Un jour tout sera bien, voilà notre espérance.
Tout est bien aujourd'hui, voilà l'illusion.
("One day everything will be fine; here is our hope.
Everything is fine today; here is the illusion.")
—Voltaire (1694-1778)
(Swans - April 25, 2011) AMERICAN BANANA REPUBLIC: Let me get your juices going with a story about IKEA, the largest furniture retailer in the world, the Walmart of self-assembling furnishings, which I found on Think Progress, a progressive Democratic Blog. About three years ago, IKEA opened a factory in Danville, Virginia. The workers tried to unionize but the company's management thwarted their efforts, which per se is not particularly newsworthy. When is the last time a major company has welcomed a union? However, of more interest regarding working conditions in the U.S., hourly wages in the packing department were cut from $9.50 to $8 in 2010. According to the story, these workers' annual vacation includes "4 days off selected by workers, [and] 8 days selected by management." Why is it newsworthy? Because the same IKEA workers in Sweden make $19 per hour and have five weeks paid vacation per year. Which prompted one union organizer to quip: "it's ironic that IKEA looks on the U.S. and Danville the way that most people in the U.S. look at Mexico." Even more ironic, according to Wikipedia, IKEA made a €2.538 billion net profit in 2009 (€2.7 billion in 2010) and paid not even one euro in taxes, because the group is controlled by Dutch INGKA Holding B.V., which in turn is owned 100 percent by a tax-exempt not-for-profit foundation...which in turn is controlled by Ingvar Kamprad, the 85-year-old founder of IKEA and his family. Neat, no? I presume the IKEA workers in Danville had to file their tax returns by April 15...
I'M ALWAYS AMAZED ABOUT how much information is out there for those who care to look. As William K. Black, an associate professor of economics and law at the University of Missouri-Kansas City, a white-collar criminologist and a former senior financial regulator during the 1990s' S & L crisis, keeps saying about accounting fraud by bankers: "1) If you don't look; you don't find. 2) Wherever you look; you will find." If you are curious about the extent of the looting of the commons, the banking and mortgage fraud, and the malfeasance of what he calls in the words of Tom Frank the "wrecking crew" -- Geithner and Bernanke -- I highly recommend Bill Black's Blog, New Economic Perspectives. It's a gold mine of solid and researched information. And if you only have time for one piece, read his April 16, 2011, article, Fiat Justitia Ruat Caelum ("Let Justice be done, though the Heavens Fall") in which he assails "Geithner's position favoring immunity for elite felons," a policy that "represents the intersection of the curves of injustice and stupidity at their respective maxima" (a paraphrase of the famous statement Charles Black made in light of the Supreme Court opinion in Plessy v. Ferguson: "The curves of callousness and stupidity intersect at their respective maxima.")
INDEED, THERE IS PLENTY TO FIND. Two weeks ago in my Blips #108, in which I used Michael Yates's work to weave through my narrative, I mentioned that much of corporate profits were due to cost-cutting and layoffs and I referred to Philippe Dauman, "the CEO of Viacom, [who] was the highest paid CEO with $84.5 million, an increase of 149% over 2009..." My Blips completed, I turned my attention to the April 10 Sunday edition of the paper of record. It just happened that in its business section, The New York Times published a special report on executive pay compiled by the executive compensation company Equilar Inc. They listed "the 2010 compensation and the accumulated wealth of 200 chief executives for large public companies that filed proxies for last year by April 1" -- companies with at least $7 billion in annual revenues. In an introductory piece, "The Drought Is Over (At Least for C.E.O.'s)," Daniel Costello wrote in regard to Philippe Dauman: "On this year's list, the highest-paid C.E.O. was Philippe P. Dauman of Viacom, who made $84.5 million in just nine months. (Viacom changed its fiscal year-end to September from December.)" In just nine months!!! So, in reality, Mr. Dauman increased his booty by 198.67 percent over 2009. Not bad, not bad at all. Keep in mind the numbers from the Bureau of Labor Statistics: in 2010, the compensation of workers in the private sector grew by a mere 2.1% (and only 1.7% in the past 12 months).
THE EQUILAR LIST had other instructive snippets. Quite a few CEOs saw their compensation rise by over 100 percent. One noteworthy individual is Jeffrey Immelt, the CEO of General Electric, the company that made over $14 billon in net profit last year and did not pay one iota in corporate income tax. Mr. Immelt's compensation increased by only 175 percent over 2009. (Mr. Immelt, lest you have forgotten, is also the newly-Obama-appointed chairman of the Council on Jobs and Competitiveness.) There are plenty others, but let me limit the list to those who saw their compensation increase by over 200 percent.
Michael R. Splinter (Applied Materials): +215% -- $9,748,295
Sanjay K. Jha (Motorola Mobility Holdings): +226% -- $12,312,126
David N. Farr (Emerson Electric): +233% -- $22,943,965
John F. Lundgren (Stanley Black & Decker): +253% -- $32,570,596
Roger S. Penske (Penske Automotive Group): +278% -- $3,875,000
John P. Suma (United States Steel): +449% -- $8,277,207
J.W. Marriott Jr. (Marriott International): +552% -- $9,620,869
And last but not least,
Lynn Laverty Elsenhans (Sunoco): +672% -- $11,526,041
OF COURSE, IF YOU ARE LISTENING TO or reading the so-called professional business journalists, like Joe Nocera of The New York Times or supply-side economist Stephen Moore at The Wall Street Journal, people who shill for the corporate world, you will be told that these high compensations are needed to attract and retain talented executives and are deserved because these executives maximize profit for the shareholders, which is their primary duty -- three claims that are patently false and intellectually fraudulent. First of all, as the president of the Economic Strategy Institute, Clyde Prestowitz -- a former counselor to the secretary of commerce in the Reagan administration and the author of the compelling book, The Betrayal of American Prosperity (Free Press, 2010) -- wrote in a letter to the Times (April 10), corporations are chartered by states, not by shareholders, under the sentiment that a corporation "may provide benefits to the society and not just to the shareholders." Prestowitz adds:
It is interesting to note that as recently as the 1980s, the Business Roundtable's chief executive mission statement asserted that the chief executive had a duty to care for customers, employees, communities and the nation (the stakeholders, in other words) as well as the shareholders.
This mission statement was changed in the mid-1990s to conform to the present shareholder value fetish.
THE DUTY OF A CEO is not to enrich him or herself and the shareholders, it is to provide benefits to society, like my duty as a small publisher is to provide a platform to express honest thoughts -- not spin (that may bring money home) -- by contributors, including myself, who care dearly for our commons. The duty is to do right for the whole, not the self. Secondly, the other two claims -- to retain talent and to maximize profit -- are sheer hogwash. To demonstrate the fallacy of these two claims, let me bring to the fore the careful work of one of the rare honest business journalists in the mainstream media, Gretchen Morgenson. Now, here again, Morgenson is not a radical (she was the press secretary of Steve Forbes during his 1995 presidential bid) and she does not advocate radical solutions (she would be out of her job at The New York Times in a hurry). But, over the past few years she has documented the shenanigans in the FIRE sectors and exposed wrongdoers aplenty.
IN HER APRIL 10 COLUMN, "Enriching a Few at the Expense of Many," Morgenson begins by asking whether executive pay matters to shareholders so long as the latter prosper. Then, as she often does, she invited someone to address the issue, this time, Albert Meyer, a former forensic accountant and professor of accounting, who is now a money manager at the firm he founded in 2006, Bastiat Capital. Meyer does not mince words: "When compensation is excessive, that should be a red flag. . . Stock-based compensation plans are often nothing more than legalized front-running, insider trading and stock-watering all wrapped up in one package." Meyer provides a series of companies where executive pay is more modest and yet well managed and successful. For him excessive executive pay, far from maximizing profits for the shareholders, hurts them. To make his point, he compares two oil companies, ExxonMobil, the largest private oil company in the world, and Statoil, the Norwegian oil company that is 67 percent owned by the government. According to Meyer, Statoil's CEO, Helge Hund, was paid about $1.8 million in 2010 and ExxonMobil's CEO, Rex Tillerson, was paid $21.7 million in 2009 (and $21.5 million in 2010 due to a slight decline in stock awards). Morgenson writes that "Mr. Tillerson's pay is more than double the combined $8.3 million that Statoil paid its nine top executives in 2010." So, if there is a correlation between the level of executive pay and the maximization of profits for shareholders, then ExxonMobil's shareholders should be laughing all the way to the bank, right? Wrong! From the time Statoil was listed on the stock exchange in October 2001, the company's stock has climbed 22.3 percent per year. ExxonMobil's stock? Only 11.4 percent per year. Quod Erat Demonstrandum! Morgenson concludes her column citing Meyer:
Middle-class America experienced a lost decade in their retirement accounts, whereas executives enjoyed record compensation packages through the subterfuge of stock option programs.
There has been a massive wealth transfer from middle-class America's retirement accounts to the bank accounts of the privileged few. The social consequences of this wealth transfer bear scrutiny.
TO BEAR SCRUTINY IS NOT NEEDED to find out the social consequences of this massive transfer of wealth to the top of the moneyed class. Suffice to look around all over America (cf. Michael Yates). It's the same moneyed class -- and class is not an obsolete construct -- upon which the Republicans under the leadership of Rep. Paul Ryan (R-WI) want to hand down another tax break in their budget reform that Ryan calls a cause, to be compensated by heavy cuts in Medicare and Medicaid (and other programs), and, of course, the long-sought prize: the privatization of Social Security. For once, President Obama got it right in his response to a question during his staged performance on April 20, 2011, at the HQ of Facebook in Palo Alto, CA. Here is the exchange (from the transcript posted on whitehouse.gov):
THE PRESIDENT: Hey, Leo.
QUESTION: Hi, hey. I'm from -- originally from San Jose, California. My question is: The 2012 budget plan proposed by Paul Ryan has been praised by many in the media as bold or brave. Do you see this as a time that calls for boldness, and do you think that the plan you outlined last week demonstrated sufficient boldness, or is this just a media creation?
THE PRESIDENT: No, it's a great question. Look, here is what I'd say. The Republican budget that was put forward I would say is fairly radical. I wouldn't call it particularly courageous. I do think Mr. Ryan is sincere. I think he's a patriot. I think he wants to solve a real problem, which is our long-term deficit. But I think that what he and the other Republicans in the House of Representatives also want to do is change our social compact in a pretty fundamental way.
Their basic view is that no matter how successful I am, no matter how much I've taken from this country -- I wasn't born wealthy; I was raised by a single mom and my grandparents. I went to college on scholarships. There was a time when my mom was trying to get her Ph.D., where for a short time she had to take food stamps. My grandparents relied on Medicare and Social Security to help supplement their income when they got old.
So their notion is, despite the fact that I've benefited from all these investments -- my grandfather benefited from the GI Bill after he fought in World War II -- that somehow I now have no obligation to people who are less fortunate than me and I have no real obligation to future generations to make investments so that they have a better [future].
So what his budget proposal does is not only hold income tax flat, he actually wants to further reduce taxes for the wealthy, further reduce taxes for corporations, not pay for those, and in order to make his numbers work, cut 70 percent out of our clean energy budget, cut 25 percent out of our education budget, cut transportation budgets by a third. I guess you could call that bold. I would call it shortsighted.
[...]
So, yes, I think it's fair to say that their vision is radical. No, I don't think it's particularly courageous. Because the last point I'll make is this. Nothing is easier than solving a problem on the backs of people who are poor or people who are powerless or don't have lobbyists or don't have clout. I don't think that's particularly courageous.
IT REMAINS TO BE SEEN whether our Compromiser in Chief will hold firm on his newly-rediscovered 2008 campaign-trail convictions or whether he will surrender to the latest buzz in town -- the budget deficit and the long-term debt of the US government. In Ryan's 2012 budget plan unveiled on April 5, "The Path to Prosperity: Restoring America's Promise" (PDF) -- a 73-page document filled with demagoguery "phooey," or malarkey, rubbish, hot air, hogwash, bunk -- in other words absurd nonsense, one can read that "we face a crushing burden of debt." It takes 73 pages of ideological crapola for Ryan to explain what he could have said in two lines: Cut spending -- essentially programs for the poor and the middle class -- and cut taxes for the wealthy and the corporations, which in turn will create jobs and hence increase revenues. The old supply-side story, but pushed to such an insane boundary that not even Ronald Reagan would have dared to embrace. If one wishes to hammer the last nail in the coffin of the US economy, this is the plan to follow. Supply-side economics does not work and has never worked. Period.
RECALL THE ANALYSIS OF economist Mike Kimel, which I cited in my Blips #106 (March 14, 2011). It's worth repeating:
... from 1981 to the present, the period in which Reagan's philosophies have reigned triumphant, the correlation between the top marginal tax rate and the annual growth in real GDP has been positive. That is to say, higher top marginal tax rates have been associated with faster, not slower real economic growth. Conversely, lower top marginal tax rates have coincided with less economic growth.
The positive relationship between the top marginal tax rate and the growth in real GDP is very nearly bullet-proof. For instance, it extends all the way back to 1929, the first year for which the government computed GDP data. Additionally, higher marginal tax rates are not only correlated with faster increases in real GDP from one year to the next, but also with increases in real GDP over the subsequent two, three, or four years. This is as true going back to 1929 as it is for the period since Reagan became president.
[...]
... since 1981, unemployment rates have generally shrunk faster when tax rates were higher than when they were lower.
(Source: "The Effect of Changing Top Marginal Tax Rates," December 7, 2010 -- http://www.presimetrics.com/blog/?p=253.)
ANOTHER ASTUTE OBSERVER, whose work I have mentioned before, is Bill Mitchell, a research professor of economics at the University of Newcastle, Australia, and a leading proponent of Chartalism (aka, Modern Monetary Theory), a post-Keynesian economic theory. Mitchell wrote a Letter to Paul Ryan, posted on his Blog on April 9, 2011, in which he completely debunks "The Path to Prosperity" with the help of correct data (unlike Ryan's), economic sense...and good humor to boot. In regard to lowering taxes "to promote economic growth and job creation," Mitchell displays a graph of US employment from 2002 to date, using data from the Bureau of Labor Statistics and showing the dramatic drop between 2008 and 2010 and the growth since 2010. He then notes wryly: "The question I always have when people try to make structural arguments (in this case about the tax system) when they are essentially considering cyclical events is this: Was there a major change in the tax code just before employment growth plunged? Also, if the tax code is bad for employment growth and it hasn't changed yet (because you want to change it) -- why is employment growing again?"
AS TO RYAN'S ALLEGED "crushing burden of debt," Mitchell tells Ryan that "the 'burden,' in commonly-accepted parlance, relates to what the person has to do to service the debt." He then proceeds with the display of "a graph that shows the US federal government interest payments as a share of GDP from 1947 to 2010," which shows that "the 'burden' seems to be rather modest even considering the rise in debt associated with the fiscal stimulus packages." (The "burden" is actually much lower than during the period 1980-1995). Mitchell goes on with his scathing criticism of the Ryan plan. I recommend that you take the time to read his Blog entry in full.
WHETHER RYAN IS SINCERE AND A PATRIOT, as Obama said, is utterly irrelevant to the issue at hand. Bush Jr. was certainly sincere and patriotic (in his own mind and that of his followers), but he led the country into two unfunded nightmarish wars, a drug-benefit program also unfunded, and huge tax breaks for the wealthy, which neither grew the economy nor created jobs, yet increased the public debt in the trillions of dollars, all the while furthering the deregulation of the FIRE sector which led to financial mayhem. I'd rather have a cunning but knowledgeable politician (e.g., FDR, de Gaulle) in charge than an ignorant ideologue such as the likes of Paul Ryan. Want to balance the budget? Read my Blips #106 again. It can be done with a snap of the fingers without further destroying the well being of 80 percent of the American polity.
WHAT'S SO DISPIRITING is that the information is out there but utterly ignored by much of the mainstream media and the majority of the people who are busy with their daily life, keep drinking the Kool Aid, and refuse to think for themselves. Professor Black, whom I mentioned supra, strongly believes in the need for society to stigmatize accounting-control frauders among the ruling class through full criminal prosecution. He is a follower of the great American sociologist Edwin H. Sutherland (1883-1950), who coined the expression "white-collar crime" in his famous speech "The White Collar Criminal" delivered in December 1939 at the American Sociological Association, and in his subsequent book White Collar Crime (Dryden, New York, 1949 -- and the uncensored version published by Yale University Press in 1983). For Sutherland, white-collar crime was "a crime committed by a person of respectability and high social status in the course of his occupation." The only way to keep these elites honest, short of the guillotine, is to prosecute them to the full extent of the law, which is exactly what the "wrecking crew" and DOJ have refused to do (with one small exception), shielding them from the stigma they so well deserve.
FURTHERMORE, how can you stigmatize their shills, who have liberal access to TV and the mainstream press, people who are morally repugnant? See, for instance, Bill Black's "Stephen Moore's ode to the American Workers his Policies Harm" and "Why aren't the honest bankers demanding prosecutions of their dishonest rivals?" (both on "New Economic Perspectives," April 4 and 11, 2011, respectively) to grasp the extent of their repugnance. And finally, how can you stigmatize the likes of Representative Paul Ryan for their moral criminality? Unfortunately, there is no law, no punishment against intellectual and political fraud. Nor is it a crime to steal from the masses to enrich the few!
. . . . .
C'est la vie...
And so it goes...
La vie, friends, is a cheap commodity, but worth maintaining when one can.
Supporting the life line won't hurt you much, but it'll make a heck of a
difference for Swans.
Legalese
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About the Author
Gilles d'Aymery on Swans -- with bio. He is Swans publisher and co-editor. (back)