POSTED ON MARCH 4, 2009:
The Year America Died
How rising income inequality is at the root of our current economic ills
On July 14, 1789 an angry mob invaded Paris' Bastille prison, igniting a chain of events that became the French Revolution. The insurgents may have been provoked by a prisoner, the notorious Marquis de Sade. "They are killing the prisoners here!" he shouted to the crowd two weeks earlier, on July 2. The authorities moved him to another prison before the 14.
The storming of the Bastille was pretty much a BS event. There were only seven prisoners for the revolutionaries to liberate, several of whom were living lives of considerable ease in fully furnished cells with servants. Yet the Bastille remains a symbol of monarchist oppression smashed by righteous people seeking freedom and equality. Sometimes empty symbolism means a lot.
Not so much here or now. Revolution doesn't seem imminent in Obamaland, where polls show people pro-Bama despite losing their jobs, and a government bailout for everyone and everything except the people and institutions who actually need help. But revolution's second cousin (symbolic scapegoating) is all around, like love in the Mary Tyler Moore Show theme song minus the beret toss.
"In 1980, according to a Forbes magazine study, executive compensation was 40 times the average worker's pay; by 2007, that had soared to more than 400 times," CBS News reported on February 25. Now that the companies those ridiculously compensated executives were charged with running are tanking, CEO pay is coming under attack by pundits and politicians.
President Obama won headlines and plaudits for a $500,000 income cap on top corporate executives - an idea that I and other progressives have been promoting for ages (and that was derisively dismissed as socialism before the U.S. began sliding into oblivion in September). As with the Bastille, however, there's a lot more symbolism than substance here.
First, the $500,000 cap doesn't cover 99 percent of Fortune 500 companies - only those receiving federal bailout cash. Firms like Bank of America, Citigroup, Wells Fargo and AIG, which got the first round of TARP moolah, won't be affected. Only a handful of companies would be covered, and even they'll escape the restriction. First, most CEOs receive relatively low salaries anyway. Most CEO compensation comes in the form of bonuses and stock options, which aren't subject to Obama's cap. And even the income cap cab can easily be evaded; CEOs simply have to notify company shareholders.
That's not all. "[Obama's income cap] excludes the midlevel execs who also received some of those Wall Street bonuses and who in many cases made the risky bets that sparked the crisis," reports The Politico.com. There are more loopholes, so many you could drive a gold-plated Hummer through it if you could afford the gas, but you get the idea."
"America needs to understand that this is cosmetic, that this is to appease taxpayer ire," said "Naked Capitalism" blogger Yves Smith, who has worked on Wall Street for 25 years. But that would be true even if Obama's cap were real and applied to every CEO in America.
Universally blamed for the fiscal meltdown, Wall Street investment bankers are under fire for taking in billions in bonuses in 2008, a.k.a. The Year America Died. Chris Dodd, chairman of the Senate banking committee, grandstanded thusly, vowing to use "every possible legal means to recoup the $18.4 billion in Wall Street bonuses." Vice President Joe Biden said: "I'd like to throw these guys in the brig."
Of course, nothing of the sort will happen. The bankers will keep their bonuses; they won't be checking into the Greybar Hotel any time soon.
What's gotten lost in the populist uprising is why seven-digit CEO salaries were worth talking about in the first place. They're a symbol and litmus test of a bigger problem, skyrocketing income inequality that has gotten worse and worse since the late 1960s. As the rich have grown richer - not just rich CEOs, but everyone in the top one to five percent of income earners - the poor, and especially the middle class, have become poorer and poorer.
So Big They Bust
The overall social problem of rising income inequality is at the root of our current economic ills. If corporations had paid the vast majority of workers the raises they deserved during the past 40 years, raises commensurate with increases in efficiency and productivity, people would have saved more and borrowed less. The real estate and credit bubbles wouldn't have grown as big. When they burst, people would have had resources to fall back upon. We are broke, unemployed, and maxed out - not because we bought too much stuff, but because our bosses paid themselves instead of us.
CEO and executive compensation in general aren't the problem, or even the cause of the problem. They are symptoms of a malady inherent in the capitalist system: the tendency of those who gain an early advantage to monopolize assets and aggregate wealth and influence at the expense of everyone else. You can see it when you play the board game "Monopoly." More times than not, whoever gets an early lead wins.
It isn't just CEOs. It's millions of Americans at the top of the income scale, many of whom consider themselves middle class. Because they earned too much, others earned too little.
Insulting CEOs (while letting them keep their perquisites) may be fun. But it doesn't begin to address what's killing the U.S. economy: the rancid notion that one person's hard day's work deserves more pay than another's.
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