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Dave Johnson
Fellow, Campaign for America's Future

At the Take Back The American Dream conference session titled “Make Work Pay: Why Empowering Workers & Holding CEO’s Accountable is Vital to Economic Growth” Christine Owens of the Nationsal Employers Law Project described to the audience how wages are declining. “Job growth is extremely slow. We have a net deficit over 11 million jobs, and 75% of the jobs that are returning pay between $7.50 and $13.50 an hour.”

We are in a very deep hole, and this explains why personal income is falling as well, in the wage and poverty data. Meanwhile corporate CEO pay has exploded.

What we can do is raise the minimum wage, and make employers pay workers what they have promised to pay. The minimum wage is $7.25. It would be close to $10.50 if it kept up with inflation, and 26% of the workforce makes less than %10.50. But all wages are anchored by this minimum – called a “spill up effect.” So move it up, and index it to inflation. Even Tea Party members support raising the minimum wage.

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Les Leopold

By Les Leopold
Author “The Looting of America”

Say goodbye to 2009, the worst economic year since the Great Depression.

Say hello to the billionaire bailout society in which the super-rich gamble, lose and get bailed out by the rest of us.

To save the system from total collapse we poured trillions of dollars into the financial sector. The result? Banks still are refusing to lend. Thirty million Americans are looking for full-time jobs and 49 million are skipping meals including one out of four children. But Wall Street again is reaping record profits and bonuses.

Not only are we richly rewarding those who wrecked our economy, but also, we have to put up with hundreds of fabrications about how the big banks got us here. Here is my biggest, fattest lies list for 2009:

1. “Government programs for low-income home buyers caused the financial crash.” Wall Street defenders were quick to blame the Community Reinvestment Act, which urges banks to loan money in minority communities. In fact, almost none of the CRA loans are sub-prime and the vast majority are doing well, thank you. Blaming government programs deflects us from the real cause: Wall Street’s incredibly reckless creation, marketing, selling and trading of “innovative” new securities that supposedly removed the risk from pools of risky debt. It didn’t work. Wall Street, not the poor, crashed our economy.

2. “Income inequality is good for everyone.” Lord Brian Griffiths, Vice-Chairman of Goldman Sachs at least had the nerve to say what so many of the super-rich really believe:

“We have to accept that inequality is a way of achieving greater opportunity and prosperity for all.”

Unfortunately, the facts suggest otherwise. There is a high correlation between the mal-distribution of income and economic crashes. The last time our wealth and income distribution was as skewed as it is today was 1929, and that’s not an accident. When too much money is in the hands of the few it runs out of real world investment and gravitates towards speculative investments. This inevitably creates asset bubbles and crashes. Record pay and bonuses on Wall Street and high unemployment are connected. (See The Looting of America Chapter 11).

3. “The rising number of billionaires is a sign of economic health.” It’s accepted media wisdom that the more billionaires the better. China with 130 billionaires now trails only the US, which has 359, according to Forbes magazine. But in our billionaire bailout society, the rising number of billionaires signals a collapsing middle class. Ponder this statistic: In 1970 the ratio of the compensation of the top 100 CEOs compared to the average production worker was 45 to 1. By 2006 it was an astounding 1,723 to one. Does that look healthy to you?

4. “Paying back TARP means banks are no longer on government welfare.” Bank after bank is rushing to repay TARP funds during the worst economic year since 1937. They want to get out from under the Pay Czar (not that he’s been sufficiently tough on the banks under his purview.) Banks that were insolvent only a few months ago now say they have the financial strength to refund tens of billions of dollars to the government. Where did all that money come from? Much of it comes from other government welfare programs for Wall Street (over $12 trillion worth) that aren’t publicized. (See Nomi Prins’s excellent accounting.) It may be the case that our banks are paying us back with our own money. Now that’s financial innovation.

5. “Wall Street’s freedom to innovate must be protected.” Congressional leaders are tripping all over themselves to say new regulations will not discourage Wall Street innovations, something they claim is vital to our economy. Oh really? Do those “innovations” add anything useful to our country other than new casino games for the super-rich? Former Federal Reserve Chairman, Paul Volker, recently blew the whistle on this fabrication:

“I hear about these wonderful innovations in the financial markets and they sure as hell need a lot of innovation. I can tell you of two – Credit Default Swaps and CDOs – which took us right to the brink of disaster: were they wonderful innovations that we want to create more of?
…. I wish that somebody would give me some shred of neutral evidence about the relationship between financial innovation recently and the growth of the economy, just one shred of information….

The most important financial innovation that I have seen in the past 20 years is the automatic teller machine… How many other innovations can you tell me of that have been as important to the individual?” (“What Has Financial Innovation Done for You?”)

6. “To retain critically needed talent, Wall Street must be free to pay top salaries and bonuses.” Where would they flee if they just got paid like normal people rather than like gods? The British are putting in place a 50 percent tax on bonuses. Also, compensation is much, much lower in the European Union. But the real lie is that we need such “talent” in the first place. That kind of “talent” just crashed our economy. That kind of “talent” is widely overpaid – no way should bond traders receive 10 to 100 times what is earned by the best neurosurgeons in the world. Something is really wrong and it starts with the lie of banking “talent.”

7. “Overpaid American workers are the real cause of unemployment.” The New York Times writers who concocted this argument didn’t think they were lying. But this is one of the most preposterous ideas put forth during 2009. (“American Wages out of Balance” New York Times November 11, 2009) Edward Hadas, Martin Huchinson and Antony Currie informed us that:

“American manufacturing workers should take average real wage cuts of as much as 20 percent to get into global balance.”

They don’t mention that the average non-supervisory worker has already taken an 18 percent cut in real wages between 1973 and 2007. What’s worse, they claim that if workers don’t take these additional cuts, these “overpaid” working stiffs will be the cause of another Great Depression. They write:

“But if American wages get stuck above global market-clearing levels, as in the 1930s, the result could well be something approaching Depression-era levels of unemployment.”

Not a word is mentioned about how Wall Street’s gambling caused all of this unemployment and how the continued failure of Wall Street banks to lend is stalling job growth, right now.

8. “I’m doing God’s Work.” Lloyd Blankfein, Chairman of Goldman Sachs said what too many Wall Street leaders truly believe: that they are so privileged and entitled that it seems as if the heavens bless their work. Why else are they earning hundreds of millions of dollars? Mr. Blankfein believes he is creating a virtuous circle by raising capital for corporations who create jobs and help our society prosper. But Goldman Sachs, JP Morgan Chase, Morgan Stanley and the rest of the apostles helped to bring the entire world economy to its knees. Does that mean God likes unemployment and widespread hunger?

9. “We’re out of money.” Who’s we? Yes, the middle class is tapped out but the super-rich haven’t even begun to pay their fair share for the mess they created. Yet the top 400 richest Americans alone are sitting on $1.27 trillion or so in wealth. Here’s a dangerous thought. What if we had a very steeply progressive wealth/income tax that reduced the net worth of the super-rich to “only” about $100 million each? You wouldn’t be suffering if you had $100 million kicking around. Now do the math: The 400 richest x $100 million each would equal $40 billion. That would leave about $1.23 trillion to help pay back the country for the Wall Street meltdown that we, our children and their children will be subsidizing.

10. “We are becoming a socialist economy.” Somewhere between 68 and 78 percent of the US GDP is private sector activity, the highest among developed nations. And much of the government expenditures go to private contractors as well. But there’s a kernel of truth in the socialist scare: What do you call a society that encourages the private accumulation of wealth without limit, and then when the super-wealthy get into serious trouble, we bail them out with taxpayer funds – largely from a declining middle-class? That’s not free-enterprise. That’s not socialism either. It’s something new and it deserves to be called the billionaire bailout society.

Here’s hoping that in 2010 we can begin to undo it.

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Les Leopold is the author of The Looting of America: How Wall Street’s Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.

Dean Baker

By Dean Baker
Co-Director, Center for Economic and Policy Research

Kenneth Feinberg, President Obama’s compensation czar for bailed out banks, appears to have taken some genuine steps to rein in excessive executive compensation at the basket case banks that received the most TARP money. He cut cash salaries by 90 percent in some cases and reduced overall compensation for the top executives at the seven institutions that received the most government money.

This is a good first step, but it is only a first step. The pay caps involve only a relatively small number of people in an industry where hugely bloated salaries are the norm. Even in these cases it is too early to know that the pay caps will actually prove to be binding. After all, Wall Street’s main craft is evading regulations and taxes. It is entirely possible that those clever Wall Street boys will find a way to get around whatever pay restrictions Mr. Feinberg puts in place.

Whatever happens to the pay of this small group of executives the real problem goes much deeper. The Wall Street folks view the wreckage from last year as a minor distraction and are eager to get back to business as usual. This attitude was best expressed by “a person close to A.I.G.’s board,” who said of plans to restrict pay at the AIG division that wrecked the company to $200,000: “that’s insulting … why wouldn’t anybody quit?”

Of course, this “insulting” pay package would still give our AIG executives more pay than 99 percent of the work force. They would be getting more than three times as much as the average teacher, firefighter, or nurse. They would be getting more than five times as much as the average factor worker and more than ten times as much as minimum wage worker.

Furthermore, if anyone among these other groups of workers mess up so badly that they bring down their employer, they lose their job. They don’t get to go somewhere else because a $200,000 paycheck is “insulting.”

Wall Street badly needs fixing. Fortunately we have the tool to do the job. It’s called a financial transactions tax (FTT) – a modest tax on trades of stock, futures, options and other financial instruments. Such a tax could easily raise $100 billion a year, while cutting the financial sector down to a manageable size.

An FTT is not an alien concept. We actually had a tax on stock trades until 1964. The United Kingdom still has a 0.25 percent tax on stock trades that, relative to the size of its economy, raises the equivalent of $40 billion a year in the United States.

If we follow the lead of the UK, we will a great revenue source that will barely touch most of the population. Investors who buy and hold stock for 10 years will barely be affected, as is the case of a farmer hedging her wheat crop. However, someone who buys stock at 2:00 with the intention of selling at 3:00 would pay a substantial price.

There are many other good arguments for an FTT, including that it is the fairest way to fix the damage to the budget caused by the recession and the bailout, but an FTT will not get an airing in a Congress where the banks continue to wield enormous power. Congress will only consider an FTT, as opposed to more regressive proposals like a national sales tax, if the public demands it.

The public will have an opportunity to express their outrage at the banks and the need to rein them in at the Showdown in Chicago beginning on October 25. If this protest proves successful, and there are hundreds more like it around the country, then Congress may start thinking more clearly about measures to change Wall Street culture and to get back our money.

***

Dean Baker is the author of the new book, “Plunder and Blunder: The Rise and Fall of the Bubble Economy.”

*** 

This piece was first published on Huffington Post.

David Sirota

By David Sirota
Political journalist, best-selling author and syndicated newspaper columnist

In the months following the Wall Street meltdown, we’ve seen a stealth marketing campaign that is profound for its boldness — a marketing campaign designed to make us believe that very wealthy people are suffering the most.

We’ve seen this campaign in Wall Street spokespeople insisting that a $500,000-a-year salary isn’t very big, in a New York Times style section that asserts that it’s impossible to live in the city on a half million dollars; in a punditburo that says millionaires are oppressed and can’t afford to pay $9,000 a year more in taxes for universal health care; and in a national press corps that seeks to portray any effort to raise taxes on the richest 1 percent as unfair; and a business press that threatens a class war if President Obama moves forward with his promise to make the payroll tax more progressive. As I said, this is a marketing campaign, and a fairly well coordinated one.

That’s why I wasn’t surprised to see this audacious Washington Post piece over the weekend which reports — with a straight face — that those making $300,000 a year are “barely squeaking by” in this economy. I s*** you not:

Laura Steins doesn’t mind saying that she is barely squeaking by on $300,000 a year… As a vice president at MasterCard’s corporate office in Purchase, N.Y., she earns a base pay of $150,000 plus a bonus. This year she’ll take home 10 percent less because of a smaller bonus. She receives $75,000 a year in child support from her ex-husband. She figures she will pull an additional $50,000 from a personal investment account to “pick up the slack.”

The nanny and property taxes take $75,000 right off the top, but Steins considers both non-negotiable facts of her life and not discretionary. When she bought out her husband’s share of the house after their 2006 divorce, she assumed the costs of keeping it afloat — $8,000 to $10,000 a month. There’s a pool man, a gardener and someone to plow the snow from the quarter-mile-long driveway.

As tight as money is, she has decided that living in a 4,000-square-foot house on three acres is the practical thing to do.

I’m not going to take up text space going off about how absurd this all is, except to say (as I have before) that in a country where the recession is obviously most crushing the middle-class, I’m playing the smallest violin in the world for those making $300,000 a year (ie. the top 5 percent of the country) — especially those who whine about their plight while refusing to cut back on their nannys and gardeners.

What’s fascinating here is not how incredibly out of touch with Middle American reality the super wealthy are, but how willing the media are to promote the super wealthy’s whines as legitimate and justified. The entire economic narrative on Main Street is about how the average family making $50,000 a year is going to put food on the table — and the entire economic narrative in the elite media is about the top 5 percent’s concerns that they might have to cut back on mansion expenses.

This is the real “Two Americas” — the elites and the media outlets they control, and the Rest of Us. And clearly, the former doesn’t give a s*** about the latter. David Sirota is the bestselling author of the books “Hostile Takeover” (2006) and “The Uprising” (2008). Find his blog at OpenLeft.com or e-mail him at ds@davidsirota.com

Dean Baker

By Dean Baker
Co-Director, Center for Economic and Policy Research

Post readers may ask that question given that the Post told them that: “Congress wanted to guarantee that the $700 billion financial bailout would limit the eye-popping pay of Wall Street executives.”

The rest of the article explains how the bailout legislation, as approved by Congress, is not likely to impose any serious limits on executive pay. So, Congress was apparently unable to do what it wanted.

This is striking because most members of Congress are not morons. Congress is usually capable of passing legislation that does what it wants. For example, when they have wanted to fund the war in Iraq, they have been able to pass legislation that actually funds the war in Iraq. When they wanted to cut taxes for the wealthy, Congress was able to pass legislation that actually cut taxes on the wealthy. Why did Congress find it so difficult to pass legislation to limit executive compensation on Wall Street, if that is what it really wanted to do?

Let me suggest an alternative hypothesis. Perhaps Congress really did not want to cut executive compensation on Wall Street. After all, word has it that members of Congress gets lots of campaign contributions from very high paid Wall Street executives.

Of course, giving taxpayer dollars to the richest people in the country is not very popular with ordinary taxpayers. So, it might be in the interest of members of Congress to appear to be trying to rein in executive compensation on Wall Street, even if this is not their real intention. In other words, the restrictions of executive compensation put in the bailout bill were just a charade for the kids.

Is my explanation correct? I have no idea, but of course the Post has no idea either of what Congress really “wanted,” so why is it trying to tell readers what Congress wanted in the very first sentence of a front page news article.