AIG, Madoff, and populist resentment of the moneyed class

As public outrage grows over the multi-million dollar bonuses paid to AIG employees in the wake of the multi-billion dollar bailout, it's useful to recognize this fact: the very rich live in a different world from the rest of us. While giving someone a seven-million-dollar bonus for destroying a company seems insane to most, it's business as usual on Wall Street. "This is how we do things" says AIG, and it's important to note that AIG does not exist in a vacuum. It's entirely common for people in the financial industry to "earn" annual bonuses that exceed the expected lifetime earnings of a working-class family.

But is it right?

NPR just reported this morning that Bernie Madoff's wife will be forced to surrender $2.5 million worth of jewelry given to her by her husband. These baubles are worth the equivalent of 40 years income for the typical American family of four. Is there any rational reason for anyone to have that kind of disposable weath?

In the late 19th century populists turned against the excesses of "robber barons," ultimately giving rise to a political movement that led to massive regulation of business, new social programs, and perhaps most importantly of all, the federal income tax. The examples of AIG and Madoff, though obviously extremes, demonstrate a reality that most Americans simply ignore: the very rich exist in a world of their own, where the rules that apply to the rest of us are scoffed at daily, and rewards come from being part of the club, not for doing good or even for doing well.

It's time for another populist revolt. At the very least the top income tax bracket should be moved back to 75% (it was over 90% for much of the 20th century). There is no defensible reason for anyone to receive more income in a year than an average family of four can expect over a working lifetime. If that makes me a socialist, so be it. Let them keep, say, ten times the median annual income (that would be $500,000) then raise the marginal tax rate to 90% beyond that.

We've been trying 1920s-style trickle down economics since 1981 and it has failed utterly. It's time to try something else. The tax system of the 1930s/1940s couldn't possibly be worse than what we have now, and it would certainly be more fair. "Soak the rich" they called it in 1935. I prefer to call it "screw the irresponsible, unworthy, and immoral" because anyone who's not would most likely be quite happy with $500K per year plus 10% of everything after that-- just like they got in the 1940s.

-Dr. DRL

My latest newspaper column: class warfare?

This is my March column from the St. Cloud (MN) Times.

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Times Writers Group: Class warfare? Know who wins

March 4, 2009

On Thursday the Fox News Forum responded to President Obama's address to Congress with a column titled "Will Taxes Become Obama's Weapon of Class Destruction?"In his rambling address to the Conservative Political Action Conference on Saturday, Rush Limbaugh accused Obama of "fueling the emotions of class envy." On Sunday Bob Erlich, the former Republican governor of Maryland, told Chris Matthews on Hardball that Obama's budget was "all about class warfare."

If buzzwords were stocks "class warfare" would be the hottest investment in the market now, which is strange for a country that treats class like a taboo subject.

A majority of Americans self-identify as "middle class" and the social barriers that once prevented those who worked for a living from rubbing elbows with inherited wealth have substantially disappeared. The patterns of speech, habits of dress, in some cases even the neighborhoods that once divided people according to their wealth have been suppressed, co-opted, or driven behind closed doors as everyone in America aspires to appear middle class.

But the truth is we're not all middle class.

For the sake of argument let's imagine there are five classes in the United States, each with equal populations. For convenience we'll call them the working poor, working class, middle class, upper middle class, and wealthy.

From the end of World War II until 1980, the real incomes of all five groups increased dramatically, more than doubling for all but the wealthy, who realized a 94 percent increase.

But between 1980-2000 things were starkly different. Incomes for the bottom 40 percent — the working poor and working class -increased by only single digits. The middle class saw an 11 percent increase and the upper middle class a 19 percent increase. But the wealthy enjoyed a 42 percent increase during the same period.

Good for them, some will say. But was it good for anyone else?

According to the U.S. Census Bureau the median household income today is just a hair more than $50,000. Half of all families earn less, half earn more. Conveniently, the per capita GDP for the United States is also close to $50,000, so if the GDP were divided equally among all Americans a family of four would earn about $200,000 annually. But in reality almost half of all income goes to the top 20 percent, the "wealthy" class. The wealthiest among them — the top 5 percent overall — actually receive about 22 percent of all income each year.

The Associated Press reports the Obama tax plan that conservatives are decrying would result in a median family — four people living on an income of $50,000 — owing no federal income tax at all. Tax cuts would continue for families earning up to $150,000.

This sounds like a policy that favors the interest of at least the 80 percent of Americans who fall below our arbitrary definition of wealthy. The tax increase being touted as "class warfare" by some is actually just a proposal to let the Bush tax cuts for the wealthy expire, restoring a top rate of 39.6 percent for couples earning more than $250,000 per year.

In past times of crisis the wealthy were asked to contribute more because they had to means to do so. The top tax rate World War I was 77 percent. In 1933, at the start of the New Deal, it was 63 percent. At the end of World War II it was 94 percent and remained above 80 percent until 1963. In 1982 it dropped to 50 percent and since 2003 has been just 35 percent.

According to many economists and most pundits, we are in an economic crisis rivaled only by the Great Depression. If that's the case, how can asking the wealthy to contribute on the same level they did during the booming 1990s be a case of class warfare?

The next time Rush, someone on Fox or any politician complains about class warfare ask yourself this: Whose interests are they really representing?

The answer will help you sort the wheat from the chaff and to realize that what's best for the top 5 percent maybe isn't always best for those of us in the 95 percent below them.

-Dr.DRL

Yucca Mountain is Dead. Long Live Yucca Mountain!

Bloomberg reports that the Obama administration plans to pound the budgetary stake through Yucca Mountain's not-quite-yet radioactive heart. Assuming no resurrection, this brings the $9 billion project to an end, leaving the country with no nuclear waste respository. That's probably less of a worry that the idea of trucking waste across the country and sticking it in tunnels under an earthquake prone mountain an hour from Las Vegas.

-Dr. DRL

Happy 150th Oregon!

Today-- February 14th --is Oregon's 150th birthday. In my desk at work I have a commemorative coin minted for the centennial in 1959, back when Mark Hatfield was a young governor. I wish I could be in Oregon today to celebrate but will pass on my good wishes to all Oregonians virtually.

Happy Birthday Oregon!

Here's a gift for everyone: a link to an audio podcast of the entire 1959 Stan Freberg musical production Oregon! Oregon! Listen and enjoy!