Sixteen tons, singers once crooned, and what do you get? Well, if you hauled 16 tons for 16,000 thousand years — at an annual pay rate of $36,140, the typical 2007 U.S. worker take-home — you'd get almost as much as our financial world's 50 highest-paid hedge fund managers averaged last year, for just 12 months of hedge fund “labor.”

In this week's Too Much, we have the latest on the remarkably extravagant hedge fund manager annual earnings stats released last week.

These stats, even more remarkably, didn’t cause much of a stir in America’s top business, political, and media circles. A hedge fund manager makes 31 times more in an hour than the typical American family makes in a year? Our nation’s most distinguished personages see no particular cause for alarm.

Years ago, by contrast, many distinguished personages felt quite differently. We even had pillars of the business community who sounded loud, forceful alarms against outrageously top-heavy distributions of income and wealth.

If we today want to better understand why billions for hedge honchos imperil us all, we might want to revisit what those business leaders had to say. This week we do just that, with a look back at one particular banker extraordinaire.

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ABC World News anchor Charles Gibson chose a strange cause to champion at last week’s Obama-Clinton Presidential primary debate: the effort to keep tax rates low on capital gains, the profits that come from selling stocks, bonds, and other property — and go overwhelmingly to America’s rich. Debate moderator Gibson asserted that the government collects more money when the capital gains tax rate drops. In reality, even George W. Bush’s Treasury Department has acknowledged that cutting the capital gains tax rate costs the government revenue, as the Center for Budget and Policy Priorities and Citizens for Tax Justice each carefully documented last week after the debate. What explains why Gibson, amid all the economic woes impacting average Americans, chose to push for lower taxes on capital gains? Gibson may not exactly be able to relate to average Americans. He makes $8 million a year. In 2009, Americans who make over $1 million a year will save an average $32,000 from the Bush tax cuts on capital gains and dividends. The average American household will save $20 . . .

Christopher Peacock is branching out. No longer content to install the six-figure customized kitchens that have made him a darling of the global rich, designer Peacock this month will begin selling paint in his four U.S. showrooms. The paint will come in 90 shades — and won’t come cheap. The price: $125 for two-thirds of a gallon. That makes sense. If your kitchen cabinets are going to have silver knobs, are you going to buy your paint from Sears?

In the enclave of great fortunes known as Greenwich, Connecticut, a war between plutocrats has broken out — and the dead plutocrats are losing. Greenwich, a coastal garden spot an hour’s drive from Manhattan, first became a super-rich haven in the original Gilded Age. Captains of American industry and their top lieutenants studded the town with classic mansions. Now these historic structures are disappearing. The kings of the new Gilded Age have been tearing them down — to the horror of local historic preservationists, who, the Wall Street Journal reports, blame the teardowns on “Wall Street bonuses.” Greenwich has lost, in the last three months alone, 19 historic homes. But preservationists are having trouble rallying resistance. The problem? Some locals worry, says preservationist Russ Reynolds, who traces his Greenwich roots back to 1645, “if you can’t tear the house down, you’ll lose resale value.”

Heart disease kills 17.5 million people globally a year. A team of Harvard School of Public Health researchers last week suggested a strategy for limiting those deaths: make the world a less unequal place. Nations “with higher levels of inequality,” the Harvard team reported in a study published in the journal Social Science and Medicine, have “higher levels of morbidity and mortality from heart disease.” Previous studies, the researchers note, “have examined the associations between income inequality and broad health outcomes such as life expectancy.” Their study — entitled Is inequality at the heart of it? — explored instead the relationships between inequality and cardiovascular disease risk factors, tapping data from 78 nations. Inequality, the new study notes, likely impacts heart disease via many different pathways. The declines in community trust that accompany rising inequality, for instance, may “diminish informal social control over unhealthy behaviors.”

How unequal has California become? Just-released figures from the state’s Franchise Tax Board offer one answer. Just three of every 1,000 Californians in 2005 reported at least $1 million in income. But these three pulled in $213 of every $1,000 Californians earned in 2005 income. California’s fortunates have another reason to relish life in the Golden State. Wealthy Californians, the California Budget Project noted last week, pay a smaller share of their income in state taxes that California’s poor. The state’s top 1 percent — average income, $1.6 million — pay 7.1 percent of their incomes in income, sales, property, and gas taxes. The poorest fifth of California households pay state taxes at an 11.7 percent annual clip.

Inequality
by the numbers

CEO pay:
the scorecard

Good reads
for your bookshelf

Quote of the Week

“More — much more — is necessary to prevent the wholesale collapse of the U.S. economic system. A maximum wage should be imposed — the highest paid American should earn no more than ten times the lowest paid. I know, I know — none of this will happen. There will be nothing but Band-Aids and lazy rhetoric as we plummet into the abyss. It cannot be otherwise, for our politics are ossified, the media is corporatized, and we the people are dull and apathetic. ”
Ted Rall, editorial cartoonist and Pulitzer Prize finalist, The Cavalry Isn't Coming, April 15, 2008

New Wisdom
on Wealth

Are America's Rich Falling Behind The Super-Rich? The Onion presents a delicious video “debate” on class warfare at the top.

Julian Delasantellis, Crisis? What crisis? Asia Times, April 16, 2008. Why America's deepest pockets are pouring dollars into private equity funds at record rates.

Jay Hancock, Executive pay disclosure rules are a failure, Baltimore Sun, April 16, 2008.

N. Gregory Mankiw, The Wealth Trajectory: Rewards for the Few, New York Times, April 20, 2008. A Harvard economist — and Bush advisor — acknowledges that “it's a great time to be rich.”

In 2007, the business trade journal Alpha reported last week, the hedge fund world's top 50 income-earners collected $29 billion — an average of $581 million each. The king of them all, John Paulson of Paulson & Co., last year took home $3.7 billion from his hedge fund labors.

Alpha has been tracking hedge fund earnings for just seven years. In the first Alpha ranking, released back in 2002, hedge fund managers needed to clear a mere $30 million to make their way into the top 25. That entry threshold shot up to $210 million in the rankings Alpha published a year ago.

In the new Alpha rankings, gaining top 25 status demanded at least $360 million.

The Alpha magazine figures, incredibly, actually understate how much loot is cascading into hedge fund kingpin pockets. Alpha only tallies income that reflects the “investment prowess” that hedge fund managers display.

That is, Alpha just counts the annual fees that hedge fund superstars charge clients for managing their money — that’s usually 2 percent of the money invested — and the 20 share of the profits that hedge fund managers skim off from any gains they make selling off assets. Their typical share of these investment gains runs 20 percent.

But Alpha doesn’t count any money that hedge fund managers may make selling off shares of stock in their firms.

Daniel Och, for instance, rates just 41st on Alpha’s new top 50 list, with “investment prowess” income at only $245 million. Och, in hard fact, did quite a bit better financially than that in 2007. Last November his firm went public on Wall Street, a transaction that added $4.5 billion to his personal bottom line.

Just what do hedge fund managers do to “earn” these awesome sums? They make most of their killings betting on others’ misfortune. John Paulson, the $3.7 billion-dollar man, racked up his big gains wagering that reality would collapse the subprime mortgage market. Other hedge honchos placed winning bets on rising commodity prices for oil, wheat, and copper.

The hedge fund gravy train doesn't figure to be stopping any time soon. HedgeFund Intelligence, another trade publisher, calculates that hedge funds globally held $2.65 trillion in assets at the start of 2008, a sum up 27 percent over the year before.

In 2 percent management fees alone, that stash of cash will generate $53 billion in 2008 for John Paulson and his fellow hedge fund managers.

Marriner S. Eccles, Beckoning Frontiers: Public and Personal Recollections. New York: Alfred A. Knopf, 1951.

At the start of the Great Depression, Marriner Eccles hardly seemed someone who might lead a charge against the economic orthodoxies that justified grand hoards of private fortune. By the early 1930s, after all, the Utah-born Eccles had become the top banker in the Mountain West, the organizer of the first multibank holding company in the United States. 

But Eccles had also come to understand, after watching the great speculative bubbles of the 1920s pop into massive misery, that prosperity — to endure — needs to be shared. Eccles began speaking out on that theme, shortly after the Great Depression began, and soon caught the attention of the early New Dealers.

In 1933, Eccles would become an assistant secretary of the treasury. A year later, Franklin Roosevelt would appoint him to the Federal Reserve Board. He would become Board chair in 1935 and remain in that central position for the next 13 years. No one individual, over those years, had more of an impact on economic policy in the United States.

Looking back on those years, in his 1951 memoir Beckoning Frontiers, Eccles would do his best to explain the impact he set out to make. Mass production, he noted at the outset, demands mass consumption, but people can’t afford to consume if the wealth an economy generates is concentrating at the top.

In the years leading up to the Great Depression, that concentrating was accelerating. A “giant suction pump,” charged Eccles, “had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth.”

“In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands,” Eccles observed, “the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.”

Sound familiar? The decade of the 1920s that Eccles describes in his 1951 memoir comes across today as eerily familiar. Then as now, the U.S. economy was floating on a sea of debt.

Then as now, inequality was hollowing out the nation. Eccles put the matter bluntly: “Had there been a better distribution of the current income from the national product — in other words, had there been less savings by business and the higher-income groups and more income in the lower groups — we should have had far greater stability in our economy.”

How would Eccles have reacted to our current debt-ridden, war-torn economy? We can’t, of course, know for sure what Eccles would do. But we do know what he did. In 1942, during World War II, a high-powered team of New Deal officials that included Eccles proposed to President Roosevelt that “a ceiling of fifty thousand dollars after taxes should be placed on individual incomes.”

In our current dollars, this $50,000 ceiling would equal about $700,000. What did FDR do with the Eccles proposal? He turned around and asked Congress to place a 100 percent tax on all individual income over $25,000.

Congress would eventually set the nation’s top tax rate at 94 percent on all income over $200,000, and that top tax rate would hover around 90 percent for the next two decades, years that would see the greatest period of middle class prosperity in U.S. economic history.

In 2005, the latest year with statistics available, America’s leading hedge fund managers and the rest of the nation’s top 400 income-earners faced a top tax rate of 35 percent. They actually paid, after loopholes, just 18.2 percent of their incomes in tax.

Marriner Eccles would not approve.

Stat of the Week

In the two decades between 1986 and 2005, America’s top 1 percent of taxpayers saw their share of the nation’s income jump from 11.3 to 21.2 percent. Over those same years, the federal income taxes the top 1 percent paid dropped by an equally stunning margin, from 33.13 percent of total personal income in 1986 to 23.13 percent in 2005, the most current year with IRS stats available. Taxpayers needed to report at least $364,657 in 2005 to enter the top 1 percent.

Too Much is published by the Council on International and Public Affairs, a nonprofit research and education group founded in 1954. Office: Suite 3C, 777 United Nations Plaza, New York, NY 10017. E-mail: editor@toomuchonline.org.