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This Thanksgiving: How To Talk About The Economy Without Getting Into An Argument

man yelling with megaphone

Is your family one of those families… where Thanksgiving dinner always ends up in a political argument?

First thing to remember is that arguing won’t get you anywhere. Research shows that when the people you’re talking with hold strong beliefs, arguing with them only makes it harder for them to change those beliefs. And “when people’s confidence in their beliefs is shaken, they become stronger advocates for those beliefs. … when faced with doubt, people shout even louder.”

Political scientists call it the “backfire” effect – and if you’re an activist, you need to know about it (and remember it). Also remember that there are neurological differences between “Republican” and “Democratic” brains… and there are behavioral differences… although scientists are still trying to figure out exactly what those differences mean.

no_megaphoneSo what are you supposed to do? If you’re, say, sitting around the Thanksgiving table when Great Uncle Chester starts berating your college-graduate niece about the fact that she’s living at home rather than in her own apartment…?

Start by finding common ground. There’s always something to agree on, if you just look hard enough. Even if it’s just a gentle restatement of what the other person said. “Yes, Uncle Chester, we all agree that college graduates should be able to find jobs that allow them to support themselves.”

Then, add a little reality in there. “But that doesn’t seem to be happening in the current economy. There are a whole lot of twenty-somethings who are still living at home.”

Try to use personal examples rather than just facts. “I remember what my neighbor’s son went through, when he graduated two years ago. It took him 18 months to find a job, and even then he earned barely enough for him to make his student loan payments.”

When you talk about facts, try to frame them as a question, not a statement. “Don’t you think that the economy has changed from when you graduated college? Remember how working in a bank used to be a highly-respected job? Did you know that, these days, almost one-third of bank tellers need food stamps?”

Don’t push too hard. With Uncle Chester, you might not be able to persuade him of anything other than that he should stop berating your niece. (And if you push any further, the conversation might get loud and become a “nobody’s going to win this” argument.)

But continue the conversation, if your audience seems receptive. “Did you know that, these days, banks are paying billions of dollars to stockholders, rather than paying their tellers a decent wage?”

— — — —

no_megaphoneDo you have a second cousin Mildred who insists that “cutting taxes for job creators” is the answer to everything?

Find something you both agree on. “Nobody likes paying taxes.”

Add a personal story. “I remember when we got President Bush’s ‘tax refund checks’ back in 2001 and 2008. It was nice to get the money, but I didn’t invest it. I don’t know anybody who invested it. Most people either kept the money in the bank or used it to pay down debt.”

Then, a little reality. “Did you know that Congress has been cutting taxes on ‘job creators’ since Ronald Reagan was President? Back then, they used to call it ‘supply side economics.’ But it didn’t fix the economy; all it did was create a huge budget deficit. So after a few years President Reagan gave up on the idea and increased taxes again.”

Is Mildred still listening? If she looks interested, rather than angry, give her a few more facts. “Did you know that corporations are spending literally trillions of dollars buying back their own stock? Rather than building new factories or hiring new employees, they’re buying back shares of their own stock in order to keep stock prices high.”

Is she still listening? “And corporations are even borrowing money – bonds they will be paying back for decades – in order to give money to their stockholders now. So I don’t think CEOs would really invest money from tax cuts in ‘job creation.’ Don’t you think they would just pay it out to stockholders?”

Is she still listening? “I wonder what would happen to our tax rates, if corporations were paying taxes at the same rate they used to, before the SEC started allowing companies to buy back their own stock. Don’t you think that we might be paying less in taxes?”

— — — —

no_megaphoneDo you have a brother-in-law who isn’t bothered by increasing inequality? Who thinks CEOs actually deserve to receive 373 times as much as their employees are paid?

Then you ought to read this Pacific-Standard magazine article about a recent International Monetary Fund report.

And you can start the conversation with something like, “We all agree that economic growth is a good thing.”

Then add a little reality. “Did you know that income inequality actually hurts our country’s economic growth?”

Add a story. “Gosh, I wonder if this is why Macy’s is having such a hard time. None of my friends are planning to do their Christmas shopping there.   It seems like everybody is shopping discount stores or making their gifts, this year.”

Use questions. “How can the economy recover, if ordinary people don’t have money to spend? Did you know that one in ten American jobs is in retail? What’s going to happen to that sector of the economy if wages stay stagnant?  What’s going to happen to the rest of the economy?”

Know your audience, and either stop (before things get loud) or keep going. “Did you know that increasing the income share to the bottom 20% – even just by a tiny bit – helps the whole economy grow?”  “Do you think that’s why the economy grew more, back when income was a bit more equal?”

— — — —

no_megaphoneAnd if the conversation turns to the Trans-Pacific Partnership (TPP) treaty… please be thoughtful and careful about what you say.

Personally, I’m tired of politicians pitting people against each other. And factory employees in Singapore are working to feed their families, just like we are.

The problem with the TPP isn’t overseas workers, it’s how much power the treaty would give to corporations. It’s how much power the treaty would give to big banks. It’s the idea of America giving up our right to enforce our laws, when those laws are inconvenient to multinational corporations. It’s the idea of turning over even more of our country’s sovereignty to international “investor-state dispute settlement” (ISDS) tribunals.  Read more about how the TPP empowers corporations on the Public Citizen website.

So please, if you’re opposing the TPP, don’t talk about how overseas workers are taking “our” jobs. The real problem is how much it will benefit corporations.

The real problem is that corporate profits are at all-time highs… while labor’s share of that bounty is pretty close to its all-time low.

And the TPP is likely to make that problem worse, not better.

But that’s not the fault of the migrant workers in a Malaysian electronics factory.

— — — —

Happy Thanksgiving! I hope the conversation around your dinner table is a peaceful one.

— — — —

no_fearBut if the conversation turns to Paris and Syrian refugees, please be especially careful. Fear is one of the most basic human emotions… it’s also one of the most destructive… and one of the easiest to manipulate.

Journalist Naomi Klein is the author of “The Shock Doctrine: The Rise of Disaster Capitalism.” She’s done a lot of research into how corporatists use disasters to push through political change. Read her work about the aftermath of Hurricane Katrina here.

“For more than three decades, [economist Milton] Friedman and his powerful followers had been perfecting this very strategy: waiting for a major crisis, then selling off pieces of the state to private players while citizens were still reeling from the shock, then quickly making the ‘reforms’ permanent. In one of his most influential essays, Friedman articulated contemporary capitalism’s core tactical nostrum, what I have come to understand as the shock doctrine. He observed that ‘only a crisis— actual or perceived—produces real change.’ ”

I think of her work every time someone mentions the Bush tax cuts. Back in 2001, the federal government had a budget surplus; and in the first few weeks of September, the Washington Post did a poll that found 57% of Americans wanted the Bush tax cuts reversed, in order to preserve that surplus. Then 9/11 happened. And a decade and a half later, we still haven’t gotten tax rates restored to Clinton-era levels… and the federal debt has increased by $12.4 trillion.  (And we’re being told we need to cut Social Security, rather than restore the tax rates that President Bush cut even further “while citizens were still reeling from the shock” of 9/11.)

The Paris attacks renewed the atmosphere of fear that I remember after 9/11… and we’ve already seen how some politicians want to use that fear to change government policies. The good news is: my Facebook feed is full of people pushing back against these proposals, questioning them and using historical analogies to say “This is not what America stands for.” The bad news is: Facebook feeds are determined by an algorithm that tends to reinforce what people already believe.

So… when the conversation turns to Paris, and ISIS, remember the advice above.  Arguing isn’t going to help. You need to find some way to help the people you’re talking with step away from their fear, and step into the reality that their fear allows them to be manipulated. Find something to say that you both agree on – most people agree that refugees should be vetted before being resettled – and work from there.

Buying (and Selling) the Future on Wall Street

Verizon as a case study of why our economy doesn’t work, part six

The “ah-ha!” moment came during a conversation with a friend. What we realized: the way we usually talk about the stock market doesn’t match the reality of our modern economy. Things we assume about stock ownership often aren’t really true.


New York Stock Exchange, 1963 (Photo by US News and World Report via Library of Congress)

Start with the basics: what is a share of stock? Most of us think “Investors give a business money and get back shares of stock that give them a fractional ownership of the company.”

But try applying that concept to Verizon, and it doesn’t fit. Verizon stockholders buy and sell shares on the open market – and none of that money goes back to the corporation. The money that investors pay when they buy stock… goes to the investors who sold the stock.

So buying stock isn’t “an investment in the company”… it’s an investment in the stock itself. If you later sell that stock for more than you paid for it, that profit is what’s known as a “capital gain.” If you sell it for less than you paid for it, that’s a “capital loss.”

Stock ownership does give shareholders a “fractional ownership of the company.” But what does that mean? There are more than 4 billion shares of Verizon stock outstanding.  If you own one of those shares, you don’t have rights to any particular network router or mile of transmission line.  Instead, you own slightly less than one-four-billionth of the corporation’s “stockholder’s equity.”  That means if the corporation were to be liquidated tomorrow, you – along with all the other stockholders – would share whatever remained after the corporation’s assets were sold and its other debts were paid.

And that’s probably when, if you were a stockholder, you would start remembering the $49 billion in long-term debt that Verizon acquired in 2013.

And that’s probably when you’d realize that Verizon’s corporate balance sheet shows less than $12.3 billion in “total stockholder equity.” And there are more than 4 billion shares of stock outstanding.

Which means each share of stock represents less than $3 in stockholder equity.

VZ stock chart

Verizon Share Price

Verizon has been trading above $40 a share since… April Fool’s Day 2012. (Back when there were less than 3 billion shares outstanding and the balance sheet showed stockholder’s equity of about $11.76 per share.)

That’s a huge difference between the per-share value of stockholder equity and the per-share price stockholders have been paying… for years now.

So… what else are stockholders buying? (in addition to that minuscule percentage of a relatively small amount of stockholder equity)

Each share also confers the right to receive a dividend, when and if the corporation issues dividends.  And – no surprise – Verizon has been issuing steadily-increasing dividends for more than a decade.  At this point, it’s issuing dividends that total more than $2.20 a year.  With shares trading between $40 and $45, that means stock purchasers can expect to make back – in dividends – about 5% a year on their investment. Which is way more than the rest of us can get in bank interest right now, if we put money into a savings account.

But although those dividends represent a whopping big “return on investment” – there’s still the risk that you could lose money on the stock itself.  Think about it: if you bought a share of Verizon stock last October, you paid about $49 a share. Since then, you’ve received about $2.20 in dividends. But the price of each share of stock has dropped to about $44. So even though you’ve received 5% in dividends… if you sold the stock now, you would still have “lost” about $2.80 per share.

So corporate executives pay a whole lot of attention to share prices.

VZ_Exec_Comp_Program_from_ProxyFor two reasons. First, because executives’ compensation is largely “pay for performance.” For Verizon executives, 90% of compensation is “incentive-based pay.” And what’s the objective? “Align executives’ and shareholders’ interests.”

Second reason: because most corporate executives own a lot of stock in their company.

VERIZON SHARES OWNED by executivesAs of this past February, when stock incentives were awarded, Verizon’s top 10 executives reported owning a total of more than 645,000 shares of corporate stock – worth, at the time, $49.31 per share… or, more than $31.8 million.

But Verizon stock is now trading at about $44 per share. That means those same executives’ shares are now worth only about $28.4 million.

So is it really a surprise that corporations spend trillions of dollars buying back their own stock, to bump up share prices?  Is it really a surprise that corporations borrow money to pay dividends and fund buybacks?

I don’t see anything here that provides an incentive for corporate executives to grow a company long-term.  Nothing that provides an incentive to pay employees a fair wage.  Nothing that provides any incentive to “create jobs” (no matter how low the tax rate goes).

The only incentives are: to keep stock prices high and to pay dividends. (And an incentive for corporate executives to take as much money as they can, however they can, while it’s still available.)

And so for the rest of us, the economy doesn’t work.

— — — — —

retirement eggWondering why you should find time to care about this, with everything else that’s going on right now?

Because of that huge difference between the per-share value of shareholder’s equity and the actual price per share.

And what happens during recessions.

And the fact that almost everybody’s retirement money is – in one way or another – invested in the stock market.

Here in the Granite State, the NH Retirement System lost 25% of its value in the last recession.

In June 2007, before the Wall Street meltdown, the NHRS had $5.9 billion in investments, including
•  $29.7 million of stock in Citigroup, Inc.
•  $23.5 million of stock in American International Group, Inc. (AIG)
•  $14.0 million of bonds issued by Federal Home Loan Mortgage Corp. (Freddie Mac)
•  $13 million of bonds issued by Federal National Mortgage Association (Fannie Mae)

Two years later, when the recession was in full force,
•  Citigroup stock had plunged to only about 6% of its former value
•  AIG stock was worth only about a penny on the dollar and
•  Freddie Mac and Fannie Mae had both been placed into federal conservatorship

That’s what happens to stock values, during recessions.

Remember hearing about the Detroit bankruptcy? Which supposedly was triggered by unsustainable public employee pension costs? The Detroit pension systems were fully funded, as of June 2008. Then the recession hit.

All those defined-contribution 401(k)s? Across the country, families lost an estimated $2 trillion (with a T) of their retirement savings when stock values plummeted during the last recession.

Artificially-high stock prices hurt almost everybody, in the long run.

— — — — —

Yes, there’s more.

Smashed Piggy Bank RetirementVerizon’s balance sheet includes $24.6 billion of “goodwill” and $81 billion of “intangible assets.” And if you factor those out, Verizon has “net tangible assets” of minus $93.4 billion. That’s what most of us would think of as a negative net worth… of about minus $23.35 per share. While investors are paying about $44 per share to buy the stock.

The good news, from the investors’ perspective: they’re not personally liable for that $116 billion in long-term corporate debt. If – and this is purely hypothetical – if Verizon were to declare bankruptcy and default on that debt, stockholders would not be expected to pitch in $23.35 per share to satisfy the corporations’ creditors.

The bad news is, somebody out there would take that loss… and retirement systems across America invest in corporate bonds. (At last report, the NH Retirement System owned more than $433 million worth of corporate bonds.  Can’t tell, from here, whether any of those include Verizon.)

— — — — —

Photo by Stand Up to Verizon via Flickr

Photo by Stand Up to Verizon via Flickr

If you want to support the 39,000 Verizon employees who have been working without a union contract since August 1st, you can sign the petition here.

Stand Up to Verizon is on Facebook here.

Part one of this “Verizon as a case study” series is here.  It focuses on Verizon’s $5 billion stock buyback last February, and the short-term bump in stock prices which followed.

Part two of the series, showing how Verizon executives benefited from that $5 billion buyback, is here.

Part three, looking at the disconnect between Verizon’s reported profits and the dividends it pays its stockholders, is here.

Part four, about phantom stock and how Verizon executives are avoiding taxes by investing in imaginary assets, is here.

Part five, about how Verizon is borrowing money to pay stockholders and executives while demanding givebacks from unions, is here.

This is part six.  And yes, there will be more.

Leo W Gerard: More Free Stuff for Corporations

Marco Rubio (Gage Skidmore)

Marco Rubio (Gage Skidmore FLIKR CC)

Republicans and the rich guys who imposed 35 years of stagnant wages on American workers now offer a prescription for easing this pain!

Their solution for robber-baron-level income inequality is not the obvious: Give workers raises. They don’t want to increase the minimum wage, which would eventually push up pay for everyone else as well. They don’t intend to provide paid sick leave or decent pensions or fewer unstable contract jobs. They have no intention of strengthening unions so workers can collectively bargain for better wages and working conditions.

Instead of any of those straightforward measures, rich guys and corporate-owned Republicans assert that the solution is more free stuff for corporations!  The government, they say, should provide that free stuff. The government, the very organization they deride and despise and denounce as incompetent and deserving of nothing but cutting and shrinking and destroying! Yes, they actually contend that very same government should take the taxes paid by workers and give that money to corporations to improve worker wages and working conditions!


New scheme from CEOs and GOP: Workers should pay corporations

This rich guy, Peter Georgescu, chairman emeritus of the PR firm Young & Rubicam, said in a New York Times op-ed in August that he feared the current grotesque level of income inequality would provoke major social unrest or oppressive tax levies on the rich – unless the rich did something about it right away. To avert restoration of the higher income tax levels that the rich paid from 1935 to 1985, Georgescu recommended that the federal government give money to businesses to raise the wages of workers earning less than $80,000 a year.

That’s right. He says the government should subsidize corporations. The government should give them free stuff. Welfare. The government, in his estimation, should pay corporations rather than simply requiring them to use some of their massive profits,now at the highest level in 85 years, to adequately compensate the workers whose labor created those profits.

Making the government pay is a popular position among Georgescu’s wealthy peers and GOP politicians. They don’t want the government to protect the environment or negotiate for lower pharmaceutical prices for senior citizens on Medicare or provide16 million Americans with insurance through the Affordable Care Act. They do want the government to hand money to corporations, though.

Just weeks ago, Florida Sen. Marco Rubio, a candidate for the Republican nomination for president, announced he’d use this corporate freebie scheme to provide paid sick and maternity leave. The United States is the only major industrial country in the world without a federal policy requiring paid sick and maternity leave. Rubio called the absence of paid leave “one of the greatest threats to family today.”

Even so, he wouldn’t actually require corporations to provide it.

Instead, he’d have the government fork over workers’ tax dollars to corporations that institute paid sick leave. Under his plan, workers would pay corporations for what corporations should already be doing to diminish this threat to the family.

Earlier this year, billionaire Warren Buffett recommended in a Wall Street Journalop-ed that instead of forcing corporations to pay decent compensation by raising the federal minimum wage, the government should use tax dollars to increase workers’ income.

This revered king of capitalism wouldn’t require corporations to pay for the services that workers provide. Don’t be ridiculous! Instead, Buffett contends the government should pay!  That is, taxpayers would pay.

His plan differs from Georgescu’s and Rubio’s only in that Buffett would send money directly from the government to the worker instead of to a corporation. Rather than better pay, Buffett says workers should get larger earned income tax credits. Here’s what he wrote, “The process is simple: You file a tax return, and the government sends you a check.”

That way, the GOP can continue to condemn these workers as lolling on the government dole.

Under Georgescu’s and Rubio’s plans, corporations would file tax returns and the government would send them checks. But one percenters and GOP politicians never denounce that as corporations lolling on the government dole. That’s because they believe corporations are entitled to it. It’s a corporate entitlement.

This raises the issue of the role of government. Republicans contend that government is too big, that it does too much. They demand constantly that it be cudgeled and cut. But not the parts that kowtow to corporations. Those, the GOP says, should be puffed up and pampered. To them, government was created to serve corporations. If benefits from that happen to trickle down to citizens, Republicans consider that a bonus, but certainly not the main point of anything government does.

This is odd, though, from the party that so loves to declare its undying love for conservative interpretation of the U.S. Constitution because that document says the government is for people, not corporations.

Here, for example, are the Constitution’s first few words: “We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”

It does not say, “We the corporations of the United States, in order to form more profitable entities, establish unfettered capitalism, suppress the rights of workers, appropriate foreign assets as desired for corporate growth, promote general profitability, and secure the blessings of unbridled capitalism to corporations and their shareholders, do ordain and establish this Constitution for the United States of America.”

The government of the United States wasn’t created to spend taxpayers’ dollars to reward corporations that have stifled worker wages for more than three decades. The government of the United States was, however, created to promote the general welfare by raising the minimum wage, mandating paid leave and strengthening labor unions.

Verizon Borrows Money To Pay Stockholders And Executives While Demanding Givebacks From Unions

Verizon as a case study of what’s wrong with our economy, part 5

Photo by Stand Up to Verizon via Flickr

Photo by Stand Up to Verizon via Flickr

It’s a math problem, instantly recognizable by anybody who’s tried to balance a family budget lately.

But it’s also a morality problem.

Here’s the thing:

  1. Verizon reports annual income of $54,287 per employee. BUT
  2. This past February, Verizon indulged in a stock buyback equal to about $28,000 per employee. AND
  3. Verizon continues to pay out, in annual dividends to stockholders, more than $50,000 per employee.

Between buybacks and dividends, there’s a lot more money being “distributed to stockholders” than the company reports as income. That’s the math problem.

Which is depressingly reminiscent of the business practices of the private equity industry, documented back in 2012. “Bain, and some other private equity companies …had companies paying dividends using borrowed money, not profits.” (Read “What Mitt Romney Taught Us about America’s Economy” here.)

And Verizon has accumulated a substantial amount of debt, along the way. Right now, the corporation has long-term debt equal to about $655,000 per employee. And its Morningstar credit rating is only BBB (“moderate default risk”).

But the dividends it pays out to shareholders keep ratcheting higher… always higher. (And yes, Verizon CEO Lowell McAdam is a substantial shareholder, getting dividends worth more than a half-million dollars a year.)

Instead of cutting dividends to grow the business, Verizon has borrowed money – putting itself in debt at least through 2055.

Just this month, the corporation announced another increase in the dividend rate. While the corporation’s employees were working without a contract. Because Verizon wants givebacks from its employee unions.

Again: Verizon is increasing the amount of money paid to shareholders at the very same time it is insisting on employee givebacks.

Yes, there’s a morality problem here.


Anybody else see the Brookings study, earlier this week, “Would a significant increase in the top income tax rate substantially alter income inequality?”

As I see it, the researchers totally missed the point.

When you’re talking about the macroeconomic effects of tax rates, the big effect has nothing to do with the amount of revenue produced.

Instead, policymakers (and researchers) need to focus on how various tax rates influence decisions made on the micro level.

Anyone who lived through the Eisenhower era of 90% tax rates knows that CEOs make very different decisions when 90% of their income is going to the federal government. (For instance, they’re not anywhere near as likely to borrow money to pay themselves a stock dividend, if 90% of that dividend is going to the federal government.)


If you want to support the 39,000 Verizon employees who have been working without a union contract since August 1st, you can sign the petition here.

Stand Up to Verizon is on Facebook here.

Part one of this “Verizon as a case study” series is here.  It focuses on Verizon’s $5 billion stock buyback last February, and the short-term bump in stock prices which  followed.

Part two of the series, showing how Verizon executives benefited from the $5 billion buyback, is here.

Part three, looking at the disconnect between Verizon’s reported profits and the dividends it pays its stockholders, is here.

Part four, about phantom stock and how Verizon executives are avoiding taxes by investing in imaginary assets, is here.

This is part five.

Part six calculates that — because of all the dividends and long-term borrowing — each share of Verizon stock now represents less than $3 in stockholder equity (even while it’s trading at more than $40 a share); read it here.

And yes, there will be more in the series.  Please check back.

Leo W Gerard: Disgraced United CEO Jeff Smisek Is The Reason For Income Inequality

United Airlines AirPlane (Aero Icarus FLIKR)

United Airlines AirPlane (Aero Icarus FLIKR)

Jeff Smisek, the guy forced by scandal to resign last week as CEO of the world’s fourth-largest airline, is a major reason American workers can’t get a raise.

Smisek and his overpaid boardroom buddies nationwide have swindled American workers and American communities in a scam to amass wealth for themselves and well-heeled stockholders. They’ve extracted value from corporations and put it in their pockets and shareholders’ purses almost to the complete exclusion of investing in their corporations to create new wealth and prosperity.

CEOs like Smisek began sucking the financial lifeblood out of corporations in the 1970s. That’s when corporations stopped raising worker wages in tandem with rises in productivity and curbed research and development. Instead, corporations spent increasing portions of profit on dividends and stock buybacks. This goosed CEO compensation while squashing worker pay. Over four decades, it has degraded corporations and produced the worst income inequality since the Great Depression.

Smisek’s failed leadership at United Airlines illustrates exactly how this CEO self-dealing scheme works to the advantage of wealthy executives and shareholders while damaging workers, communities, customers and corporations.

Under Smisek, passengers, workers and taxpayers found the skies decidedly unfriendly.

Ever since United and Continental Airlines merged, at Smisek’s urging, the corporation’s computer system has failed repeatedly, inconveniencing United customers.  Months of computer glitches ensued immediately after United combined systems with Continental in 2012, and since then problems plagued fliers six times, including one in July that temporarily grounded the United fleet globally, and one last week that delayed 4,900 flights for as long as 90 minutes.

This may help explain why United ranked dead last among major domestic carriers in this year’s J.D. Power airline satisfaction survey, which measures performance in seven areas including costs, fees, in-flight service and reservations.

Customers have complained bitterly about United’s ill-treatment of fliers. And it gets low scores for arriving on time. In June, its performance was by far the worst among the largest domestic carriers. It improved slightly in July, so it was tied for last.

In addition, in five years, Smisek failed to complete combined labor agreements with two major unions, the Association of Flight Attendants representing 21,000, and the Teamsters representing 9,000 mechanics. Smisek made sure he had a personal contract with United guaranteeing him a golden parachute worth millions no matter how badly he performed. But he didn’t do anything for the workers who make sure planes and passengers are safe.

Just two months before scandal would force Smisek to resign, he announced United would buy back $3 billion in stock. Smisek took the windfall United got over the past year from dramatically lower fuel prices and used it to gin up the airline’s stock price. It rose 2 percent immediately after the buyback announcement. That was great for Smisek because the majority of his compensation was based on stock value.

It wasn’t so great for United. Or its workers. Or communities that support the airports from which United flies.

Smisek wouldn’t use a penny of that $3 billion to solve United’s problems with computers, on-time arrival, customer satisfaction or labor relations. He let those problems mount, weakening United as a corporation. He took out of the corporation billions that could have been used to fix them.

United workers denounced the move. Capt. Jay Heppner, chairman of the leadership council of the Air Line Pilots Association branch at United and a member of the United board of directors, wrote his fellow 12,500 pilots about Smisek’s lack of vision: “buying back shares of a company’s stock signals to investors that executive management cannot think of anything better to do with its excess cash.”

A truckload of United cash – $8.4 million now, and as much as $13.2 million more later – will leave the corporation with Smisek, despite his failures to resolve the airline’s problems and the fact that he remains the subject of a federal corruption investigation. A huge chunk of those payments depends on stock price – which, of course, Smisek manipulated with his $3 billion buyback.

Research by University of Massachusetts Economics Professor William Lazonick has established the relationship between worker wage stagnation since the 1970s and increased corporate expenditures on stock buybacks and dividends. Lazonick wrote about it in a paper titled “Profits Without Prosperity”:

“As a result, the very people we rely on to make investments in the productive capabilities that will increase our shared prosperity are instead devoting most of their companies’ profits to uses that will increase their own prosperity—with unsurprising results.”

Lazonick found that from 2003 to 2012, the 449 companies in the S&P index used 54 percent of their earnings to buy back their own stock and 37 percent for dividends. That left only 9 percent for investment in research, development and worker pay.

This reversed historical trends. After World War II, until the late 1970s, Lazonick’s research found, companies retained earnings and reinvested them to build corporate capabilities and worth, including decent pay raises for workers whose labor made the firms competitive. Lazonick calls this value creation. At that time, the share of U.S. income taken by the top 0.1 percent of households stood at the lowest point in the past century.

In the 1970s, corporations began allocating increasing portions of profits for stock buybacks and dividends. Lazonick calls this value extraction. CEOs withdraw value, serve themselves and leave corporate shells.

To support value extraction, many corporations also suck communities dry, demanding tax breaks, free installation of infrastructure like roads and rail spurs and tax-supported worker training. They threaten communities that don’t comply.

United made such demands of the Port Authority of New Jersey and New York.

At a September, 2011, dinner in Manhattan, Smisek told the then-chairman of the Port Authority, David Samson, that United wanted help paying for a new maintenance hangar, expanded transit service from Lower Manhattan to the Newark, N.J., airport and other goodies.

Samson told Smisek that he wanted United to reinstate money-losing direct flightsfrom Newark to Columbia, S.C., where Samson had a vacation home.

Three months after Smisek and Samson dined, the Port Authority agreed to give United $10 million for the hangar.  Soon afterward, United began arranging the flight to Columbia that Samson wanted, dubbed the “chairman’s flight.”  Just weeks after those flights began, the Port Authority approved the expanded transit service to Newark that United wanted.

This all came to light after Samson resigned last year at the height of the Bridgegate scandal. That involved aides to Gov. Chris Christie closing Fort Lee, N.J., lanes to the Port Authority’s George Washington Bridge in 2013 in retaliation for the town’s Democratic mayor refusing to endorse Christie, a Republican. United cancelled the “chairman’s flights” almost immediately after Samson quit as authority chairman.

By then, though, Smisek’s corporation had already gotten most of what it wanted out of the government agency that is supposed to serve the public. The Port Authority paid for what Smisek wanted – although United clearly has plenty of dough to cover its own costs – at least $3 billion anyway.

The Smisek-Samson dealings are the subject of a federal corruption investigation. But what’s more corrosive to workers, communities and corporations is CEOs spending more and more on stock buybacks and dividends and investing less and less in research, development and workers.

Lazonick, director of the Center for Industrial Competitiveness, says it best:

“If the United States is to achieve growth that distributes income equitably and provides stable employment, government and business leaders must take steps to bring both stock buybacks and executive pay under control. The nation’s economic health depends on it.”

PayWatch.Org Highlights Growing Inequality Between CEO’s And Workers

2015 Executive PayWatch highlights Walmart at center of growing inequality crisis



(Washington, DC)As Americans rally behind a robust raising wages agenda for working families, CEO pay for major U.S. companies has skyrocketed. According to the new AFL-CIO Executive PayWatch, CEO pay increased nearly 16 percent in 2014.

The Executive Paywatch website, the most comprehensive searchable online database which tracks CEO pay, showed that in 2014, the average production and nonsupervisory worker earned approximately $36,000 per year, while S&P 500 company CEO pay averaged $13.5 million per year – a ratio which has grown to 373-to-1.

“America faces an income inequality crisis because corporate CEOs have taken the raising wages agenda and applied it only to themselves,” said AFL-CIO President Richard Trumka. “Big corporations spend freely on executive perks and powerful lobbyists to strip rights from workers, but when it comes to lifting up the wages of workers that make their companies run, they’re nowhere to be found. Too often workers are seen as costs to be cut, rather than assets to be invested in. Americans deserve better from those who have earned so much off the backs of working men and women, and we must start by adding transparency to the CEO pay process and requiring companies disclose their CEO-to-median employee pay ratios.”

Mega-retailer Walmart, highlighted in this year’s PayWatch, represents one of the most egregious examples of CEO-to-worker pay inequality. CEO Douglas McMillon, the nation’s largest employer, earns $9,323 an hour compared to $9 for a beginning employee salary. A new employee would have to work for 1036 hours just to equal the pay McMillon earns in one hour. PayWatch also highlights the wealth of the six Walton family members who have more wealth than 43 percent of America’s families combined.


“In 2013, I earned about $12,000 as a full-time employee, which at Walmart isn’t always 40 hours each week,” said Tiffany, a former Walmart worker who has worked in both Maryland and Louisiana for the company. “These poverty wages force my family to receive public assistance. Walmart doesn’t value me. I believe in working hard and that my work should be valued. This is why I will not stop fighting until Walmart commits to raising wages and begins valuing all of its workers.”

More information about Walmart’s massive CEO-to-worker pay disparity and inequality among S&P 500 companies can be found at www.paywatch.org.

Profit Economics & Income Inequality The Reality Of America In 2015

Income Inequality

By Carol Driscoll

What is the meaning of the alarming growth in income inequality throughout the world? According to a recent report issued by the charity organization Oxfam, “by next year, the world’s wealthiest 1% will control as much of the planet’s assets as the other 99%.” About this, Winnie Byanyima, Oxfam’s executive director, asks…

Do we really want to live in a world where the 1% own more than the rest of us combined? The scale of global inequality is quite simply staggering, and… the gap between the richest and the rest is widening fast.”

The stark human costs of increasing income inequality include millions of people in the U.S. forced to work two or even three low-paying jobs just to stay afloat, and often still not able to afford sufficient food and medical care. As the New York Times reports (Jan. 26), Since 2000, the middle-class share of households has continued to narrow, the main reason being that more people have fallen to the bottom.” Today wages are stagnant for most people lucky enough to have a job. Meanwhile, the so-called drop in our unemployment rate is, according to Forbes Magazine, simply misleading….Despite the significant decrease in the official U.S. Bureau of Labor Statistics (BLS) unemployment rate (6.2%), the real rate is over double that at 12.6%. This statistic is mirrored in the shameful fact that 48 million Americans—more than one in seven—were living in poverty in 2014 (U.S. Census Bureau). Union jobs were once an entry into the middle class, enabling men and women to live with economic security: to buy a home, educate their children, take a vacation. Many of these jobs have been eliminated as corporate America has moved much of manufacturing overseas, and as some states and cities are privatizing public services that are essential for the well-being of millions, including children and the elderly.

Income Inequality and Profit Economics—the Link

In an earlier post for Unions Matter! I wrote: Income inequality is the inevitable by-product, the direct result of an economic system based on profit…. What I didn’t say then is something I’ve seen since: that this inequality is not a “by-product” of profit economics, but is essential to its very existence! In our profit economy, wealth coming from the labor of many persons doesn’t go to the workers who created this wealth, but instead to corporate executives and shareholders, who do no work at all for their dividends.   In her commentary to an issue of The Right of Aesthetic Realism to Be Known, Ellen Reiss, Aesthetic Realism Chairman of Education, describes the basis of the profit system, which bothcreates and depends upon growing income inequality:

In the last years, I have been describing the following fact: those who insist that the profit way must be the basis of our economy have been trying to do the one thing that can now keep it going. That one thing is: make Americans work for less and less pay, so more and more of the money they earn with their labor can go into the pockets of the owners, who don’t do the work. Only by increasingly impoverishing the American people can the profit system now go on. Of course, to pay people less and less, to impoverish them successfully, one must try to annihilate unions. Unions—which have fought for and won better economic lives for people over the decades, are one of the biggest embodiments of ethics as a force.

Ellen Reiss is right and what she’s describing is compelling evidence that income inequality is needed for the profit system to continue.

Income Inequality and Economic Growth

A recent article in The Atlantic Monthly, “17 Things We Learned about Income Inequality in 2014,” states:

Inequality could also impair growth if those in the middle and at the bottom have no money to spend…. Research by the International Monetary Fund argues that high inequality is correlated with low economic growth.

Clearly, for economic activity to continue and grow, the daily labor of men and women is indispensable. It is their ability to provide services, to produce and transport the goods we all need—and to have the money to pay for them—that drives our economy. After all, as Eli Siegel, the founder of Aesthetic Realism, once pointed out with humor the central role of labor in economics: You can bring $100,000 to a tree, but it won’t grow toothpicks. Mr. Siegel used literature, history, economic data, and current events to document his statement below, which I see as indisputably true—and I’m proud it’s the motto of this blog:

The most important thing in industry is the person who does the industry, which is the worker.  That…never can change. Labor is the only source of wealth. There is no other source, except land, the raw material….Every bit of capital that exists was made by labor, just as everything that is consumed is.

This is why unions are so important: they have persistently and courageously fought for respect, for dignity, for workplace safety, for decent wages in the pockets of working men and women. Related to this is the vitally important question, asked by Eli Siegel, which must be answered for people’s lives to fare well: “What does a person deserve by being a person?” The answer is, every person deserves—as a beginning point—these things: a roof over one’s head, nutritious food, guaranteed medical care, an education, a good paying job, and—not least—the right to join a union.

What Do the American People Hope for in 2015?

In her commentary, Ellen Reiss explains:

The thing needed to replace the profit system is….an economy based on ethics and aesthetics: an economy based on seeing that the way to be truly selfish, the way to express yourself, be yourself, is to be just to people, things, the world into which we were all born.

As a person who worked for, benefitted from, and loves unions, I believe that only an economy based on ethics and aesthetics will eradicate income inequality, and meet the hopes of people. It is necessary for every union official to study what this means to be an effective force for economic justice for everyone.

We’re Number One! (in millionaires)

Most of the discussion I’ve seen of wealth and income inequality has focused on trends in the USA.  Now comes the annual report from Credit Suisse, one of the world’s largest financial institutions, on wealth and inequality worldwide.  The picture looks familiar:  a small number of individuals control most of the globe’s wealth.

Among their findings released October 14:

  • The number of millionaires worldwide is likely to increase from 35 million to 53 million in the next five years;
  • The USA is “the undisputed leader in terms of aggregate wealth;”
  • The USA, Switzerland, and Hong Kong are the most unequal “developed countries;”
  • Countries labeled as “emerging markets,” especially China, can be expected to grow their shares of global wealth in the next five years.  But there, too, inequality is rising.

Credit Suisse, which no doubt wants to handle those millionaires’ accounts, also finds that the USA leads the world with 14.2 million millionaires, 41% of the members of the worldwide millionaire club.  Credit Suisse  refers to them as ‘high net worth” or “HNW” individuals.

Ultra High Net Worth Individuals

Above the HNWs on the ladder are the UHNWs, the “ultra high net worth individuals,” those with with more than $50 million in net assets. The Global Wealth Report says this group has 128,200 members, 49% of whom live in the USA.

Dollar Millionaires

“The number of HNW and UHNW individuals has grown rapidly in recent years, reinforcing the perception that the very wealthy have benefitted most in the favorable economic climate,” the report says.  Indeed.

“HNW and UHNW individuals are heavily concentrated in particular regions and countries, and tend to share more similar lifestyles, participating in the same global markets for luxury goods, even when they reside in different continents,” the authors observed.

Here’s more numbers:

  • The poorest 50% of the global population owns less than 1% of the world’s wealth.
  • The wealthiest 10% (those with more than $77,000 of net worth) owns 87% of the world’s wealth.
  • The top 1% (more than $798,000 of wealth) owns 48.2% of the world’s wealth.
  • The world now has 35 million millionaires, less than 1% of the population.  Together they own 44% of the wealth.

Figures such as these demonstrate that the world’s wealth is in the hands of a very small group of individuals. The figures don’t, by themselves, tell us anything about trends in wealth distribution.  But this topic has finally gotten the attention of policy makers and bankers, even those whose clientele is ultra-rich.

“The changing distribution of wealth is now one of the most widely discussed and controversial of topics, not least owing to Thomas Piketty’s recent account of long-term trends around inequality. We are confident that the depth of our data will make a valuable contribution to the inequality debate,”  the report’s introduction says.

Credit-Suisse also says, “During much of the last century, wealth differences contracted in high income countries, but this trend may have gone into reverse.”

It may be significant that the Global Wealth researchers find that while the top 10% has seen its share of the global pie rise from 67% in 1989 to 72% in 2007 and topped 75% in 2013, the share in the pockets of the top 1% has “shown little upward movement for the past two decades.”

For the USA, however, they find that shares held by the top 10% and the top 1% have held steady, at about 75% and 38% respectively.  This finding contrasts with that of Emmanuel Saez and Gabriel Zucman, who recently wrote

“Wealth inequality [in the USA] has considerably increased at the top over the last three decades.  By our estimates almost all of the increase is due to the rise of the share of wealth owned by the 0.1% richest families, from 7% in 1978 to 22% in 2012.

The conflict may result from differences in methodology or from Saez and Zucman’s attention to the top 0.1%, a smaller sliver than Credit Suisse studied. Nevertheless, both reports add to a body of evidence that the economy is doing just fine for a tiny class of people while just about everyone else is getting left behind.

It wasn’t long ago that economists generally avoided discussion of the distribution of wealth.  Even if they now differ on some fine points, it probably represents progress when economists working for an institution like Credit Suisse are adding their weight to a call for a change of direction.

“In mature economies,” they conclude, “policies to address wealth inequality are receiving increased attention and can hopefully be designed to avoid unwanted effects on growth or economic security. Among emerging markets, policy makers would be advised to study countries, such as Singapore, which have tried to ensure that wealth gains are broadly shared, and which have succeeded in keeping wealth inequality in check.”

[Note: There’s a link to the Global Wealth Report on the Credit Suisse publications page, but the link did not work for me.  Instead, I contacted the bank’s New York press office, where I found someone to send me a copy.]

Originally posted on InZane Times.

We Are the 99.9% – New Data on Wealth Inequality (InZane Times)

We Are the 99 Percent photo by Gawain Jones via Flikr Creative Commons license

Photo by Gawain Jones via Flikr Creative Commons License

Janet Yellin is not the only one with a new analysis of the growing chasm between the ultra-rich and everyone else  If you can handle some dense economics (or like me willing to skip past the fancy equations), take a look at anew paper by Emmanuel Saez and Gabriel Zucman on “Wealth Inequality in the United States since 1913.”

It seems that reliable data on wealth is not easy to come by.  So Saez and Zucman had to do some fancy calculation to figure out who owns how much and how the proportions have changed over time.   They find

wealth inequality has considerably increased at the top over the last three decades.  By our estimates almost all of the increase is due to the rise of the share of wealth owned by the 0.1% richest families, from 7% in 1978 to 22% in 2012.

That’s a level of inequality comparable to the early 1900s, before the Progressive Era.

Occupy movement, if you’re still out there, take notice. 

“Wealth concentration has followed a U-shaped evolution over the last 100 years,” they write  “It was high in the beginning of the twentieth century, fell from 1929 to 1978, and has continuously increased since then.”

(You can see the U-shaped curve and other charts at:  http://gabriel-zucman.eu/files/SaezZucman2014Slides.pdf.)

The top 0.1% is just 160,000 families whose wealth rose at 5.3% per year from 1986 to 2012. In the same period the bottom 90% saw its wealth stagnate. 

The key factors driving the wealth gap, Saez and Zucman conclude, is a surge in labor income among those at the tippy top and a decline in savings for those in the middle class.  That leads the authors to a set of recommendations.

First and perhaps most obvious, they recommend progressive income taxes and estate taxes.  

“Yet tax policy is not the only channel,” they say.

Other policies can directly support middle class incomes—such as access to quality and affordable education, health benefits, cost controls, minimum wage policies, or more generally policies shifting bargaining power away from shareholders and management toward workers.  [emphasis added]

It’s good to see a solution that deals with the cause of the problem.  Janet Yellin take notice.


Originally posted at InZane Times: http://wp.me/pXzWL-vn

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