I am the 1% and chances are so are you

Great Debates
61

This statement is, of course, trivially true when we’re discussing tangible consumer products and services.

It starts to fall apart when we start talking about things like investment securities, which don’t represent anything other than gambling on the outcomes of useful products. I think you’ll find a lot more than a tiny minority of the 1% is making their capital on gambling rather than useful investment. Useful investment is defined here as “money that ultimately ends up either in the pockets of worker bees as salary or in the infrastructure/real property of a business”.

62

Keep in mind that we’re not talking here about private property as opposed to the state’s ownership of everything; we’re talking about private property as opposed to theft-by-taxation. Many Randians and similar cultists seem to think that if the government taxes people, that’s stealing from the deserving and giving to the scum, that taxation diminishes private property. I’m assuming that you’re not in that camp; if you’re not, if you agree that Scandinavia (for example) rates pretty high on freedom indices, then we’re substantially in agreement.

Rand Rover, I’m having trouble imagining how your question to me (i.e., what programs I’d put in place to redistribute wealth) could possibly be asked sincerely. Are you asking because you’re unfamiliar with any program recommended by a brilliant economist that involves the use of taxation to promote social welfare?

63

I’m in a family of four, and altogether we make less than $136,000. Quite a bit less, but more than half.

Still the OP is nonsense because “the 1%” refers to people in this country who effectively control the political discourse of this country through wealth and power unavailable to the rest.

I’ll certainly cop to being priviledged compared to most of the world, but that has nothing to do with the Occupy movement.

64

Well, just a second, here. Clearly,** OMG** has reviewed the position papers published by OWS, and the agenda, and the statements of official spokespersons. After careful consideration and strenuous analysis, he has arrived at the conclusion that he was right all along.

65

Actually, that’s not fair. There are certainly ways of promoting social welfare that I don’t agree with. So let’s say we could make a good start nationally with universal health care, improved education, and a much more progressive and loophole-free income tax system, and make a good start internationally by linking free trade agreements much more strongly to labor and environmental protections.

66

Or I just paid attention.

67

Heh, what do you mean by a lot more? About 14% of the top 1% percent of income earners are directly involved in finance. The other 86% are a pretty diverse bunch.

Investment securities = gambling? Seriously? I’m curious to know what you think the 1% does with their income that could ultimately keep it out of the hands of workers and businesses? Put it under the mattress?

Here’s a question: Let’s say you are the owner of a company that makes 10 billion in profit a year. You have to hire a new CEO. You find a guy who’s got a good track record, and you think he’s a better decision maker than your previous CEO, such that he will increase your profits about 5%. Or maybe more realistically: you think there’s a 10% chance that he’ll increase your profits 5% over the last guy.

This isn’t some fantasy scenario, businesses large and small make decisions like this all the time. How much should you pay him?

68

You left out some vital information. What is he gonna do for the workers? What about the customers? What about the public at large?

Because if he’s gonna fire half the workforce, endanger the customers, and send the economy into a tailspin, or even if he’s just gonna do one of those things, I shouldn’t pay him anything, no matter what he’d do for profits.

Yes, yes, yes, I know it’s business school 101 that corporations are responsible only to their shareholders, that it’s their job to make profit, all hail St. Milton. Fuck that noise.

69

I know! I know! Whatever the Holy Free Market (blessings and peace be upon it!) says! That’s right, isn’t it? Where’s my cookie? There’s supposed to be a cookie…

70

One doesn’t have to be directly involved in finance to make a significant portion of their income from capital gains rather than actual work, and absent a comprehensive portfolio analysis…

It’s my opinion that buying default swaps on debts one doesn’t have a stake in, financial-only “commodities contracts”, and the like constitutes gambling rather than investing. Purchasing those types of securities is, effectively, “putting money on the horses” (rather than under the mattress, which would at least be safer) if (as it is right now) that money is not withdrawn from the securities markets and put to productive use creating new jobs and infrastructure or in raising the salaries of existing employees in order to drive up aggregate demand to make infrastructure investment profitable again.

The disconnect is that the biggest players have discovered they can create ways of making money without actually bothering to make real products, and that’s cutting out the middle class–when Bill Gates wants an operating system improvement, it takes a lot of programmers and support staff to do that. It takes far fewer (admittedly, highly intelligent and trained) clerks to come up with and administer the idea of buying insurance on something you don’t own for a profit.

Probably a little less than average until he has a few months to demonstrate his competence, then whatever he’s worth based on what he’s done to increase the company’s profits. Funny how that works exceptionally well for me hiring subordinates in a complex technical field, but the system for large-company CEOs is so broken that I imagine the average candidate would be insulted by such an offer.

71

So you don’t have any data, you just sort of assume? Non finance executives and managers, doctors, and lawyers make up around 50% of the top 1% of income. While they all no doubt have significant investment income for the professionals it’s dwarfed by their non-investment income, at least while they are working. Some of them are compensated with equity instead of salary but how does that count as making income from something other than actual work? And you seem to be conflating investment income with income from derivatives. If I buy a municipal bond or shares of Google, is that gambling? But see below.

Arrrrgggggg. If you’re going to use the term “investment securities” people are going to mean you are using the commonly agreed upon definition of the term. It doesn’t mean derivatives. Cite that the top 1% of of income earners have a significant fraction of their investments in derivatives? Short of hedge funds most 1%'s I know invest in a fairly traditional mix of stocks and bonds.

The whole point of this exercise is to figure out what “the average” should be. This CEO is projected to add around 50 million to your expected profits. If you offer him 10 million he has every right to be insulted. Someone with a skill set like that will no doubt be hired by another large multinational that likes making a profit.

72

Exactly as you did. There were no cites in your post.

I’m sure you attend ALL their dinner parties.

Tough tits, I suppose. Any idiot can watch the business climate and see that sometimes you get Bill Gates, and sometimes you get Carly Fiorina–clearly, CEO compensation is not as strictly tied to competence as the worshipers of the 1% would like it to be. If I’m running a company in the range where one guy can add $50m in profit, then I can cruise along just as happily without that until I find a nice up-and-comer who’s willing to take a trial run and be judged based on his performance in my hot seat. That has the added advantage of retaining more profits for reinvestment and growth of the actual core business.

Of course, your whole hypothetical sidesteps the real problem, which is that the CEO usually also represents a fair bit of ownership interest him/herself, which is a clear conflict of interest when salary-setting time comes around. I also note you didn’t deign to answer my statement of the other real problem, which is that the artificial, gambling ways of making money with finance are not getting any smaller and don’t represent any meaningful economic growth.

73

So, because the Free Market (blessings and peace be upon it!) admires this “skill set” a thousand times more than a teacher, a firefighter, or a cop, we are obliged to set aside our irrational prejudices and genuflect to its ineffable wisdom? This must be a wondrous skill set.

Certainly more complicated than teaching a class of thirty kids so that the bright kids remain engaged and the duller children are not left behind. Certainly demands more skills than interfering with a violent domestic dispute without anyone getting hurt. In comparison, deciding whether it is worth the risk to enter a burning building is mere child’s play, yes?

This skill set, does it oblige a man to be a patriot, to inform his decisions based on what is good for his country? Is he obliged to be socially responsible, to set aside profit for the greater good? No, no, he is obliged to be a communicant in the Church of Mammon, a Mammonite, if you will. To bend his knee only to the holy Free Market (blessings and peace, etc.). If ten thousand Americans will lose their jobs but that will bump the blessed bottom line by .5%, then the Free Market has spoken, hollow be its name.

This Free Market, what is its nature? Can its existence be proven? Can it make a burrito in cannot eat? It can certainly make a product it cannot sell, the miracle of New Coke, for instance. Can it be shown, proven, that its decisions are wise and just? Does it value the weak and the lame, or does it simply think of them as rather insignificant sources of revenue?

Tell me again why we should admire a skill set so arbitrary and capricious? Tell me why I should admire a man who has dedicated his entire life to winning a rat race? And why I should admire him a thousand times more than the man who patrols my streets, or teaches my child?

This is what we value, this is what we have struggled to achieve, a shining gated community on a hill? The Irish love poets, the French, painters, the Italians, opera singers. We love salesmen.

74

If you want to claim the top 1% derive significant (whatever that means) income from derivatives, back it up. You made the claim. In fact, you seem to be implying that not only is it derivatives, but a very specific kind of derivatives. (I assume you don’t have a problem with options? Or do you?) It seems ridiculous to me, but if you have a cite I’ll read it.

We value CEOs more (monetarily) because they make more money for a company than other people do. It’s really as simple as that. I don’t know many people who believe what a CEO does is harder, or more dangerous, or more difficult, in a meaningful sense, than what a solider or firefighter does. No one’s asking you to admire him. He’s actually usually sort of an asshole. But they get paid more because they have the potential, at least, to generate more value for a company. I personally don’t like baseball all that much and don’t understand why people watch it. That doesn’t mean I don’t think the top stars deserve their salaries.

If you have the opportunity to add 0.5% to your profits and you pass it up on principle, you shouldn’t be in charge of a multi-billion dollar company. And that was typo: 0.5% of 10 billion dollars is 500 million. But that you would forgo even 50 million in profit is mind boggling. In fact, your shareholders would have cause for legal action against you. I also find it humorous that you would find a young up and comer for your CEO. Young and up and comer are not adjectives usually used to describe candidates for CEO of a multinational corporation but okay: Do you think he’s less likely to increase your profits? Well then yes, obviously, you can pay him less, but you would be choosing to decrease profits. If you think he’ll do just as good a job as the other guy, why is he taking your crap salary instead of working for the company down the road? If you reward him when he increases profits as opposed to making an estimate of his value prior to hiring him, doesn’t that encourage him to maximize short term profits? Or will you give him options, compensating him with evil capital as opposed to honest salary? No one’s saying there’s a one to one correlation between performance and compensation, but it’s not some mystery why the CEO’s and COO’s of large multinational companies make so much. It’s not because they trade CDS’s.

The value of derivatives is a complicated discussion. One we’ve had on the board already. Several times in fact. “Derivatives” includes a lot of things, some of which are very obviously useful, some less so. There are billions in swaps being traded right now, including default swaps in the European market for example. Think they’re a bad idea? Should we eliminate them? What do you think that will do to the cost of European sovereign debt? Is that a good or a bad thing? Are commodity futures gambling? Currency swaps? Interest swaps? Options? Or is it possible they serve a useful function? Even if they don’t, why do you care what the rich do with their money? If they have the money to gamble, they already have enough money to buy power and influence.

75

I find your stark cynicism refreshing, and charmingly simplified, being unencumbered by any values worthy of the name.

76

CEO salaries seem to be like beanie babies and baseball cards. They have value defined as X because that is what people are currently paying for them. And people are paying price X because that is what their defined value is.

When the company is looking at compensation for a widget screwer, they don’t sit back and say “well if all of our widget screwers quit we wouldn’t have any product and so no profits and so we should highly compensate the widget screwers because they are responsible for all of our profits.” Instead they look at the market and determine the least amount of money that they can pay and still find someone will to screw widgets competently. If the current widget screwer balks at his salary they just go out and find another one who will work for less.

However when it comes to CEO salary it they don’t look try to find the least amount that they can pay and still attract someone who can do the job competently, no now it is suddenly about added value to the company. If CEOs were hired in the same way as widget screwers their pay will drop dramatically. If everyone started paying CEO’s 1/20 of their current wages how many of them would quit because $5 million/year as opposed to $100 million/year is not worth their time.

77

If all the widget screwers quit, you would make an attempt to replace them. If widget screwing is a rare skill and they can’t be easily replaced, then they have a lot more leverage when it comes to salary.

It’s not suddenly about added value. The same calculation takes place with the widget screwer. It’s just that the answer to the question of how much value does any particular widget screwer add to the company is usually: not that much. As I posited above, if you think a CEO can add x to your company’s bottom line, his compensation is going to be some significant fraction of x.

Also, how many CEO’s do you think are making 100M a year? 2010 the top CEO compensation package in the US was Viacom’s Dauman, at 85 million, which is inflated due to the way options are counted. Median executive compensation the same year was 9.6 million.

No one is saying its a perfect system. The fact that often options are a major portion of compensation packages further clouds the issue. Just for example, Tim Cook took over Apple shortly before Steve Jobs died. (Jobs of course had a staggering 2 billion dollars worth of Apple stock. Did he deserve it?). His salary is around a million. His options are worth over a quarter billion, but don’t vest for 4 or 5 years. Officially his pay for 2011 has a nominal value of 276 million. Is that okay or not? Or to put it another way, do you think you know better than Apple what they should be paying their executives? They seem to be doing okay lately. If they make shitty business decision, why do you care? Unless you’re a shareholder, then by all means, fire away. You may be outvoted though. If I owned Apple (actually I suppose I do own a small fraction of it) I sure as hell wouldn’t pay my top executives 5 million. I think they’re worth a hell of a lot more, and they do too.

Of course, none of this is a value judgement, purely a financial one. People seem to get hung up on this point, but it bears repeating. I’m curious to know what people want to do about it though. I’m all for a more progressive tax structure but if you think there’s some magical solution that will result in the CEO’s, COOs, and CFOs of multi-billion dollar MNCs taking a 95% pay cut, I’m all ears.

78

Either you stopped reading your article as soon as you read the words $34K/year or you are distorting the article (which is itself distorting the facts).

The article says that it takes $136K/year for a HOUSEHOLD to be in the top 1%. It then assumes a household is two parents and two kids.

There is very little of the 99% movement that stands for the proposition that making money is intrinsically wrong.

79

That broader audience doesn’t vote in our election or have a say in how we shape our society.