Executive Compensation…uh, Overcompensation

2008-Aug-10

I’ve been reading economics blogs lately to see how we will soon become just another third world country. Just came across this tidbit from The Automatic Earth:

What’s wrong with Wall Street? …:
* Rewards employees, not shareholders – It pays as much as 76% of its revenues to the people who work there (e.g., in 2006 Merrill paid $17 billion in compensation and its revenue totaled $22.4 billion). That pay is linked to revenue, not how much money their deals make for customers.

That money is not going to the real employees (the ones who do all the actual work). It is going to the leeches, those CEOs and top execs who get paid many millions, with multimillion golden parachutes beyond that) to take the companies for every dime as they ride its stock down into oblivion.

Decades ago one of my bosses said to me, “Well, a company can make money by selling things or by cutting expenses. And we are in the phone business and everyone has a phone, so our only choice is to cut expenses. And thirty percent of any company’s expenses are employee pay. So if the executives want to get paid more they have to cut rank and file employees. And that is what we are doing.” And the company laid off a quarter of a million employees while I was there, from 355,000 employees down to 120,000 (and many more since).

But right now, look at that thirty percent going to employee wages. That is management and non-management. But that was back in the 1980s, just as the era of downsizing was beginning. Since then per-employee productivity has been rising drastically, as huge numbers of employees have been cut and the remainder forced to do the jobs of those who left…or suffer the same fate themselves. And at the same time CEO pay has skyrocketed from about 30 times the average wage in 1980 to over 350 times now.

Now it appears that not only are CEOs and high level execs getting a much greater cut of employee pay, but now many execs are taking money that would have gone to stockholders or better or cheaper products and keeping it for themselves.

And you and I are paying for it…

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The Two Political Spectrums

2008-Jul-24

For decades we have assumed the political spectrum ranged from Liberal to Conservative, and assumed that all political groupings from the Klan to the Commies could be squeezed into that spectrum.

Well, we are about to discover that the importance of the Liberal/Conservative spectrum is becoming secondary to the far more primordial spectrum, that of the Haves vs Have-Nots. Yes, we will still have elections decided on the issue of whether gay guys should be able to have abortions on demand, but when people have to decide whether their kids will get food or medicine this week, at least some of them will get the picture that they must (at least temporarily) set aside their differences and concentrate on physical survival.

We used to have a middle class in this country. But no one will die middle class any longer. In a generation, all middle class jobs will be done by cheap imported or offshored labor for a fraction of their current wages, and anyone who manages to last until retirement will find anything they saved will be eaten up inflated food or energy or transportration costs, by medical costs not reimbursed by their medical plan, or they will have to sign over all their assets to some nursing home.

No need to worry about the “death tax” because only the super-rich will have anything left but debts when they die.

I’m seeing small groups of people starting to get together, getting past old differences, and cooperating on getting ready to survive the coming hard times. I’m seeing networks where leftie Pagans are getting with right-wing Fundie Christians on common issues.

The coming wars (acknowledged or not) will be between the top one tenth of one percent who will own everything and the rest of us who will own nothing…not even ourselves.

If those of us who are prey can get together soon enough to defend ourselves from the predators, we have a chance to make a society with a substantial middle class again and lessen the growing inequality. But so far it’s just a chance…


Kirkwood: Freedom’s just another word…

2008-Feb-08

for nothing left to lose

Those in power never seem to learn the most simple lesson:

Never ever screw someone to the point where they feel they have nothing left to lose.

Because when you push them to the point where they see no reason to continue living themselves, they may then see no reason to let you continue living either.

Maybe you feel that you are ever so superior to them, and your life is ever so much more valuable than theirs. Go ahead and feel that way all you want to. But if you act on your feelings and screw them over past their breaking point, you may not like the blowback. In fact, you may not survive it.

And Brad makes similar points

Update: Another post from Brad that bears reading:

I want you to get this through your head, and never forget it. Lynching was not a hate crime. Lynching was an economic crime.


Wealth and Survival

2007-Jan-12

General Systems Theory: Whether you are a person, a corporation, or a bacteria, what matters most is not how efficient you are every day but whether you can survive a crisis.

We all make mistakes, and likely most of us make an equivalent number of mistakes. That doesn’t matter. What matters is whether we have enough of a cushion to survive the mistakes we are certain to make. Why are so many humans today so fat? Because for most of human history the inconveniences and long-term health issue of overweight were less important than the ability to withstand a prolonged famine.

Wealth is a cushion that allows us to withstand any number of bad mistakes, which is why rich people never feel they have enough, and always want more, even if it means taking it from those with little.

A thought experiment, a game… Two people ante up a penny and flip a coin. The winner of the toss gets both pennies. When one person runs out of pennies, they die and the winner lives.

Now a slight variation…one person starts with ten pennies and the other starts with ten thousand. What happens? Right. The person with much more wealth lives while the person with little dies, no matter if the poor person makes better decisions or makes fewer mistakes or is “more responsible”. Wealth can overcome enormous differences in skill or talent.

In the real world, a rich person can literally get away with murder, while the poor might not be able to survive a few days of cold weather.

That same difference in wealth that can mean life or death, can more easily lead to the rich getting richer by using their wealth advantage to make the poor poorer. If a poor person misses a mortage or car payment because they have no cushion to protect them against adversity caused by their own mistakes or just random events, a rich person can use their cushion of wealth to get the assets of the poor for ten cents on the dollar. Over and over. Consistently. Being poor means being unable to protect yourself from those who want to take even what little you have.

Them what has, gets.


pratitya samutpada – multiple causation

2007-Jan-11

Jo Etta has a post on the Change for Missouri blog that in part asks whether the poor are to blame for their plight. The answer is, of course, “pratitya samutpada“, or multiple causation. Like nearly all human phenomena, no human situation has merely one cause. The question is in the percentages.

Any situation, whether poverty or teenage pregnancy, can be a combination of several factors such as other people having power over us, or the way the social or political system is set up which may limit our own choices, or perhaps our own unwise decisions may contribute (just how does a teenager develop wisdom anyway?), and usually will be a combination of all.

For instance, a young girl may get pregnant because a guy is able to leverage a tiny difference in power, such as a tiny five ounce metal object called a knife held to her throat. Or she may get pregnant and stay that way because society requires parental notification and so permits the guy who impregnated her (her father) to decide whether or not she is allowed to have an abortion. Or she may passively allow herself to get and stay pregnant because if she has a baby, then she will have at least someone in her life who can’t just use her and abandon her. Or all three can be true at the same time. That’s how multiple causation works.

Some people will say that if her own choices contributed even one percent for the situation, then she is totally responsible for the results. Others will say otherwise.

Same with poverty. Some person or group may start a business that undercuts prices and kills off all nearby businesses, and then uses its near monopoly to impoverish the entire community. Or our legislature may structure the legal system so that the rich can pass their wealth down to their descendents with no taxes, while the poor and middle class are required to give all their accumulated saving to hospitals or nursing homes as they lay dying, so their descendents are left with no inheritance at all and thus at a severe disadvantage. Or the poor may be that way because they made the unwise decision to fail to engage in the unethical business practices that allowed the wealthy to get that way.

See? Multiple causation. So just who is responsible when the weak get screwed by the strong?


The L-Curve and Income Inequality

2006-Nov-21

“Them what has, gets.”

The more wealth and power you have, the more you can obtain…and the easier it is to stop others from attaining what you have. In other words, the higher you find yourself on the ladder of success, the easier it is to pull the ladder up after you. Inequality breeds even more inequality.

So how much inequality do we have in this country? Most measures of inequality divide people into “quintiles”, 20% each. That means when we are measuring how much money people make we are lumping those making $20 billion a year in with those making $60,000. And that makes it ever so much easier to lie with statistics–to say things that are literally true but are totally misleading.

David Chandler’s “L-Curve” makes it a bit easier to see what true reality is like. See the graph or the video for yourself, but I will at least give you the word picture:

The US population is represented along the length of the football field, arranged in order of income.

Median US family income (the family at the 50 yard line) is ~$40,000 (a stack of $100 bills 1.6 inches high.)

–The family on the 95 yard line earns about $100,000 per year, a stack of $100 bills about 4 inches high.

–At the 99 yard line the income is about $300,000, a stack of $100 bills about a foot high.

–The curve reaches $1 million (a 40 inch high stack of $100 bills) one foot from the goal line.

–From there it keeps going up…it goes up 50 km (~30 miles) on this scale!

And, as Chandler notes, wealth is even more unequal than income:

The statistics on billionaires are diluted by lumping them in with mere millionaires.

And our friend Paul Krugman spills the ugly truth that those at the bottom are no longer going , through pluck and luck, to find their way to the top:

The myth of income mobility has always exceeded the reality: As a general rule, once they’ve reached their 30s, people don’t move up and down the income ladder very much. … during the first thirty years or so after World War II, the American dream of upward mobility was a real experience for many people.

…[T]his number has dropped to only 10 percent. That is, over the past generation upward mobility has fallen drastically. Very few children of the lower class are making their way to even moderate affluence. This goes along with other studies indicating that rags-to-riches stories have become vanishingly rare, and that the correlation between fathers’ and sons’ incomes has risen in recent decades. In modern America, it seems, you’re quite likely to stay in the social and economic class into which you were born.

Goodbye, Horatio Alger. And goodbye, American Dream

There are now two Americas, the world of the top one tenth of one percent…and the rest of us. If you watch the news you can see it. You hear the newscasters tell us that we have the most wonderful economy. And they (making three million dollars a year or more) are absolutely right. This is the best of all possible worlds…if you are in the top tenth of one percent. In their world there are just two types of people, the Predators and the Prey. And guess which one YOU are…

And our political parties show the split. At the national level there is just one party, the Plutocratic Party, which consists of just about all the Republicans and Democrats who got their position by the contributions of the top one tenth of one percent.

The parties have been placed into power by the votes of the gullible and the toadies, sycophants, and suckups who believe they can do better than the rest of us by eagerly doing the bidding of the Elite.

But the coalition of the Predators and victims is fraying at the seams. Bush lost (big time) because one group of toadies, the Christian Right, stayed home after they finally realized they weren’t getting much.

And the Democratic Wing of the Democratic Party is also slowly, ever so slowly, beginning to realize that Neo-Liberal is not the same as Liberal. But we may rebel more slowly because we can be even more gullible and easily led…

We shall see…