April 26, 2007
by Joel S. Hirschhorn
Editor's Note: Although the author makes some interesting points and observations here, we must not forget that the greatest threat to the economy is an out-of-control government that spends and spends until there is no more. Also, over-regulation drives prices higher, forces real wages lower, and prevents small businesses from any possibility of competing with the large corporations and special interests which seem to be favored by American politicians. For another viewpoint, see "Our Kind of Central Planning."
Stop being a compliant consumer. Face the ugly truth. Don't get fooled by the stock market. Accept the need for the mistreated middle class to become the revolutionary class. The British military establishment's most prestigious think tank sees what too few over-consuming Americans are willing to anticipate. Unjustified and mounting economic inequality is planting the seeds for global economic conflict.
Here is what the new report from the UK Defense Ministry's Development, Concepts and Doctrine Centre warned might happen by 2035. "The middle classes could become a revolutionary class. The growing gap between themselves and a small number of highly visible super-rich individuals might fuel disillusion with meritocracy, while the growing urban under-classes are likely to pose an increasing threat...Faced by these twin challenges, the world's middle-classes might unite, using access to knowledge, resources and skills to shape transnational processes in their own class interest."
Consider the wisdom of economist John Maynard Keynes: The rich are tolerable only so long as their gains appear to bear some relation to roughly what they have contributed to society. Think of it as proportional and justified economic success. This can be tolerated by poor and middle class people if they believe the economic system is fair and properly rewards those who work harder or have better capabilities. But truly obscene economic rewards angers people. When most prosperity and wealth is unfairly channeled to relatively few Upper Class people, it is only a matter of time until fuming, resentful people in the Lower Class decide enough is enough and revolt. Perhaps violently, if the political system remains controlled by the Upper Class.
A ton of data demonstrate how crazy our economic system has become where a relatively few receive astronomical gains that no rational person could see as justified. One study tracked down home ownership data for 488 CEOs in the S&P 500 Index set of companies. The typical home of the CEOs has 12 rooms, sits on 5.37 acres, and carries a $3.1 million price-tag. Companies big enough to rate S&P 500 status hiked their median CEO pay by 23.78 percent in 2006 to $14.8 million. In comparison, U.S. worker weekly wages rose just 3.5 percent in 2006.
Despite what you hear about the sagging housing market and the many people facing foreclosure, business at the top end of the U.S. housing market is booming. Sales of homes in the $5 million-and-up price range rose 11 percent last year, reports the Dallas-based Institute for Luxury Home Marketing. Ten residential properties sold for over $28 million in 2006. The most expensive in New Jersey sold for $58 million; it went to Richard Kurtz, the CEO of Advanced Photonix, a telecom supplier. In the "ultra-luxury market" a set of suites in New York's fabled Plaza Hotel was converted last year into one-bedroom condos that start at $6.9 million.
From another study we learn that pay for American college presidents over the past decade has jumped seven times faster than pay for college faculty. In 1996, only one college president took home over $500,000. In 2006, 112 college presidents hit that mark. Meanwhile, after inflation, compensation for college professors increased just 5 percent since 1996. And college students have faced rapidly mounting tuition far higher than inflation rates.
CEOs are getting away with economic murder. Bob Nardelli, the CEO who departed Home Depot early this year, had an exit package worth $210 million. IBM CEO Sam Palmisano took home $18.8 million in 2006 and will receive $34.9 million in deferred pay and $33.1 million in retirement benefits when he leaves IBM. Even more extreme is the case of Occidental Petroleum CEO Ray Irani. The interest income alone on the $124 million that ended the year in Irani's deferred-pay account totaled $679,396. The Los Angeles Times estimated Irani's total payoff for 2006 at $460 million. Leslie Blodgett, the top exec at cosmetics giant Bare Escentuals, collected $118.9 million in 2006, with most of that coming from the $117.7 million she cleared cashing out stock options. She received 4 million additional stock options before 2006 ended.
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Economists Emmanuel Saez of the University of California at Berkeley and Thomas Piketty of the Paris School of Economics found that the richest 10 percent of the U.S. population received 44 percent of the pretax income in 2005. This was the highest since the 1920s and 1930s (average: 44 percent) and much higher than from 1945 to 1980 (average: 32 percent). With more than 140 million U.S. workers, that top 10 percent equals 14 million workers. The bottom half of that top 10 percent had incomes of about $110,000. That may not seem all that high, except that the overwhelming majority of Americans can never expect such income. And remember that many of these top 10 percent Americans are married to or living with equally highly paid people.
When it comes to obscene economic inequality, however, you must focus on the huge gains received by the richest 1 percent - some 1.4 million people. Their share of pretax income has gradually climbed from 8 percent in 1980 to 17 percent in 2005. Their average income was $371,000. Who is in the top sliver of richness? Economists Steven Kaplan and Joshua Rauh of the University of Chicago estimate that there were about 18,000 lawyers, 15,000 corporate executives, 33,000 investment bankers (including hedge fund managers, venture capitalists and private-equity investors) and 2,000 athletes who made roughly $500,000 or more in 2004.
Do those at the top pay their fair share of taxes? Middle class Americans, after nearly 30 years of tax-cutting, are now paying about the same share of their incomes in federal taxes that they paid before Ronald Reagan entered politics. In contrast, America's richest have seen the share of their incomes that goes to federal taxes cut by over half. That what happens in a failed democracy and the rich control the political system.
What the future holds for the victimized middle class will not only depend on the uncontrolled greed of the wealthy Upper Class and its control of the political system. It will also be linked to the coming tsunami of global warming impacts on climate, sea level, water supplies, crops and disease. There will be devastating impacts on hundreds of millions and perhaps billions of people worldwide. Lower Class people will be sacrificed - left to suffer the consequences. The rich will retreat to their walled, protected and well stocked havens.
Add to this scenario the inevitable collapse of the entire economic system. At some point it will not be controllable as it is now by those in banking and finance, able to manipulate it to sustain economic injustice. Eventually the inherent fundamental absurdities of the global economic system will prove unsustainable. The wealthy Upper Class will have siphoned off most of the world's wealth and hoarded resources to maintain a luxury lifestyle.
What the future holds: Lower Class economic slaves fighting to survive in a medieval, ugly and bleak world that so many science fiction stories have portrayed. In that hell their best option will be to rise up and revolt against the rich and powerful Upper Class. With such a prospect, global class war on a sick planet, prevention is a priority. For us, that requires paying much more attention now to economic inequality, economic injustice, economic apartheid and the many attacks on the middle class. If not, we get Economic Armageddon along with environmental disaster.
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Joel S. Hirschhorn is the author of Delusional Democracy - Fixing the Republic Without Overthrowing the Government. His current political writings have been greatly influenced by working as a senior staffer for the U.S. Congress and for the National Governors Association. He advocates a Second American Revolution. He welcomes feedback and can be reached through www.delusionaldemocracy.com.
