Tuesday, November 29, 2011

Crime Witness, New Robber Barons

Tags: Crime Witness DNA Freed Mistakes Witness ID, America's New Robber Barrons, Wall Street Executives

NY Times, Laura Beil, Nov 28, 2011 About 75 percent of DNA based exonerations have come from mistakes in witness identification.

The New Jersey Supreme Court decided that witness accounts should be viewed more like trace evidence with the fragility and vulnerability of contamination. http://www.nytimes.com/2011/11/29/health/the-certainty-of-memory-has-its-day-in-court.html?_r=1&ref=health

America’s New Robber Barons, Jeff Madrick, www.nybooks.com Nov 16, 2011

This may seem counterintuitive at first. After all, analysts have long painted a picture of growing inequality over the past few decades in which the top quintile’s share of the national income has risen while the share of the other 80 percent has fallen. But almost all the gains for the top 20 percent was for the top 1 percent. And half of that is accounted for by a tiny group within the top percent—those earners in the top 0.1 percent. Meanwhile, for the four quintiles below the 80 percent level, the share of total income fell significantly. For those from the 80th to the 99th percentile, the share rose only slightly (a little more rapidly as you go higher up).

In other words, Occupy Wall Street’s claim that “We are the 99 percent” is dead on right.

So it’s worth knowing who is in that group of very rich with runaway incomes. Several news reports in recent weeks have cited a seminal 2010 study that uses IRS tax returns to find out who belongs to the top 0.1 percent. The authors deserve mention because they are often left out when their results are cited: Jon Bakija of Williams College, Adam Cole of the US Treasury, and Bradley Heim of Indiana University. This was not a Treasury study, however, but a private if scholarly one.

One key finding of the study is that three out of five of those in the top 0.1 percent of tax filers are executives or managers of financial and non-financial companies. Overall, more are from non-financial companies. Does this partly exonerate Wall Street, suggesting it is really Main Street where the problem lies?

In fact Bakija, Cole and Heim’s analysis shows the opposite: it turns out that much of the increase in wealth of non-financial executives was also tied to the rise in stock prices. Keeping in mind that stocks options appear as wages in the data, it seems Wall Street itself was often a main source of income growth for “non-financial” managers as well. (Lawyers were another large category of tax payers in the top 0.1 percent, and though there is not direct data for this, one can fairly assume that many of those in corporate firms made a lot of money from the booming business on Wall Street.)

Next, think about how these executives managed their businesses. If they wanted a big pay check they had to orient their strategies to push up their stock prices—that is, often to appeal to the financial fads and fashions of the day. These strategies typically have included cutting labor costs and R&D in order to boost short-term profits. This delighted their advisers on the Street. Stock investors soon loved nothing better than consistent increases in quarterly profits, and not coincidentally, stock options accounted for an ever-growing proportion of executive pay over the past thirty years. We used to say once that Wall Street worked for business, but over the past thirty years business has come to work for Wall Street.

It is just as interesting to explore the factors that the authors found out probably did not cause the surge at the top. Economists typically posit sophisticated technologies (often related to digitalization) as a source of growing inequality: because these technologies require better educated and smarter workers, those who have mastered them are rewarded handsomely. But there was no surge at the very top in other nations like Japan or in Western Europe, which also adopted the same technologies.

Similarly, some have argued that globalization led to higher incomes at the top because skilled workers can sell themselves globally at ever higher salaries. Again, however, such skilled workers have not seen a surge at the very top in Europe or Japan.

One reason for the discrepancy between the US and other countries is that boards of directors in the US are especially willing to give their CEOs and other high level executives big raises and generous stock options. Lucian Bebchuk of Harvard has done a lot of research on this so-called “governance” issue. Meantime, as Bebchuk’s work shows, shareholder influence over executive compensation is far too weak. And there is also the issue of culture itself. America—with its admiration for the self-made man—tolerates high remuneration for the men and women at the top and lower wages in the middle and the bottom. Culture likely matters.

But when we put it all together, compensation tied to stock options along with unusually high profits by financial firms, much of which was passed on to their executives, seems to be the overriding factor. This is probably now the main driver of what we call income inequality in America and what we should more accurately call runaway incomes at the very top. … http://www.nybooks.com/blogs/nyrblog/2011/nov/16/americas-new-robber-barons/?utm_medium=email&utm_campaign=NYRblog+November+29+2011&utm_content=NYRblog+November+29+2011+Version+A+CID_2224426297070910b678daa35744bad1&utm_source=Email+marketing+software&utm_term=Americas+New+Robber+Barons

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