Monday, November 18, 2019

Time to Dump the Two-Party System?

In 2016 the presidential candidates nominated by both of the major political parties in the United States had negative approval ratings.  Given their dominance of the American political system since the 1850s, it is hard to fathom how both parties could be so inept at the same time.
Three years of the Trump presidency has left the impression that the two parties are no more successful at governing than they are at choosing effective presidential candidates. Granted Donald J. Trump’s leadership, or lack thereof, is a major factor in the current impasse, but he is more a symptom than the actual cause of the bipartisan ineffectiveness.
There has been little progress for more than three decades now on addressing several grave challenges facing the country. Immigration, health care, gun violence, income inequality, and responsible corporate governance are some of the most threatening that have been festering for years.
Internationally, America’s place in the world is under siege.  The quality and consistency of our leadership is in question.
A majority of Americans still generally identify with one of the two major parties. In recent years, however, more voters consider themselves Independents than those who identify with either of the major parties. A Gallup poll in September 2019, found that 31% of Americans identified as Democrat and 29%, Republican. But 38% claimed to be Independents.
Since 1991 Gallup has been regularly measuring the partisan leanings of Independents’ in an effort to get a clearer picture of the party divide. Democrats have typically maintained a slight advantage over Republicans here as well. Currently, the margin is 47% to 42%.
While Democrats usually hold a slim advantage in partisanship, Republicans vote at higher rates, which make U.S. elections competitive. Divided government has thus been the order of the day.
Republicans in recent years have appreciated better the state-based structure of our political system, paying more attention to state and local offices. This is reflected in their dominance in state legislatures who control reapportionment of Congressional seats.  The GOP’s broader geographic focus is also evident in the membership of the US Senate where they hold a 53-seat majority. Only 10 of 50 states have split senate representation and in two of those, the non-major party senator is an independent (VT and ME). 
The close partisan divide has been evident in recent presidential elections. In the last five contests beginning with 2000, the Democratic candidate has won the popular voter four times. Only twice has the Democratic candidate won the presidency. In both 2000 and 2016, a Republican achieved victory in the Electoral College despite having fewer popular votes than the Democratic opponent.
There has always been contention between the two major parties, but the intensity of the divide has increased exponentially in the past three decades. When LBJ in 1965 was pushing through Medicare, approximately half of Republicans in Congress voted for the legislation. Fast forward forty-five years and not a single member of the GOP in Congress voted for the Affordable Care Act. 
In any democratic system elections are important so it is natural for parties to focus on campaigns for public office.  But carrying out the essential functions of government in a fair and equitable manner is equally as important as elections. This has become increasingly problematic in recent years as sizeable elements in both parties have come to view the opposition as unfit to govern.
For example, in a September 2019 survey by the Pew Research Center 75% of Democrats viewed Republicans as “more close-minded” that other Americans, while 64% of Republicans questioned the open-mindedness of Democrats.   In another opinion survey a month later, 55% of Republicans described Democrats as “more immoral” when compared to other Americans. Among Democrats 47% said Republicans were “more immoral.”
The partisan hostility runs very deep. Nearly half of members in both parties say the other party has almost no good ideas. Majorities in both parties accuse those in the opposing party of not sharing their nonpolitical values and goals.
Most disturbing is the September survey in which 63% of Republicans claimed Democrats are unpatriotic. In maybe a glimmer of hope, only 23% of Democrats said the same of Republicans.
It appears that our two party system is no longer adequate for our political environment. Issues and challenges have become too complex to be resolved by just two points of view, and efforts at compromise between the two parties consistently flounder.
Perhaps the existence of two or three more viable political organizations would encourage a serious exploration of solutions to our problems. Many other democracies in the developed world have had multi-party systems for a long time.
Ironically, a major factor in the political standoff is that the parties are so evenly matched.  Consequently, there is a tendency for the loser to focus more on the next election rather than on trying to develop solutions to our challenges even if some degree of compromise is necessary.
Whether or not the addition of one, two or three additional political parties may be helpful in clearing  the logjam in American governance is uncertain, but the prolonged poor track record of the existing two major parties offers little reason to stay with the status quo.

Sunday, September 15, 2019

Why Not Elect a Woman President?

The political pundits keep telling us we cannot, or will not elect a woman president of the United States. Since apparently there will be no contest for the Republican nomination, this message seems directed at the Democratic Party where a half dozen women have been in the race to become the party’s standard bearer.

A poll conducted by Time magazine last September is instructive with regards to this question. In it fifty-six percent of American women said they did not believe a woman could be elected in 2020. In the same poll fifty-five percent of Hispanic women and half of black women said they think a woman is likely to be elected President in 2020, while just thirty-eight percent of white women said so. That translated into a fifty-three percent majority of Democratic women who believe a woman can be elected in 2020.  On the other hand, only thirty-five percent of Republican women think Americans are likely to elect a female Commander in Chief in 2020.

The skepticism of Republican women is understandable.  The GOP has an incumbent male president who is running for re-election. Women are also virtually absent from significant policy making position in the Trump Administration. When Kirstjen Neilson proved not tough enough on immigrants for Trump, he sacked her, leaving only two Cabinet officers headed by women, Betsy DeVos at Education and Elaine Chao at Transportation.

Although DeVos has no education credentials, her family has been generous in support of Republicans.  Chao, the wife of Senate Majority Leader Mitch McConnell, has been a member of the Cabinet under the last two GOP presidents.

The significant gains made by women in the 2018 congressional elections seem to belie the notion that a woman cannot win the presidency. One hundred and two women were elected to the US House, while there are now twenty-five women serving in the US Senate. Again, there is a stark partisan discrepancy. Women in the US House number eighty-nine Democrats to thirteen Republicans, while in the US Senate the split is seventeen Democrats and eight Republicans.

Still, overall women hold only approximately twenty-five percent of congressional offices.  A woman does occupy the speaker’s chair.  

In the business world American women have also made headway. Several major companies currently are led by female CEOs, including General Motors, International Business Machines, Lockheed Martin and Anthem. Women can be found at the helm of a number of smaller corporate enterprises as well and run a high percentage of small business operations.

However, among Fortune 500 corporations less than twenty-two percent of board directors are women.
Internationally, the United States looks misogynistic, ranking 51st overall in progress toward gender parity. The World Economic Forum’s 2018 Global Gender Gap Report grades 149 countries in four categories, economic participation and opportunity, educational attainment, health and survival, and political empowerment.  In the last category, the United States ranks 98th, even though women make up more than half the nation’s population and earn more than half of the college degrees.

Around the world, women have assumed significant leadership roles. Angela Merkel, the German Chancellor, has been the most visible and consequential, but Margrethe Vestager, the European Union competition czar has also had a substantial impact, especially on the world’s tech giants. She has fined Google more than $9 billion for monopolistic activities and required Apple to pay Ireland $14.5 billion in back taxes.

French attorney Christine Lagarde has just stepped down as managing director of the International Monetary Fund after eight years. She leaves to take over the presidency of the European Central Bank. The former defense minister of Germany, Ursula von der Leyen has just been elected head of the European Commission.

Looking at the roles women are assuming around the world as well as within the US, it is hard to accept that Americans really are that reluctant to elect a woman president.

Part of the impetus for this idea seems to be the failure of Hillary Clinton to win in 2016. From the outset she had appeared to be a certain winner, but she lost six of the key swing states that Obama had won in 2012 and did not match his total vote. The fact that she received nearly three million more popular votes than Donald Trump is an indication that gender was not the likely cause of her loss.

Her acceptance of large speaking fees from corporate donors in the early stages of her campaign undermined her credibility generally, and she failed to establish a strong connection with key elements of the Democratic base, including African Americans and working class voters. According to an analysis of polling data by RealClearPolitics, Clinton’s approval ratings never matched her disapproval ratings during the entire election year. She was viewed by a majority of voters as dishonest and untrustworthy.

The women running for the Democratic nomination in 2020 do not appear to carry as much negative baggage and three years of Donald Trump has left a plethora of issues around which to craft a winning campaign. That is the challenge---identifying the right issues to emphasize and packaging them in way that is understandable as well as appealing.

            A woman can do that just as well as a man, maybe better.

Monday, September 2, 2019

Don’t Focus on the “Accidental President”

Admittedly, it is difficult to ignore Donald Trump. His irresponsible rhetoric and irrational approach to policymaking feed social chaos and economic uncertainty.  But while Trump’s narcissistic performance is maddening, he is only a major symptom of a deeply rooted political disorder that threatens to destroy United States as a democratic society.

Trump became our “Accidental President” in a tumultuous contest in 2016.  He did not win because of the quirks of the Electoral College. That institution is well-known, having been around for 231 years and 57 presidential elections. Trying to blame the Electoral College for defeat simply indicates an ignorance of history or a refusal to accept reality.

Trump won because of social and economic circumstances created over the past forty years by our country’s political and economic elites. Both major political parties have been complicit in letting the American people down. They have chosen to emphasize short term political gains instead of addressing serious issues that have persisted for too long.

Income inequity did not develop overnight and it has not occurred in some secret manner.  The Trump tax cuts are just the latest reiteration of policy preferences for the rich both parties have supported since the Reagan years. The capital gains discount and the carried interest travesty have allowed the wealthy to continue amassing great fortunes at the expense of the average American worker who is saddled with more and more regressive sales taxes.

All those jobs that were supposed to result from slashing taxes for already flush corporations, they have not appeared.  Some corporate elites were even rewarded for tax avoidance, but most of their tainted windfall went for stock buybacks, fattening even more their bulging wallets.

Neither party has been willing to take the steps necessary to restore reasonable balance between capital and labor. The federal minimum wage has not been increased since 2009 and some states, like South Carolina, still refuse to even institute one. Although a majority of Americans support the existence of labor unions, collective bargaining continues to be undermined at both the state and federal level.

Trade problems also have not just suddenly surfaced.  They have been festering for some time, intensified by the foolish decisions on the part of many corporations to create supply chains in other countries outside the legal jurisdiction of the United States. Their shortsighted quest for the lowest labor costs not only has impoverished American workers, but it has exposed the companies themselves to greater risk of intellectual property losses.

Globalization is a reality. But if US companies continue to insist that the interests of their shareholders must take priority over the welfare of the average American worker, they may wake up someday and find there is no one with the will or capacity to defend them.

Healthcare remains an unresolved problem. Obamacare was designed to address access to health insurance, but it primarily has reaffirmed the stranglehold various elements of the industry have on both major political parties. The corrupt behavior of the pharmaceutical companies in the opioid crisis is clear evidence that relying on the market will not produce safe and economical healthcare.

And the idea that most Americans “love” their private health insurance is a myth fed by the industry’s multibillion dollar lobby machine. Our current system of healthcare is the most expensive in the world today, yet it fails to serve the needs of millions of Americans, including nearly four million children. A carefully planned and adequately financed transition to a single-payer universal system will be welcomed by all but the most skeptical ideologues.

Restoring education to its rightful place at the heart of the American dream is should also be an important goal.  Both parties have been guilty of moving education from being viewed as a public good to being considered a private benefit with the resulting decline in priority. A college education does not need to be free, but it should be accessible at a reasonable cost--- one that is not a lifelong burden.

The country needs an educated and appropriately skilled workforce. In the period between World War II and about 1970, the US appeared to be on the right track in achieving this objective, but politicians in both parties started tinkering with the system without regard for the professionals involved.  Reinvigorating our education system is not going to happen overnight, but again the market has proven it cannot be depended upon to do the job.

Another area of concern has been the international arena. The end of the Cold War was supposed to bring the end of conflicts among nations and a “peace dividend.” Instead, the US has been continuously embroiled in foreign quarrels in which we have only a passing interest and little prospect for resolving.

The fear of terrorism, which has historically been a weapon of the weak, has been used effectively by the threat-industrial complex to justify enormous defense expenditures. In the name of seeking peace and secuity the US has become the world’s greatest supplier of military weaponry and is now feared more than respected.

Finally, much of what ails America today is the result of the demise of the fourth estate within our country. Free speech and a free press are basic American values and critical to maintaining a democratic government, but neither truly exists today in the mass media nor in social media.

Money rules in both. Commercials have pushed aside time and resources for legitimate news coverage on networks and cable. The business model of social media with its urgent demand for clicks has led to a focus on conflict that is counterproductive to representative government.  Some restoration of the fairness doctrine that ruled television from the 1940s until the 1980s is desperately needed.

If neither political party recognizes the real stakes in the 2020 election, the re-election of Donald Trump may be the least of our worries. And an election centered on him, similar to what happened in 2016, could very well create a situation in which his demagoguery proves effective again.      

Wednesday, July 31, 2019

Quit Gambling With Our Future

All across America states are engaged in massive corporate welfare. It is disguised as tax incentives for business investments, but it results in a deadly competition that is undermining the fiscal integrity of many states, especially in the South where an unrealistic opposition to taxes in general has already undermined the public weal.

Individual states are caught between a rock and a hard place.  On the one hand, adding jobs from either new or existing business firms is desirable and contributes to improving the economic health of the state.  On the other hand, new or expanding economic activity likely carries with it the need for additional public expenditures---more infrastructure such as roads, water and sewer, more public services such as schools, colleges, police and fire departments and more health services.

Someone has to pay for those services.  If you reduce tax rates, or provide direct subsidies like land, buildings or tax credits, so that local and state revenues normally collected from the company making the new investments are lower, someone, individuals or other companies, must make up the shortfall, or the needed services will not be provided.

Defenders of tax incentives for new investments argue that without them no new investment would occur. Maybe that is true.  But would the investments come if the schools are failing and the roads and bridges are collapsing? 

Often the reasons for a company to relocate within the United States are foreboding. 
Cheap land, lower labor costs, less regulatory oversight, those are frequently the motivating factors. There is little room for enriching the community.  And often once the tax incentives have played out, companies leave.

A recent US Supreme Court decision has introduced a toxic elixir into the issue.

In Murphy v. NCAA the court in a 6-3 decision ruled the Professional and Amateur Sports Protection Act of 1992 unconstitutional. Under that law, with a few exceptions grandfathered, states were prohibited from allowing sports betting.

The law had been sponsored by then-Senator Bill Bradley, a former All-American college-basketball player and a star professional. His objective was clear: “State-sanctioned sports betting puts the imprimatur of the state on this activity. It conveys the message that sports are more about money than personal achievement and sportsmanship. In these days of scandal and disillusionment, it is important that our youngsters not receive this message.”

The decision is a victory for New Jersey and other states who have considered allowing sports gambling as a way to encourage tourism and tax revenue. The NCAA, NFL and NBA had backed the federal prohibition.

In his opinion, Justice Samuel Alito wrote: “The legalization of sports gambling requires an important policy choice, but the choice is not our to make…Congress can regulate sports gambling directly, but if it elects not to do so, each state is free to act on its own.”

The barn door is now open, let the games begin.

North Carolina has already legalized sports wagering, but limits it to tribal casinos and does not allow mobile wagering. It is estimated that the additional betting might generate between $1 million and $1.5 million annually. Not a major bump for a $24 billion state budget.

In South Carolina things are moving slower. The Palmetto Forum for Gaming Studies has popped up, co-chaired by two erstwhile politicians, Jim Rex and Converse Chellis, III. The organization claims it “will engage in conducting research and hosting public policy discussions, forums and debates….Polling and research on various key issues will be conducted and results compiled for disbursement to legislators, state agencies, business organizations and media outlets.”

The PFGS website provides no information as to the sources of its funding.

South Carolina is one of just nine states that does not have a commercial or tribal casino, so it is a natural target for the gaming moguls. The state’s biggest industry, however, is tourism…nearly $23 billion in 2018. The Grand Strand and Charleston are the state’s top tourist destinations. Would the introduction of gambling enhance the ambiance of either?

Both North Carolina and South Carolina have “education” lotteries, which are legalized gambling initiated allegedly for the benefit of schools and universities.  The SC website claims the lottery in the Palmetto State has generated $5.5 billion for education since its inception in 2002.  NC got in the game a bit later, 2006, but with more than twice the population of SC its lottery as taken in more than $6.24 billion. Despite the stated objective, college tuition in both states has increased substantially since 2002.

Neither state reveals how much gross revenue the lotteries accumulate. The fact is the states receive only about 25-30 percent of what players pay in to the lotteries.  A lottery is a notoriously inefficient way to raise dollars for critical public services.

It is also true that lotteries collect most of their money from those at the lower end of the income scale.  Workers in the Carolinas already make only about 84 percent of the wages earned by those in states outside of the South.  Lotteries just add to their already unfair burden.  Additional legalized gambling will pile more on to those least able to afford it.

Legalized gambling also may have a dark future. A report produced by the Rockefeller Institute of Government in April 2016, entitled “State Revenue From Gambling: Short-Term Relief, Long-Term Disappointment,” points to the flat growth in gambling revenues in recent years as every state attempts to get into the act. It notes as well that millennials do not seem interested in frittering away money on games of chance.

Neither surrendering to the ruthless competition for tax incentives nor expanding legalized gambling will help local and state governments meet their obligations to their citizens. The goal should be to develop and maintain a tax system that generates the necessary revenue in a fair and equitable manner.

Monday, July 15, 2019

We Need Umpires

In his opening statement at the hearings before the United States Senate Judiciary Committee considering his nomination to be Chief Justice of the United States Supreme Court, John G. Roberts, Jr., said he viewed judges as “umpires.”

Umpires don’t make the rules, they apply them. The role of an umpire and a judge is critical. They make sure everybody plays by the rules but it is a limited role. Nobody ever went to a ball game to see the umpire.

What Roberts forget to say is that without the umpire there is no game. With no one to apply the rules chaos reigns.  Refusing to address the issue of partisan gerrymandering, Roberts and his four conservative cohorts on the US Supreme Court have deserted the field and left near anarchy.  

We should not be surprised by the decision in Rucho v.Common Cause. It is in keeping with the general approach of the Chief Justice who could be described as post-libertarian. Some pundits seem to feel Roberts is concerned primarily with protecting a centrist image of the court which would explain his decision to side with the liberal wing of the court in blocking a citizenship question on the 2020 census documents.
But consistently Roberts and his band of conservative brothers have issued decisions undercutting governmental initiatives that restrain special interests and reflect the popular will. Justice and truth appear to be of dubious value in their opinions.

Take the case of Lilly Ledbetter who received an anonymous note as she neared retirement from Goodyear Tire informing her that during her nineteen years with the firm she had been paid much less than her male counterparts. In a 2007 decision the Roberts Court denied her claim of sex discrimination because she had not file her complaint within 180 days of the first discriminatory act. The Obama administration convinced Congress to pass the Lilly Ledbetter Fair Pay Act in 2009 to prevent the rationale used by the Roberts Court being repeated, but it did not remedy the injustice done to Ledbetter.

Or consider the infamous Citizens United v. Federal Election Commission (2010) decision where in a lengthy opinion the Roberts Court ruled “No sufficient governmental interest justifies limits on the political speech of nonprofits or for-profit corporation.” It also invalidated existing laws prohibiting the use of corporate treasury funds for political advocacy. Such federal laws have been on the books since 1907.

It is noteworthy that in a concurrent opinion in Citizens United, the Chief Justice indicated his commitment to respect precedents did not run too deep. He described “stare decisis” as not an end in itself. Accordingly, Roberts wrote, “Its greatest purpose is to serve a constitutional ideal---the rule of law.” But he went on, “It follows…when fidelity to any particular precedent does more to damage this constitutional ideal than to advance it, we must be more willing to depart from that precedent.”

In other words, the “rule of law” is what the current majority on the US Supreme Court says it is.

The gerrymandering decision, or rather non-decision, was a lame attempt to address legitimate grievances from two states, North Carolina and Maryland. Both were challenging their state’s congressional map; Democrats in North Carolina and Republicans in Maryland. An ideal situation for issuing a nonpartisan judicial decision.

But despite clear evidence that in both states, legislatures had manipulated the congressional districts for partisan advantage, the Roberts Court punted. The opinion authored by the Chief Justice declared “federal courts are neither equipped nor authorized to apportion political power as a matter of fairness. It is not even clear what fairness looks like in this context.”

This is a bizarre statement given the fact there have been only three Democrats on North Carolina’s congressional delegations since 2014, but a near equal split in the overall congressional vote between the two major parties in each of the general elections since then.

Roberts adds to the weirdness when he asserts that earlier one-person, one-vote cases are not relevant:
            Vote dilution in the one-person, one-vote cases refers to the idea that each vote must
carry equal weight. That requirement does not extend to political parties; it does not mean that each party must be influential in proportion to the number of its supporters.

And how else does an individual vote carry any weight? We vote in virtually all cases for a candidate that represents a party. When his or her party is not fairly represented in the collective totals, the value of our vote has been diminished.

Legislative gerrymandering has a long history in US politics. Both major parties have resorted to gerrymandering, although in the past efforts were usually modest and generally practiced to protect individual office holders.

But modern polling tools and technology have changed the nature of the game.  It is now possible to collect and manipulate massive voting data that opens the door to highly precise partisan gerrymandering capable of perpetuate the ruling party indefinitely in every state.

Voters are going to have to demand fairness from our legislators and insist they abide by traditional democratic processes where voters choose their representative and not the other way around.  And we are not going to get any help from the Roberts Court.

Wednesday, June 26, 2019

Tit for Tat is not a winning foreign policy strategy

The threat this week of a real war with Iran should be a wake up call for all Americans.  A strategy of tit for tat in international affairs is a surefire way to wind up with a shooting war that no one appears to want.

President Donald Trump was right to pull the plug on a proposed military strike in response to Iran’s taking down a US drone.  The Iranians claim the drone strayed into their airspace, while the US contends it was in international waters.  No one denies it was keeping an eye on the possible activities of Iranian military forces.

The incident reflects the dangers of a reactive approach to foreign policy.  Actions are produced in an almost ad hoc manner in response to the latest unfriendly act of our perceived enemy. Usually, such actions exacerbate the conflict. Rarely do they allow for a diplomatic resolution.

Trump’s approach to the conduct of foreign relations is not unique in American history.  It has been pursued all too often by recent US administrations, Democrat as well as Republican. 

A sound foreign policy strategy needs to be based on a clear understanding of the relationship between the US and the country whose actions we are seeking to influence. The history of that relationship impacts heavily options going forward.  Also, the US should be sensitive to the impact our actions can have on third parties as well as on other priorities in our national interest.

Foreign policy decisions do not take place in a vacuum.

In the case of Iran, there has been a long and contentious relationship between Iran and the West. The British began exploiting Iran oil riches in the early 20th century. Despite the glaring inequity of the arrangements, Iran remained firmly in the Allies camp during World War II. The Big Three, Stalin, Churchill and FDR, held a major conference in Tehran in 1943.

Although Iranian nationalism became more assertive in the aftermath of the war, fear of potential Soviet influence led the British and the US to continue support for the Shah as Iran’s leader.  In 1953, the two Western powers engineered removal of the popularly elected Iranian Prime Minister Mohammad Mosadegh.  He had nationalized Iran’s oil industry

The coup restored the Shah’s control but left him dependent on Western support and distrusted broadly among Iranians of all political stripes. The cauldron finally boiled over in 1979 when Iranian revolutionary forces sent the Shah into exile and the clerics took over.  When President Jimmy Carter allowed the Shah to receive cancer treatment in New York, Iranian students took over the US embassy in Tehran and held the American staff there hostage for 444 days.

US-Iranian relations have been virulent ever since. The military skirmishes between the two countries have been few and with minimal casualties, but gestures towards some sort of reconciliation have always run into some obstacle.

The latest breakup, Trump’s withdrawal from the Iran nuclear deal (JCPOA), is exasperating. Negotiated by the Obama administration with the support of five other major countries, Britain, France, Germany, Russia and China, the agreement was endorsed by the UN Security Council as well. Granted, the deal includes nothing to restrain Iran’s meddling in the internal affairs of some of its neighbors, nor to end Iran’s alleged support of terrorist groups. Restraining Iran’s nuclear weapons development, however, is an important step in restoring some level of confidence and trust among the signatories. Hopefully, that might allow for the resolution of other differences.

Trump’s decision to impose “maximum pressure” on Iran through more aggressive sanctions is not likely to succeed.  Iran is a nation of 80 million people whose cultural and political heritage reaches back to the 5th century B.C. Its collective memory of Western exploitation is firmly intact.

Iran’s oil resources are significant. US efforts to block third parties from seeking access to those resources will try our relations with several key countries including China, India, South Korea and Japan. Iran is also strategically located, sharing borders with Afghanistan, Pakistan, Turkey and Iraq, all countries of importance to the US. Iran has already proven it can withstand a serious military challenge, successfully surviving an eight-year war with US-back Iraq in the 1980s.

A number of undesirable outcomes are possible.

Iran will find support in avoiding US sanctions among third parties who see an advantage in resisting US demands. This could give the Iranians cover for continuing to develop the necessary component for nuclear weapons. Iran may also step up its support of militant proxies in the Middle East. 

North Korea will become even more reluctant to give up its nuclear weapons since the US cannot be trusted to honor its commitments. This lack of trustworthiness is also likely to influence China’s willingness to negotiate economic agreements with the US or to support the US in trying to rein in Kim Jong un. Finally, our long term alliances with Europe may also suffer as the result of our perfidy.

 The US cannot afford to risk becoming isolated on the world stage. Both our economic and our military strength require allies. The US needs to rejoin JCPOA and to implement it as expected. Going it alone and ignoring history will not produce a winning foreign policy strategy.

Wednesday, June 12, 2019

Do Top Earners Care?

A couple of weeks ago a New York Times pundit claimed the US economy was so strong Democrats were going to find it tough to defeat Donald Trump in 2020. In the same edition the newspaper printed a list of the top 200 US corporate executives ranked by their 2018 compensation. No apparent connection was acknowledged.

The list, however, makes two things clear: 1) Corporate America’s chief executive officers are profiting robustly from policies already in place before Trump but enhanced handsomely by his administration, and 2) Corporate America cannot be counted on to reduce the income inequality undermining the livelihood of most Americans on its own.

According to the Times list, the 200 highest paid CEOs enjoyed a 6.3 percent pay increase last year, while average workers in the US received only 3.2 percent. Median salary for  CEOs in 2018 was $18,630,000.  Median family income in the US in 2018 was slightly less than $64,000.

Some key corporate CEOs were absent from the list: Warren Buffet (Berkshire Hathaway), Larry Page (Alphabet) and Jeff Bezos (Amazon). Buffet’s modest living style and his commitment to giving away 99 percent of his fortune before his death are well-known. Page receives a salary of $1 per year. Bezos has received the same $81,840 annual salary for ten years.

According to Bloomberg, Page who currently owns 40 million shares of Alphabet has sold shares valued at $9 billion since the company went public in 2004. It’s hard to believe Bezos who controls 16 percent of Amazon has created an aerospace company (Blue Origin) and bought the Washington Post on his humble salary.

Mark Zuckerberg is on the list, but at compensation of only a little over $22,000,000.  The Facebook CEO owns approximately 17 percent of the social media platform, but he holds  over 50 percent of voting rights in the company. According to Investopedia, Zuckerberg sold 240,000 shares of Facebook common stock in 2018 for over $52 million.

Top CEO on the list is Tesla’s Elon Musk, who received nearly $2.3 billion in compensation last year. That is approximately the same amount the company announced in May it needed to raise from capital markets to keep functioning effectively. Tesla has also benefited from a generous federal tax credit, $7,500 for the first 200,000 purchasers.

Concern about the new requirement to publish CEO pay ratios is not evident from data on the list. Calculated by dividing the CEO’s compensation by the pay of the median employee of the company, the CEO pay ratio reveals the income gap between those in charge and those likely doing most of the work.

Ignoring Tesla’s out-of-sight CEO pay ratio, the next two highest belong to Gap’s Arthur Peck, 3,566:1 based on his $20,793,939 compensation, and to Mattel’s Yvon Kreiz, 3,408:1 based on his pay of $16,955,660. Lowest ratio was at Celgene where Mark Alles’ $16,223,923 compensation translated into a CEO pay ratio of 62:1.

Median CEO pay ratio for the entire list was 277:1.

An additional caveat to note: the Times list did not include some of the business world’s most highly compensated individuals, like the CEOs of private equity firms and hedge funds. One of the latter, Kenneth C. Griffin, head of Citadel Investment Firm, paid nearly $240,000,000 for a New York City penthouse in January. Griffin’s firm made $1.4 billion in 2017, but only managed $870,000,000 in 2018.

Nearly two thirds of all hedge funds lost money last year, one of the worst years for hedge fund performance in a decade. Still, the top 25 hedge fund CEOs took home a collective $11.15 billion. One of the managers who fell off the list this year was Appaloosa Management’s David Tepper, who earned $1.5 billion in 2017.  Guess he spent too much time negotiating tax concessions from South Carolina. 

There are occasional glimmers of hope.

Ray Dalio, Bridgewater Associates, had the best performance among hedge funds last year with $2 billion. In a two-part series published on Linkedin in April 2019, the 69-year old investor warned that American capitalism is “producing self-reinforcing spirals up for the haves and down for the have-not. This is creating widening income/wealth/opportunity gaps that pose existential threats to the United States because these gaps are bringing about damaging domestic and international conflicts and weakening America’s condition.”

Another empathetic voice in the corporate world belongs to Nick Hanauer, Seattle venture capitalist. His TED Talk debunking supply side economics caused a stir in 2014.  In the recent issue of The Atlantic, Hanauer continues his plea for our prosperity to be shared:

“…the most direct way to address rising economic inequality is to simply pay ordinary workers more, by increasing the minimum wage and the salary threshold for overtime exemption; by restoring bargaining power for labor; and by installing higher taxes—much higher taxes—on rich people like me and on our estates.”

Dalio may see the reality more clearly:

“My big worry is that the sides will be intransigent in their positions so that capitalism will either a) be abandoned or b) not be reformed because those on the right will fight for keeping it as it is and those on the left will fight against it.”