A Nightmare on Inequality Street
Generally we start with a lone comic, but this week's excerpt of a larger strip comes with commentary from Huffington Post's Impact editor Eleanor Goldberg on the snarky comic that proposes ending extreme wealth as a means of eradicating global poverty:
The characters in the strip have such expertise as a “minor field study on a yacht.” And, another has experimented with building schools that educate wealthy people about white privilege and surplus labor...
One of the “experts” in the comic recommended an economic theory called “micro-snatch,” where society would just take a “small amount” from the very wealthy and give it to the poor. For example, “snatching” a medium-sized mansion could help house 25 to 30 homeless people, the expert noted.
The solution hearkens to a recent Oxfam study, which noted that by the end of next year, the richest 1 percent will own more than half the world’s wealth.
The comic quips that very wealthy do not understand democracy. And perhaps that observation bears out in this a fascinating story about a sociologist who decided that the best way to truly understand inequality was to become an asset manager for the wealthy, as recounted in the Atlantic:
[W]hat I found over the course of this study—the results of which will be published next year in a book for Harvard University Press—was not only insight into the making of the vast wealth inequality growing around the world. There was also something bigger, and even more disturbing: a domain of libertarian fantasy made real, in which professional intervention made it possible for the world’s wealthiest people to be free not only of tax obligations but of any laws they found inconvenient...
What these professionals most emphatically did not look like is people with control over millions in global capital flows. And yet that is exactly what they were. Call it the “banality of professional power”—the cultivation of a useful obscurity, which allows the very wealthy to exist in a realm of freedom verging on lawlessness. To the extent that this remains unknown and virtually unimaginable to everyone else, the realm will persist undisturbed. Public dialogue about inequality will remain stalled on the old tropes of “class war” and “envy” of the “wealth creators.” It may be more productive to turn the spotlight away from the rich themselves, and instead focus on the professionals who—in their quiet, discreet, and extremely effective way—make it possible for the wealthiest people in the world to gain all the benefits of society, while flouting its laws. Rather than asking whether the distribution of economic resources is fair, perhaps the more compelling question lies upstream, in the way that distribution is created in the first place: by a kind of shell game played with international law.
Last month, a Brookings study examined whether increasing taxes on the wealthy would achieve reductions in equality and found that even a 50 percent increase at the top would have only "an exceedingly modest" reduction for the bottom:
That such a sizable increase in top income tax rates leads to such a limited reduction in income inequality speaks to the limitations of this particular approach to addressing the broader challenge. To be sure, our results do not speak to the general desirability of a more progressive tax-and-transfer schedule, just to the fact that even a significant tax increase on high-income households and corresponding transfer to low-income households has a small effect on overall inequality.
In Bloomberg, a look at how gentrifying neighborhoods may reduce the amount of affordable housing units set aside by the Housing and Urban Development Dept.:
Subsidized units are more likely to be converted if they’re in areas with highly rated schools, good public safety, and other neighborhood amenities that make them attractive to low-income households and market-rate developers alike. The loss of affordable housing in nice neighborhoods is particularly alarming in light of research showing that poor children raised in better neighborhoods have better upward mobility than those raised in high-poverty communities.
The city with the greatest risk of losing subsidized apartments may be Washington, where 34 percent of the project-based rental assistance apartments soon to expire are in neighborhoods in which less than 10 percent of the population lives below the poverty line. In Dallas, by contrast, less than 2 percent of expiring units are in low-poverty neighborhoods. New York has the highest number of expiring units in good neighborhoods, but those apartments make up a smaller share—20 percent—of units in the project-based program.
According to the survey data, food stamps/welfare/housing assistance dropped that down to 10.8 percent. But according to the more accurate administrative data, those programs actually cut the rate to 8.3 percent. Using the right numbers, in other words, nearly doubles the poverty-fighting power of these programs. The differences for "deep poverty" — that is, the share of households living on 50 percent of the poverty line or less — are a bit smaller, but for "near poverty" (the share of households living on 150 percent of the poverty line or less) they're even bigger, as the above chart suggests...
Findings like this shouldn't breed complacency. There are still millions of Americans living in truly desperate poverty (and billions of people around the world in even worse poverty), so these programs clearly haven't accomplished everything we want them to. But the emerging, positive view of transfer programs is an indication that we know how to tackle this problem, and that even greater transfers could conceivably end poverty in America altogether.
Over at the Boston Globe, Evan Horowitz weighs in on poverty-fighting debate on the side of direct cash transfers:
Virtually every developed nation has a lower poverty rate than the US. That’s not because all their citizens have jobs and earn a decent living. It’s because they provide direct assistance to those at risk, in the form of cash, housing subsidies, pensions, and child benefits...
No one, in other words, has been able to tackle poverty by building an economy that works for all involved. Yes, European countries tend to have higher unionization rates, tighter business regulations, and other mechanisms to ensure that workers get a meaningful share of the profit pie. But what the above chart shows is that if people had to rely on salary alone, poverty would be a massive social problem.
It seems someone agrees with Heron's Clara Miller, who is a board member of the Sustainability Accounting Standards Board and fond of saying, "Accounting is destiny." In Foreign Affairs, author Diane Doyle discusses Jane Gleeson White's book on whether accountants and can save the world and reform capitalism:
A “true and fair view” of a modern company, Gleeson-White argues, must take into account not only financial and physical assets but four other forms of capital as well: intellectual, human, social, and natural. Do this, she claims, and businesses will know and report their true worth and therefore operate more sustainably. No longer will they be able to report profits or assets that depend on the depletion of nonrenewable resources, or damage biodiversity, or pour emissions into the atmosphere, without factoring in those harmful effects. And no longer will firms seek solely to boost their share prices and quarterly earnings; instead, they will take a longer-term view of their goals...
Gleeson-White concedes that there’s a long way to go before “integrated reporting”—as the more holistic form of accounting that she advocates is sometimes called—will win acceptance. At present, it is mandatory in some form in only a few countries, including France and South Africa. One problem is that few understand what integrated reporting means in specific terms. Still, Gleeson-White is optimistic. “It is an evolving practice, which will gain coherence and consistency with the framework’s publication and gradual adoption, initially by pioneering businesses,” she writes. She predicts that accounting will move away from merely reporting a one-way message to shareholders and instead move toward creating a two-way dialogue with a broader range of stakeholders.
Now for another cartoon, this time from the St. Louis Dispatch's R.J. Matson:
The Washington Post's Steven Pearlstein argues that shareholder maximization is ruining U.S. corporations:
The real irony surrounding this focus on maximizing shareholder value is that it hasn’t, in fact, done much for shareholders.
Roger Martin, the outgoing dean of the Rotman School of Management at the University of Toronto, calculates that from 1932 until 1976 — roughly speaking, the era of “managerial capitalism” in which managers sought to balance the interest of shareholders with those of employees, customers and the society at large — the total real compound annual return on the stocks of the S&P 500 was 7.6 percent. From 1976 until the present — roughly the period of “shareholder capitalism” — the comparable return has been 6.4 percent...
[O]ne of the hallmarks of the era of shareholder capitalism is that every tax and every regulation is reflexively opposed by the business community as an assault on profits and shareholder value. By this logic, not only must corporations commit themselves to putting shareholders first — society is expected to do so as well.
Speaking of short-term thinking, we have a New York Times' discussion by Naomi Oreskes on Exxon's climate change denial strategy:
As one of the most profitable companies in the world, Exxon could have acted as a corporate leader, helping to explain to political leaders, to shareholders and institutional investors, and to the public what it knew about climate change. It could have begun to shift its business model, investing in renewables and biofuels or introducing a major research and development initiative in carbon capture. It could have endorsed sensible policies to foster a profitable transition to a 21st-century energy economy.
Instead — like the tobacco industry — Exxon chose the path of disinformation, denial and delay. More damagingly, the company set a model for the rest of the industry.
You know who else is in hot water for short-term thinking-- Valeant Pharmaceuticals, which recently bought certain heart medications and then jacked up the price reports Antoine Garar in Forbes:
The most interesting aspect of Ruane, Cunniff’s defense of Valeant is its point that CEO Pearson’s efforts at maximizing profits by all legal means may have backfired.
Many capitalists argue that profit maximization to the extent of the law should be celebrated, nonetheless, its common sense that social good and ethics should play into corporate decision making. Jacking up the prices of drugs needed for heart surgery patients in search of earnings growth can come at a cost to investors, Ruane Cunniff now concedes.
Meanwhile the Abell Foundation is making use of patent law to fund economic development in Baltimore but is being sued, reports the Wall Street Journal:
The nonprofit invests directly in companies working on sustainable energy projects and co-owns more than a dozen patents. One of its investments was in a company that patented the technology for components in a hybrid powertrain engine.
The foundation’s investments are now the subject of several contentious lawsuits. Ford Motor Co. and Hyundai say they shouldn’t have to fork over royalty payments to the foundation for the right to use its powertrain technology in their hybrids. Lawyers for Hyundai recently called the foundation a patent troll that aims for a payout on patents that should have never been granted because they were based on natural technological developments.
The Abell-auto maker disputes show the risks and rewards facing foundations as they increasingly invest in start-ups for philosophical and practical reasons. As more foundations like Abell put money into start-ups working on environmental, technological and pharmaceutical issues, they must walk a line between fostering innovation and squabbling over rights and revenue.
Restaurateur Danny Meyer is ending tips in his restaurants and repricing so that he can more broadly raise staff wages:
By increasing prices and ending tips, Mr. Meyer said he hoped to be able to raise pay for junior dining room managers and for cooks, dishwashers and other kitchen workers. Compensation would remain roughly the same for servers, who currently get most of their income from tips. Under federal labor laws, pooled tips can be distributed only to customer service workers who typically receive gratuities, and cannot be shared with the kitchen staff or managers.
“The gap between what the kitchen and dining room workers make has grown by leaps and bounds,” Mr. Meyer said. During his 30 years in the business, he said, “kitchen income has gone up no more than 25 percent. Meanwhile, dining room pay has gone up 200 percent.”