December 11, 2006

Peace on Earth? How about we start with equality in and among nations, a social commodity — says a just-released UN think tank study — in grotesquely short supply. We explore the eye-opening new stats in this week's Too Much.

Greed at a Glance: Santa's Private Jet

Who says lame ducks can’t get anything done? GOP leaders in Congress, roundly rebuffed by voters on Election Day, spent last week completing some unfinished business. In a closed-door session, House and Senate conference committee sachems okayed a tax break for wealthy Americans that had never passed either the House or the Senate on its own. The measure makes “Health Savings Accounts,” a two-year-old tax shelter that overwhelmingly benefits wealthy taxpayers, an even more potent tax dodge. The new tax break lets affluent Americans shift dollars out of IRAs, where they get taxed at withdrawal, into HSAs, where they never face taxes. By encouraging “higher-income, healthy individuals who need little or no health care” to open HSAs, says the Center for Budget and Policy Priorities, the new legislation will likely end up spiking the cost of health insurance for average Americans . . .

A new survey of America’s super-rich — those households worth at least $10 million — is predicting a heavy uptick in luxury spending this holiday season. Deep pockets, says an Elite Traveler poll, will be shelling out 25 percent more this year than last on holiday parties, travel, and shopping. Among the top holiday spending categories: spirits for entertaining (up 57 percent to $22,300) and yacht charters (up 12 percent to $410,600). The awesomely affluent will also be averaging $91,100 on holiday jewelry, $36,400 on designer fashions, $52,000 on luxury watches, and $25,700 on flat screen TVs and other electronics. And, yes, America’s swells are thinking about others, too, this holiday season. They plan, notes Elite Traveler, to average $94,200 in holiday charitable contributions . . .

Here’s some good seasonal news: Fewer cars may be clogging highway holiday traffic. Credit this possible drop-off to America’s richest shoppers. Nearly 25 percent of the nation's $10 million-plus households will “travel by private jet just to shop for holiday gifts.” And Ascend Development, a California-based airport company, will be ready for them. Ascend is now offering — for condo-style purchase — “state-of-the-art” private jet hangars, complete with relaxation rooms, crew quarters, and a host of other amenities “sure to delight the most discriminating clientele.” Private jetsters can even personalize their hangars with custom flooring, either “company logo or family crest.”

The financially fortunate who'd rather spend their travel time on terra firma can now do their customizing on a brand-new Ferrari. Buyers who lay out $175,000 and up for a Ferrari super-car can pick from among "a dozen leather colors and 13 colors of stitching." Lamborghini apparently feels no need to match Ferrari's custom options, even on the company's $300,000-plus Murcielago LP 640 Roadster. The reason? Sales of Lamborghinis in the United States are already running up 50 percent over last year. DaimlerChrysler, meanwhile, is pushing a new high-tech Mercedes-Benz, the $191,000 S65 AMG. Outfitted with radar cruise control, this V-12 sedan “automatically” slows or speeds up to keep a safe distance from any vehicle up ahead. Mercedes will manufacture 1,000 AMGs next year — and plans to sell half in the United States . . .

White House staffers were crowing last week after the Bureau of Labor Statistics announced that the average hourly wage for Americans in nonsupervisory jobs has jumped 2.8 percent from last to this October, after adjusting for inflation. That’s “huge,” Council of Economic Advisers chair Edward Lazear told reporters. “Huge” may not be quite the right word. Americans workers, after inflation, are still making no more per hour than they made in October 2003. Why the wage stagnation, despite rising worker productivity? The share of the nation’s income going to wages and salaries, the Commerce Department reports, has shrunk to 51.8 percent, the lowest share since 1929.

Inside the Stock Buyback Boondoggle

The share of national income in the United States going into corporate profits has increased 60 percent since 2001. So what are corporations doing with all those extra dollars? Investing in research? Lowering prices to consumers? Improving wages?

None of the above. Corporations, on a massive scale, are “buying back” their shares of stock off the open market, a strategy expressly designed to jack up a company’s share price — and, not so coincidentally, hike the personal earnings of executives whose pay levels directly hinge on where that price stands.

Over the first nine months of 2006, notes Wall Street editor Matthew Goldstein, major U.S. corporations bought back “a record $325 billion” of their own shares, “more than double the $130 billion spent on buybacks during the first nine months of 2004.”

Just how big a chunk of corporate earnings does that $325 billion represent? Through October, these same major corporations reported $590 billion in earnings.

In effect, says Goldstein, big companies ars spending “more than half their earnings power retiring their shares.”

Contemporary executives find buybacks almost impossible to resist. These buybacks give “an immediate boost to earnings per share,” explains business journalist Barry Rehfeld, “simply by spreading profits over fewer shares.”

Executive pay packages regularly measure CEO “performance” by earnings per share. The fewer shares outstanding in the marketplace, the higher earnings per share will be, even if a company has done next to nothing to make its products and services more attractive.

But corporate executives wouldn’t actually spend billions of corporate dollars just to hike their own compensation, would they?

A New Portrait of Our Distinctly Unequal Globe

Some people, at year’s end, like to spread holiday cheer. The world might do better, suggests a landmark new report from the United Nations University in Helsinki, to start spreading wealth.

The new study — the first ever to tally, for the entire world, all the major elements of household wealth, everything from financial assets and debts to land, homes, and other tangible property — finds some $125.3 trillion worth of wealth about in the world, as of the year 2000.

If that wealth were divided in perfectly equal shares among all the world’s 3.7 billion adults, every adult on Earth would hold a net worth of just under $34,000 in U.S. dollars.

In real life, says the new study from the United Nations University’s World Institute for Development Economics Research, half the world’s adults hold under one-tenth that modest sum, less than $2,161. The vast bulk of the world’s wealth, the study observes, sits “highly concentrated” in the pockets of a relative few.

How concentrated? The richest 1 percent of the world’s adults — minimum wealth, $514,512 — hold 39.9 percent of the world's wealth, 13,000 times more than the entire bottom 10 percent.

The new UN University study, The World Distribution of Household Wealth, at one point translates our global distribution of wealth into a technical measure called a Gini coefficient, with “0” representing a situation where wealth is divided in total equality and “1” the opposite, a situation where one person owns everything. The higher the fraction in between, the more severe the inequality.

The UN University study computes the year 2000 global wealth Gini at 0.892, a level higher than the inequality rate within any individual country.

What does this abstract number mean in actual people terms? If you reduced the world’s population to 10 people, the study points out, this 0.892 Gini would correspond to a situation where the richest of the 10 people held $1,000 in wealth and the remaining nine a single $1 each.

We have more on the new UN University examination of our deeply unequal world.

Stat of the Week: A War on Poverty Deadend

Just one in five nations that took World Bank loans from 1995 to 2005 witnessed drops in poverty, says an official bank evaluation, in part because the World Bank “has not always paid sufficient attention to the distributional effects of growth enhancing reforms.” The result, one news analysis notes, has let the benefits from economic growth funnel “into the hands of the rich.”

Quote of the Week: Wages Minimum and Maximum

“The highest paid CEO in 1968 made as much as 127 average workers and 239 minimum wage workers. The highest paid CEO in 2005 made as much as 7,443 average workers and 23,282 minimum wage workers.”

Holly Sklar, Hartford Courant, December 5, 2006

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