The taxpayers of the United States, thanks to $182.5 billion in bailout aid, currently own 80 percent of the world’s biggest insurance company, the high-finance giant AIG. So who should we taxpayers have sitting on the AIG board to represent our interests?

How about a courageous whistle-blower from inside AIG? Or an academic expert in toxic securities? Or a retired general who knows how to rebuild teamwork in a shattered organization?

Try “none of the above.” Last week, the three federal trustees overseeing AIG “elected” to the AIG board six careerists from the same corporate culture of compensation excess that sunk AIG in the first place, including three former CEOs — from American Express, Sears, and Northwest Airlines.

Interestingly, we can see almost the same exact dynamic across the pond in the UK where British taxpayers now own 70 percent of banking colossus RBS.

Last Monday, the UK trustee for this stake declared he has no problems with the just announced $15.8 million pay plan for the new RBS chief exec. Explained trustee John Kingman, a former top aide to the CEO of BP oil: “We could pay civil service salaries, but I don’t think that would be a sensible gamble to take.”

Good point, John. Somebody paid like a “civil servant” might do something really reckless, like melt down the global economy. Speaking of meltdowns, in this week’s Too Much, we go searching for the roots of the state budget disasters now rolling across the United States. We find them — in inequality.

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Power suits at America's last two major independent securities firms, the Wall Street Journal revealed last week, now stand to pocket over $30 billion in 2009 bonuses. And why not? Business at Goldman Sachs and Morgan Stanley, despite the recession, is booming. One reason: The two firms, the beneficiaries of billions in direct and indirect federal bailout aid, are facing fewer competitors since last September's financial industry meltdown. If current trends continue, the average Goldman 2009 bonus will hit $700,000 per employee, $39,000 more than the average the year before the meltdown. What about the pay restrictions that come with federal bailout dollars? Of the three federal bailout programs that have boosted Goldman and Morgan Stanley, only one — the TARP program — carries restrictions. But both banks rushed last month to repay their TARP aid and, as a result, can pay whatever the “market” demands. Observes veteran Wall Street recruiter Steven Eckhaus: “I'm seeing deals like it’s 2007 again.”

The Philadelphia Business Journal has just published its annual CEO pay rankings, and the figures have Temple University analyst Steven Balsam a bit baffled. Last year’s biggest Philly area CEO paycheck went to Robert Toll of homebuilder Toll Brothers Inc. Toll collected $48.2 million. His company lost $298 million. Philly’s second-biggest paycheck, $40.6 million, went to Comcast CEO Brian Roberts. Comcast shares, for the year, dropped 6.6 percent. Corporate boards, notes Temple’s Balsam, typically justify lavish CEO pay as an essential expense needed to keep their top execs from exiting for greener pastures elsewhere. But neither Toll nor Roberts, notes Balsam, appear likely to bolt anytime soon. Toll’s family owns most of Toll Brothers, and Roberts’ CEO successor at Comcast just happened to be Ralph Roberts, his daddy . . .

America’s very rich, two Columbia University economists report, have become very male. Back in the late 1960s, Lena Edlund and Wojciech Kopczuk detail in the June American Economic Review, women made up nearly half of America’s richest 0.01 percent. Their share has now dropped to one third. The prime reason? With the explosion of pay at the top of the corporate ladder, executives can now “work” their way into the ranks of America’s richest. In the process, points out the Stanford Center for the Study of Poverty and Inequality, “the older road of direct inheritance has accordingly been superseded.” Adds the Center: “Until women crack the uppermost echelons of the labor market, we can therefore expect gender inequality in wealth to persist.”

The latest casualties in the global economic crisis: the landlords who lease retail space in the world’s top luxury shopping destinations. From Union Square in San Francisco to the Pitt Street Mall in Sydney, rents are sinking, with analysts the CB Richard Ellis Group now estimating that the luxury retail rental market will bottom out at 25 percent off the rate peak a year ago. Manhattan’s Fifth Avenue remains the world’s most expensive retail street, at $1,800 a square foot per year, followed by Hong Kong, Moscow, Paris, and Tokyo. Realtors see little prospect for a quick market turnaround. Laments CB Richard Ellis realtor Jay Luchs in Los Angeles: “It isn’t chic anymore to go out and blow money.”

What qualifies as chic, on the other hand, can get confusing. At last weekend’s annual luxury fair in Porto Cervo, the Sardinian summer getaway for the global glitterati, yachtmaker Azimut didn’t get a single offer for the new Leonardo 100, a sleep-ten pleasure boat that retails for $16.9 million. And Pagani, the Italian luxury automaker, didn’t grab a single bid for its newest supercar, the $1.7 million Cinque. But the makers of Exousia Gold Luxury Water did just fine at Porto Cervo. They sold 30 bottles — at $2,800 each. Why such a big run on designer-label mineral water? Explains reporter Tara Loader Wilkinson: “No one wanted to come away from the fair empty-handed.”

Quote of the Week

“Income disparity at current levels is a political time-bomb that needs to be dealt with.” Ben Funnell, asset manager, GLG Partners, Debt is capitalism’s dirty little secret, Financial Times, June 30, 2009

New Wisdom
on Wealth

Lauren Sherman, World’s wealthy show signs of recovery, The Age (Melbourne), July 2, 2009.

Geraldine Baum,  Hair colorist at the split ends of Manhattan’s rich, Los Angeles Times, July 3, 2009.  A look back at high life and labor from a styling pro who wore “$600 Commes des Garcons pants while mixing peroxide.”

Daniel Gross, No Rest for the Wealthy, New York Times, July 5, 2009. Why Thorstein Veblen’s “110-year-old sociological vivisection of the financial overclass can still be au courant.”

What’s Squeezing America's States?

On July 1 last week, in state capitals across the United States, a new fiscal year began — amid nearly unprecedented fiscal chaos. In California, officials closed summer schools and made plans to pay bills with IOUs. In Arizona, state parks shut down for a day. In Illinois, drug treatment programs, facing a 72 percent funding cutback, were warning they may have to stop accepting new clients.

Overall, so far this year, 23 states have slashed programs for the elderly and disabled, 24 have axed aid to public schools, and 41 have sliced state worker jobs and benefits. And tens of billions in red ink still remain.

How could state budgets possibly spin so wildly out of kilter?

The current state budget crisis reflects, of course, the current recession. With economic activity down sharply, state tax revenues have fallen sharply, too. The already jobless aren’t paying state income tax. People worried about losing jobs are spending less. That’s lowering state sales tax collections.

But the back story to the current state budget crisis, the worst since the 1930s, goes deeper than the still deepening Great Recession. The recession has indeed shoved states over the fiscal edge. But the recession didn’t bring states to that edge. Inequality did. The states with the biggest budget gaps just happen to be, for the most part, the states with the widest gaps between the rich and the rest.

Why should that be the case? Why should inequality inevitably end up generating chronic budget shortfalls that eventually devastate the programs that average families value?

To get at the answer, we need to go back to a time — the mid 20th century — when states were launching, not cutting, programs to help average families.

Back then, in the 1950s and 1960s, states from New York to California were energetically investing in the infrastructure of modern middle class life. They were building schools for baby boomers, opening brand-new campuses for public colleges and universities, expanding state park systems, widening old roads, and broadening library access.

The vast majority of Americans, back in the mid 20th century, relished these new and expanded public services. The United States, at mid century, had become a solidly middle class nation, and middle class people — and poor people who aspire to middle class status — need and value public services.

This dominating middle class presence in American life would, unfortunately, prove not particularly enduring. The United States would become, over the 20th century’s last quarter, increasingly unequal as Income and wealth began concentrating up ever higher on the economic ladder.

That would be bad news for public services. Rich people, generally speaking, don’t need — and don’t especially value — these services. The wealthy don’t send their kids to public schools. They don’t take books out of public libraries. They don’t use public transportation. They don’t spend time at public parks.

Over time, not surprisingly, these wealthy tend to resent paying taxes to support the public services they don’t use.

Back in the mid 20th century, this resentment didn’t politically matter. In the considerably more equal United States that existed a half century ago, the rich amounted to a marginal slice of the population, and the wealth at their disposal didn’t amount to all that much. The rich of the 1950s and 1960s simply didn’t have the resources necessary to dominate and distort the nation’s politics.

That would change. Over recent decades, with more and more wealth concentrating at the top, those uninterested in public services have had the resources to do more than grumble about taxes. They’ve been able to bankroll campaign after campaign, in state after state, to roll taxes back.

Growing inequality has helped these campaigns succeed. With the economy’s rewards flowing to the top, and essentially the top alone, Americans in the middle have found their wages and salaries stagnating, even sinking. Tax cuts, for many in the middle, have come to seem the only way to make ends meet.

These tax cuts, once in place, start states on a nasty downward cycle. Tax cuts mean less state revenue. The lower the revenue, the fewer the dollars available for maintaining quality public services. The lower the quality, the greater the number of people who find themselves actively considering private service alternatives.

Soon the modestly affluent, not just the rich, feel better off going life on their own nickel — better off joining a private country club, better off sending kids to private school, better off living in a privately guarded gated development.

The greater the number of affluent people who forsake public services, the more inevitable still more service cutbacks become — even in “good” economic times, as the Center for Budget and Policy Priorities and the Economic Policy Institute noted last year in Pulling Apart, a detailed look at state inequality.

“Wealthy families that can afford private schools for their children can lose sight of the need to support public schools,” that study observed. “As a result, support for the taxes necessary to finance government programs declines, even as the nation’s overall ability to pay taxes rises.”

In not one state, the Pulling Apart study found, has inequality meaningfully declined since the 1980s. In 36 states, the study notes, “the income gap between the average middle-income family and the average family in the richest fifth has widened significantly.”

And the gains this top fifth has registered, the study stresses, have been “especially rapid at the very top of the income scale.”

Taxing this “very top,” the Center for Budget and Policy Priorities noted this past April in a follow-up report, could help states close their budget gaps. Even the tiniest of tax increases on the rich could have a sizeable impact.

“Nationwide,” the Center observes, “some $8 billion could be raised if every state with a personal income tax enacted a 1 percent rate increase on households making more than $500,000 a year.”

Some states have moved in that direction. Lawmakers in other states, incredibly enough, are still trying to go the opposite way. In Arizona, legislators last week pressed the governor to accept a “flat tax” that would actually lower the top state income tax rate on the wealthy, from 4.5 to 2.8 percent.

America’s states, in the weeks ahead, will all eventually “solve” their current fiscal shortfalls, mostly with still more cuts in public services. But the underlying state fiscal squeeze will remain. The end of the recession, whenever that comes, won’t end this squeeze. To become less unstable, states are going to have to first become less unequal.

Luxury, Love, and 'Lesser Beings'

Eve Pell, We Used to Own the Bronx: Memoirs of a Former Debutante. State University of New York Press, 2009. 225 pp.  

We all know what poverty can do — to individuals, to families, to societies that look the other way. Over time, we have learned, grinding, persistent, relentless poverty can wear down the most basic of human relationships.

But what about wealth? What can the possession of immense fortune, over time, do to us?

Eve Pell knows. Eve Pell, in this riveting new memoir, tells. We should listen. Now in her 70s, Pell entered life amid fabulous wealth — and has been battling to come to grips with that wealth almost ever since.

Pell comes from “old money.” In fact, in the United States, money doesn’t get any older than the Pell family fortune. Halfway through the 17th century, a Pell wheeled and dealed what we now know as the Bronx away from Indians and the Duke of York. In the late 19th century, the original Gilded Age, Pells wined and dined within New York’s fabled top “400.”

One of Eve Pell’s forbears created Tuxedo Park, the exclusive enclave 40 miles north of Manhattan where the 400 and friends spent “a few weeks in spring and fall, passing the time between the winter season in New York City and the summer season in Newport.” Another forbear owned that enclave’s largest manse, a 54-room palace with dozens of servants.

Eve herself came along in 1937, a Depression year. That horrible crisis meant little for swells like the Pells. Daily life went on as richly as ever, the men luxuriating in their private clubs, the women in their manors.

“The rich and clubbable like my mother lived like protected species,” Eve Pell writes. “Their meals were cooked and served, their clothing laid out each morning and evening, their offspring raised by nannies, their horses led by grooms to the mounting block.”

Above all else, the adults in young Eve‘s life had the luxury of time. None of them had to work, not with trust fund dollars so abundantly flowing. Yet these adults devoted precious little time — or psychic energy — to their children.

Parent and child did sometimes engage, more often than not when the child committed some vile social transgression, like getting too friendly with someone not of their class.

“Mummy,” as Eve writes, “had no qualms about being rude to those she regarded as her inferiors.”

And that would be just about everybody.

“If you think of affection and kindness as a kind of lymph system that lubricates family relationships and allows for trust to grow, my family’s levels were very, very low,” Eve Pell notes. “Instead, we grew up in a rigid and unforgiving pecking order.”

Eve’s parents would “be charming and jocular” with their rich friends, “polite and dismissive” with doctors and other professionals, and “unpredictable and harsh to lesser beings such as children and servants.”

“Why did they mock people who needed and wanted to be loved?” Eve Pell asks. “Why did they farm out their children to servants and boarding schools?”

The answers, she notes, surely go back “to the way they were raised, and so on back from one generation to another in a long chain of privilege and entitlement, coldness, hurt, and distance.”

This long chain of privilege, we can see today, actually came close to going kaput as Eve Pell matured and entered adulthood. By the late 1950s, America’s super rich had become significantly less rich. The legacies of the New Deal — steeply graduated progressive tax rates, a vital trade union presence — had begun trimming the rich to a much more democratic size.

In 1955, the top 400 income-earners in the United States only averaged $800,000 each after federal taxes, about $6 million in today’s dollars. For America’s upper crust, the future was looking precarious. The Gilded Age increasingly seemed absolutely ancient history.

Not anymore. In 2006, America’s top 400 averaged $218 million after taxes. This “new money,” thanks to cuts in the federal estate tax, will soon enough become “old money.” Those who hold it, suggests this moving new book from Eve Pell, will almost certainly feel sublimely superior. Lesser beings beware.

Stat of the Week

The world’s most crowded luxury car showrooms? You’ll find them all in China. In 2006, China ranked as Porsche’s 15th-largest national market. Porsche now ranks China third. In 2009's first five months, Porsche sales in the United States dropped 30 percent. In China, over the same period, Porsche registered a 3 percent sales increase.

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.