board compensation committee. Goldman Sachs CEO Henry Paulson, now the U.S. Treasury secretary, pulled in $43 million last year, quadruple the median pay of his investment banker peers. Johnson also chairs the compensation committee at UnitedHealth. Between 1992 and 2004, UnitedHealth's William McGuire collected $1.8 billion worth of stock options . . .

What explains the good fortune of executives at firms where James Johnson sits as a director? Federal officials are now investigating whether some of these execs “backdated” their way into jackpots. The latest Johnson-connected exec under the microscope: KB Home's Bruce Karatz, the highest-paid CEO in the U.S. homebuilding industry. Back on October 25, 1999, according to papers KB filed, the company handed Karatz options to buy, a few years down the road, 450,000 shares of KB stock at that day's share price. On that October 25, KB shares just happened to be trading at their lowest price of the year. Fifteen other times between 1995 and last year, a new lawsuit charges, Karatz accepted huge piles of options on a day that just happened to precede a big run-up in the KB share price. Karatz took home $43.2 million in 2005 . . .

Australia's richest 1 percent, says a new study, have doubled — to 9.2 percent — their share of Down Under income over the past 25 years. That 9.2 percent, about half the income share now going to the top 1 percent in the United States, has Australian tax officials nervous. They've just announced a crackdown on high-income tax avoiders. Australia's Tax Office will be conducting up-close-and-personal checks on “one in seven of the 900 Australians who control more than $30 million.” Tax officials will also be quizzing taxpayers living in “palatial circumstances” who declare only modest incomes. People who have 10 Porsches, says tax commissioner Jennie Granger, should be expecting a few questions . . .

The name Gareth Edwards mean anything to you? Probably not, unless you're a rugby fan. Edwards used to be considered the world's greatest rugby player. Now he's about to come out of retirement to join 24 other rugby greats at a match in Kenya specially staged to celebrate the 25th wedding anniversary of megamillionaire banker Charles Ridley. An intense rugby fan, the Bahrain-based Ridley is paying Edwards alone nearly $200,000 to show at his party. An expected 76 guests will be on hand, at Kenya's Watamu Beach Resort, to watch the rugby all-stars. Charles and his wife Kano, the invitation the guests received explains, “have selected one player for each of the 25 years of our marriage.”

We now know what all those long years behind the Iron Curtain denied the peoples of Russia and China. Luxury brand awareness. Today, a decade and a half after the collapse of the Soviet Union, many millions of Russians still can't tell the difference between Chanel and Cartier. But that's changing. Cartier and Chanel have joined four other global “up-market brands” — Dunhill, Ermenegildo Zegna, Swarovski, and Vertu — to produce a series of one-hour documentaries on each brand's glorious history. The shows began airing last month on Russia's Ren-TV entertainment channel. The documentaries, the Financial Times notes, may air next in China.

The Wealth of a Nation: Rising to the Top

We've become accustomed, in the United States, to talking about the rising gap betwen rich and poor.

But new research from the Economic Policy Institute, released last week, has spotlighted a gap that doesn't get nearly as much attention, the increasingly grand divide that separates America's rich from America's middle.

Back in 1962, households in the top 1 percent of the U.S. wealth distribution held $126 in net worth for every $1 held by the typical American household.

The gap betwen rich and middle today?

In 2004, the richest 1 percent averaged $190 in wealth for every $1 for households in the exact middle of the U.S. wealth distribution.

Between 1962 and 2004, after adjusting for inflation, the average wealth of top 1 percent housegolds increased 162 percent, to $14.8 million. The wealth of middle class households, in those same years, increased 79 percent, to $81,800, with over half that increase coming before 1983.

A New Social Menace:
Beware the Serial Remodeler

What happens to societies that wink as wealth concentrates? Nothing good. The latest evidence: the emerging phenomenon of “serial remodeling.”

Any mention of “remodeling” usually brings to mind images of happy couples walking down the aisles of a Home Depot, looking up at rows of neatly polished kitchen cabinets. But remodeling has a dark side, an obsessive attraction that's metastasizing, reports the San Francisco Chronicle's Carol Lloyd, in affluent communities all across the United States.

In these communities, deep-pocketed remodelers aren't just installing Sub-Zero fridges and granite countertops. They're regularly remodeling their remodels, “treating building materials that are meant to last decades as if they were evanescent expressions of fashion.”

Overall, Americans spent a record $215 billion on remodeling last year, with spending in 2006 on pace to hit $238 billion.

“According to the U.S. Census,” the Chronicle remodeling report notes, “many of those home-improvement dollars are pouring into housing for the very rich.”

In 1993, America's highest-income Census category spent 55 percent more on remodeling than the next highest income class. The highest group is now spending 325 percent more than the next-highest class.

Changes in the remodeling cycle explain a good part of this increase. Major home fixtures, an official of the National Association of the Remodeling Industry points out, used to stay in place for at least 15 years. No more.

“Now,” notes the Chronicle's Lloyd, “affluent homeowners often design their homes with the idea of planned obsolescence — choosing neutral colors and finishes on more permanent materials like walls and floors, but using bright, unusual materials for things like countertops that they plan to change every couple of years.”

Meanwhile, the American homes that most need remodeling aren't getting it. Last month, the National Low Income Housing Coalition asked Congress to reject the Bush administration's proposed 10.7 percent budget cut in the public housing capital fund.

That cutback, the coalition explained, “completely ignores the more than $20 billion backlog of public housing modernization needs.”

The White House remains committed to the public housing remodeling cuts. The federal government, administration officials insist, doesn't have the revenues necessary to modernize the nation's public housing.

One reason why: The tax cuts enacted since 2001 alone will cost the federal treasury $2.4 trillion by decade's end. Over half those tax cut dollars, 51 percent, will go to the richest 1 percent of U.S. households.

That ought to be enough to fuel another round of serial remodeling.

Stat of the Week: Harry Potter's Fortune

J. K. Rowling, the world's most popular author, is currently collecting about £1 million — the equivalent of $1.9 million — every three days “from royalties of her six Harry Potter books, movies, and from the merchandising of all the by-products.”

Rowlng now holds a fortune estimated at $1.1 billion. She typically shuns big-ticket consumption, but she and her family did rent a beachfront house at the Hamptons earlier this summer, at a $143,000 weekly rate.

Quote of the Week: How Much Do Smiles Cost?

“Despite the drive to make money that our society seems fixated on, researchers are finding that money by itself doesn't always translate into happiness. Of course there is a correlation between living below poverty level and being unhappy. Just the day-to-day struggle to survive could make anyone see the glass as half-empty rather than half-full.

“But researchers have found that once people reach what is considered a middle class income, the correlation between happiness and money fades considerably.”

Jennifer Rich, business editor, Bradenton Herald, August 22, 2006

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