Uncommon Sense

July 19, 2011

Now It All Fits Together

Filed under: Economics,Politics — Steve Ruis @ 10:13 am
Tags: , , , ,

I had a classic “aha” moment listening to a story on National Public Radio riding to work July 10th. The report’s author, Jeff Madrick, reported on a situation at Dean Foods, a local dairy company. From 1970 to 1984 Dean’s CEO, Kenneth Douglas, was well compensated. He made no more than $1 million dollars per year, but he had a nice home in the suburbs, he drove a Cadillac, he belonged to a country club, and … he turned down several offers to raise his salary even further. While Douglas was CEO, Dean’s annual sales went from $165 million to $1.4 billion. He did well for the company. Fast forward to the present and Dean’s current CEO, Gregg Engles, has done far better than inflation would suggest. He has an annual salary of about $10 million, a $6 million house out of state, property in Vale, CO, four golf club memberships, and a corporate jet.

So, while the company’s CEO has done much better than his predecessor, what has happen to Dean’s employee’s salaries? Corrected for inflation, Dean’s workers now make an average of 9 percent less than they did in the 1970’s.

When I heard this all of the pieces of this disastrous picture for America’s middle class fell into place.

Now, I don’t claim to see the entire picture, but at least the keystones of our current situation are all clear in my mind.

Realize that there are long histories of class warfare in this country, and I am only addressing the current situation. I begin with the top tax rate changes made during the Reagan administration. First in 1981, the top tax rate for income taxes was lowered from 70% to 50%. Then in 1986, this was lowered from 50% to 28%. (Yes, yes there are details, the 33% “bubble rate,” etc. but they hardly matter.)

Post WWII, there was “pull together,” “we are all in this together” feeling, which probably fueled Dean’s CEO, Kenneth Douglas, turning down offered pay raises (“I make enough.”) but as the year’s passed, that feeling was diluted. And, as long as the marginal tax rates were 70%, CEO’s weren’t looking for super high salaries, because they would only make 30 cents on every new dollar. So, there was an era of corporate perquisites (“perks”), because the corporations could provide cars, planes, lavish offices, personal assistants, etc. without the CEOs having to report additional income. But slashing the upper tax bracket to less than half of what it was changed all of this. After 1986, the salary escalator was in full swing.

Now, bring in the history of corporations. If you haven’t looked into how the modern corporation has evolved over the years, it is a fascinating story. The key point here is that corporate executives, especially CEOs, have no higher goal than to make a profit for the corporation’s shareholders/investors. Nothing trumps this: not patriotism, not environmental realities, not “doing the right thing,” nothing. If a CEO doesn’t maximize profits for his/her corporation, he/she can be sued by its shareholders/investors. Corporate executives are required by law to be both amoral and narcissistic!

Who is in charge of a CEO’s salary? Typically, a corporation has a board of trustees who have this task. And, who is in charge of the board of trustees? Nominally it is the shareholders but most of those people are “out of the loop” and the CEO fills the power vacuum. Fox, meet chicken coop; chicken coop, meet fox.

Today, if you look at the wealthiest 1% of Americans, do you find financiers, old money inheritors, bankers, what? Predominantly you will find corporate executives.

Segue to today’s politics, which are not driven by ideology as much as it might look that way. Small government Republicans pass myriad laws infringing on rights to privacy, abortion, union rights, etc. etc., all of which constitute “big government.” Democrats go along with contracts for “war contractor corporations” that are borderline, if not actual, criminal organizations and contracts for weapon systems that fail to work or which have no purpose in the current world (because “they are good for business” or “they create jobs”).

So, what is driving today’s politics? Money. Those that have it, lots of it, are buying politicians wholesale. Oil companies, which are the among richest companies in the world and which are posting record profits, block the rescinding of subsidies granted by the U.S. government when oil was $19 per barrel and there wasn’t enough of a financial incentive to go looking for it. Republicans and some Democrats refuse to consider any legislation that raises taxes, even slightly, on these “Super Rich.” Why? Because they are bought and paid for. Friends of these corporations and corporate executives in Congress, can look forward to cushy jobs when they leave Congress and, of course, plenty of money for re-election campaigns.

Why would congressional leaders have anything against unions? Republicans dislike unions because they tend to vote Democratic, but so what? Republicans have stalwart supporters, too. Ah, corporate executives and corporations hate unions as they are in positions to oppose anything those entities want to do. So, crush the unions, even though one can show that unions, in their proper place, are good for those companies because they put money in the hands of middle class people who go out and buy things from those corporations. (Even Henry Ford understood this!)

And now, the SCOTUS has decided that corporations, which were given the same rights as people for business purposes (but can be killed at the drop of a hat with no penalties, so they aren’t quite real people), now are to have the same political rights as people do and ungodly amounts of money are flowing into political arenas from the super rich.

If this is not stopped, the middle class, as we have come to know it Post WWII, is doomed. Like Deans Foods employees, we will have jobs that are less and less compensatory, but we will just have to shut up and take it, because if you lose your job, no one but charities will be there to offer a helping hand.

The only solution to this problem is to stop the flow of money at district lines. Allowing the free flow of money political is granting extraordinary powers to rich people. And if you think this is all a mirage, consider the fact that the top 1% of American’s wealth, while ordinary people were losing trillions of dollars of worth during the Great Recession, losing their jobs, losing their homes, that wealth increased 8% during that period. The rich always get richer and the poor . . .

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