Friday, November 18, 2011 11:54:38 PM
The Self-Attribution Fallacy
Intelligence? Talent? No, the ultra-rich got to where they are through luck and brutality.
By George Monbiot
November 7, 2011
Published in the Guardian 8th November 2011
If wealth was the inevitable result of hard work and enterprise, every woman in Africa would be a millionaire. The claims that the ultra-rich 1% make for themselves – that they are possessed of unique intelligence or creativity or drive – are examples of the self-attribution fallacy. This means crediting yourself with outcomes for which you weren’t responsible. Many of those who are rich today got there because they were able to capture certain jobs. This capture owes less to talent and intelligence than to a combination of the ruthless exploitation of others and accidents of birth, as such jobs are taken disproportionately by people born in certain places and into certain classes.
The findings of the psychologist Daniel Kahneman, winner of a Nobel economics prize, are devastating to the beliefs that financial high-fliers entertain about themselves(1). He discovered that their apparent success is a cognitive illusion. For example, he studied the results achieved by 25 wealth advisers, across eight years. He found that the consistency of their performance was zero. “The results resembled what you would expect from a dice-rolling contest, not a game of skill.” Those who received the biggest bonuses had simply got lucky.
Such results have been widely replicated. They show that traders and fund managers across Wall Street receive their massive remuneration for doing no better than would a chimpanzee flipping a coin. When Kahneman tried to point this out they blanked him. “The illusion of skill … is deeply ingrained in their culture.”(2)
So much for the financial sector and its super-educated analysts. As for other kinds of business, you tell me. Is your boss possessed of judgement, vision and management skills superior to those of anyone else in the firm, or did he or she get there through bluff, bullshit and bullying?
In a study published by the journal Psychology, Crime and Law, Belinda Board and Katarina Fritzon tested 39 senior managers and chief executives from leading British businesses(3). They compared the results to the same tests on patients at Broadmoor special hospital, where people who have been convicted of serious crimes are incarcerated. On certain indicators of psychopathy, the bosses’s scores either matched or exceeded those of the patients. In fact on these criteria they beat even the subset of patients who had been diagnosed with psychopathic personality disorders.
The psychopathic traits on which the bosses scored so highly, Board and Fritzon point out, closely resemble the characteristics that companies look for. Those who have these traits often possess great skill in flattering and manipulating powerful people. Egocentricity, a strong sense of entitlement, a readiness to exploit others and a lack of empathy and conscience are also unlikely to damage their prospects in many corporations.
In their book Snakes in Suits, Paul Babiak and Robert Hare point out that as the old corporate bureaucracies have been replaced by flexible, ever-changing structures, and as team players are deemed less valuable than competitive risk-takers, psychopathic traits are more likely to be selected and rewarded(4). Reading their work, it seems to me that if you have psychopathic tendencies and are born to a poor family you’re likely to go to prison. If you have psychopathic tendencies and are born to a rich family you’re likely to go to business school.
This is not to suggest that all executives are psychopaths. It is to suggest that the economy has been rewarding the wrong skills. As the bosses have shaken off the trade unions and captured both regulators and tax authorities, the distinction between the productive and rentier upper classes has broken down. CEOs now behave like dukes, extracting from their financial estates sums out of all proportion to the work they do or the value they generate, sums that sometimes exhaust the businesses they parasitise. They are no more deserving of the share of wealth they’ve captured than oil sheikhs.
The rest of us are invited, by governments and by fawning interviews in the press, to subscribe to their myth of election: the belief that they are the chosen ones, possessed of superhuman talents. The very rich are often described as wealth creators. But they have preyed upon the earth’s natural wealth and their workers’ labour and creativity, impoverishing both people and planet. Now they have almost bankrupted us. The wealth creators of neoliberal mythology are some of the most effective wealth destroyers the world has ever seen.
What has happened over the past 30 years is the capture of the world’s common treasury by a handful of people, assisted by neoliberal policies which were first imposed on rich nations by Thatcher and Reagan. I am now going to bombard you with figures. I’m sorry about that, but these numbers need to be tattoed on our minds. Between 1947 and 1979, productivity in the US rose by 119%, while the income of the bottom fifth of the population rose by 122%. But between 1979 and 2009, productivity rose by 80% , while the income of the bottom fifth fell by 4%(5). In roughly the same period, the income of the top 1% rose by 270%(6).
In the UK, the money earned by the poorest tenth fell by 12% between 1999 and 2009, while the money made by the richest 10th rose by 37%(7). The Gini coefficient, which measures income inequality, climbed in this country from 26 in 1979 to 40 in 2009(8).
In his book The Haves and the Have Nots, Branko Milanovic tries to discover who was the richest person who has ever lived(9). Beginning with the loaded Roman triumvir Marcus Crassus, he measures wealth according to the quantity of his compatriots’ labour a rich man could buy. It appears that the richest man to have lived in the past 2000 years is alive today. Carlos Slim could buy the labour of 440,000 average Mexicans. This makes him 14 times as rich as Crassus, nine times as rich as Carnegie and four times as rich as Rockefeller.
Until recently, we were mesmerised by the bosses’ self-attribution. Their acolytes, in academia, the media, think tanks and government, created an extensive infrastructure of junk economics and flattery to justify their seizure of other people’s wealth. So immersed in this nonsense did we become that we seldom challenged its veracity.
This is now changing. On Sunday evening I witnessed a remarkable thing: a debate on the steps of St Paul’s Cathedral between Stuart Fraser, chairman of the Corporation of the City of London, another official from the Corporation, the turbulent priest Father William Taylor, John Christensen of the Tax Justice Network and the people of Occupy London(10). It had something of the flavour of the Putney debates of 1647. For the first time in decades – and all credit to the Corporation officials for turning up – financial power was obliged to answer directly to the people.
It felt like history being made. The undeserving rich are now in the frame, and the rest of us want our money back.
http://www.monbiot.com
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References:
1. http://www.guardian.co.uk/science/2011/oct/30/daniel-kahneman-cognitive-illusion-extract
2. http://www.guardian.co.uk/science/2011/oct/30/daniel-kahneman-cognitive-illusion-extract
3. Belinda Jane Board and Katarina Fritzon, March 2005. Disordered Personalities at Work.
Psychology, Crime & Law, Vol. 11(1), pp. 17-32. DOI: 10.1080/10683160310001634304
4. Paul Babiak and Robert Hare, 2007. Sankes in Suits: when psychopaths go to work. Harper, London.
5. http://www.nytimes.com/imagepages/2011/09/04/opinion/04reich-graphic.html
6. The graph here shows the average income of the top 1% rising from just over $400,000 in 1980 to $1,138,000 in 2008, measured in 2008 dollars. The income of the bottom 90% flatlined during the same period. http://motherjones.com/mojo/2011/10/one-percent-income-inequality-OWS
7. http://www.poverty.org.uk/09/index.shtml
8. http://www.poverty.org.uk/09/index.shtml
9. Branko Milanovic, 2011. The Haves and the Have-Nots: a brief and idiosyncratic history of global inequality. Basic Books, New York.
10. The debate was organised by Reclaim the City: http://www.reclaimthecity.org/
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© 2011 George Monbiot
http://www.monbiot.com/2011/11/07/the-self-attribution-fallacy/
the Guardian opening (same text follows):
The 1% are the very best destroyers of wealth the world has ever seen
Our common treasury in the last 30 years has been captured by industrial psychopaths. That's why we're nearly bankrupt
George Monbiot
guardian.co.uk, Monday 7 November 2011 15.30 EST
http://www.guardian.co.uk/commentisfree/2011/nov/07/one-per-cent-wealth-destroyers [with comments]
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Insight: Why Wall Street still doesn't get it
An Occupy Wall Street campaign demonstrator stands in Zuccotti Park, October 17, 2011.
Credit: Reuters/Shannon Stapleton
By Matthew Goldstein and Jennifer Ablan
NEW YORK | Fri Nov 18, 2011 7:23am EST
NEW YORK (Reuters) - It was a telling moment at the height of the Occupy Wall Street protests.
John Paulson, the hedge-fund trader who famously made billions betting on the collapse of the housing market, was threatened by the demonstrators with a march on his Upper East Side home in New York last month. Paulson responded by putting out a press release that described his $28 billion, 120-person fund as an exemplar of the American Dream: "Instead of vilifying our most successful businesses, we should be supporting them and encouraging them to remain in New York City."
Other captains of finance like to portray themselves as humble entrepreneurs. One owner of a multi-billion-dollar hedge fund grumbled in the midst of the financial crisis that he has to worry not only about making trading decisions but also about "all the hassles the come with running a small business."
With U.S. cities moving this week to crack down on Occupy Wall Street encampments - including the one in New York's Zuccotti Park - the staying power of the movement is in question. Whatever its future, it's clear that so far, the Occupiers haven't changed many minds on Wall Street over blame for the country's hard times. The cognitive disconnect between the protesters and the captains of finance is alive and well.
David Mooney, chief executive officer of Alliant Credit Union in Chicago, one of the nation's larger credit unions, used to work at a one of Wall Street's top banks, JPMorgan Chase. There's a vast cultural gap between Wall Street and his new world, he says: Old friends from the Street, he says, now jokingly refer to him as a "socialist." A credit union is supposed to be run in the interests of all members, he says, while commercial bankers tend to see consumers as customers who can be "exploited" by layering on more fees.
Says Mooney: "I don't say this lightly, but the consumer is simply an income stream and exploiting that is the purpose of the banking organization."
In conversations with nearly two dozen current and former bankers, finance professionals and money managers across the United States, the prevailing sentiment is that the anger at Wall Street's elite is misguided and misdirected. Blame the politicians and policymakers in Washington, many of them say, for encouraging people to buy homes they couldn't afford and doing nothing to stop or discourage U.S. consumers from piling on more than $10 trillion in household debt.
"I think everyone gets what the anger is about... But you just can't say, 'Well I want all debts forgiven.' That is not happening," says one West Coast trader, who like most still working in the financial services industry, declined to be identified by name in this article.
The disconnect, says Jason Ader, a former top Wall Street casino analyst turned hedge fund manager, is in part a simple product of Wall Street's isolation from the hardship out there. Ader says he spends a lot of his time in Las Vegas, one of America's hardest-hit housing markets, and thus wasn't too surprised by this fall's anti-Wall Street outburst.
"I see plenty of despair in places like Las Vegas, where in some neighborhoods every other house is vacant or foreclosed and lots are overgrown by weeds," says Ader, who sits on the boards of Las Vegas Sands Corp and a small Nevada community bank called Western Liberty Bancorp.
But the 43-year-old Ader, who manages $200 million in his hedge fund, says it's a different story for many of the wealthy who work in finance in New York City and don't spend a lot of time in states with high unemployment and high foreclosure rates. Living in Manhattan or the Hamptons or hedge fund havens like Greenwich, Connecticut, can lead to a bit of myopia, he says.
"At first I had friends who were scratching their heads at the protests," says Ader.
BLAME GAME
To put it bluntly, many on Wall Street still see the events leading up to the financial crisis as a case of banks having legitimately sold something - whether it be mortgages or securities backed by those loans - that someone wanted to buy.
Thomas Atteberry, a partner and portfolio manager with Los Angeles-based First Pacific Advisors, a $16 billion money management firm, says his success "wasn't a gift" and he had to work hard to get where he is. Atteberry says he understands the frustration many feel about income inequality. But he said the problem isn't with those who are successful, but rather our "tax codes and regulations."
While some members of the financial elite say they are willing to pay higher taxes, they note the picture for Wall Street firms is not as sunny as some on Main Street might paint it. Wall Street banks already are beginning to shed jobs, and consulting firm Johnson Associates Inc. is predicting bonuses for those who remain will shrink by 20 percent to 30 percent.
Complaints over new financial regulations burdening Wall Street firms are a major reason blamed for the layoffs. Sit down with a hedge fund manager or a top trader and it won't take long before he or she grabs some spreadsheet that shows all the new rules and regulations coming out of the Dodd-Frank financial reform bill.
Many of America's well-to-do, not just Wall Streeters, say they don't feel particularly advantaged. A recent survey by marketing firm HNW Inc. found that half of the nation's richest 1 percent "don't see themselves as being part of that elite group." Also, 44 percent of those surveyed told HNW's pollsters they already pay too much in taxes.
Maybe it is just the ethos of Wall Street, where success is defined solely by who makes the most money, that makes it hard for financiers to feel they've wronged anyone. But in a time of 9 percent unemployment and 15 percent of U.S. citizens receiving food stamps, some Wall Street alums say the financial elite are doing themselves no favors by giving the appearance of shrugging off the current mood.
"I think Wall Street hasn't taken in how much anger there is out there and they haven't taken partial responsibility for the financial crisis," says Brookings Institution fellow Douglas Elliott, who was an investment banker for two decades before joining the liberal-oriented public policy group. "I think both sides - Wall Street and Main Street - misunderstand each other."
Some who get paid to advise the rich on how to deal with the media and the public are telling clients to pay attention.
Robert Dilenschneider, founder and principal of The Dilenschneider Group corporate consulting group, recently sent a report to his clients telling them that many of the protesters taking part in the Occupy movement are not a bunch of unemployed crazies and hippies.
"The CEOs in big board rooms in Paris, in Zurich and New York don't normally think about people who are demonstrating in parks," says Dilenschneider, whose firm advises some of the biggest companies in the world. "In the banking and financial area, we are telling our clients you have to explain more completely what makes up your business and why your profits are what they are."
MOM AND POP HEDGE FUNDS
Some of the disconnect is simply a matter of lifestyle and the fact that the super wealthy really do live differently from everyone else. Hedge fund managers and bankers fly around on private jets, live in palatial penthouse apartments overlooking Central Park and have second homes in the country.
In New York City, the average pay for those working in finance is $361,183, more than five times the average salary of $66,106 for all workers in the city, according to the New York State Department of Labor.
This disparity in income and attitudes was evident in the response of hedge fund managers like Paulson who portrayed themselves as humble businessmen. Says Wall Street historian Charles Geisst, "Hedge funds may be small businesses in terms of labor intensity, but in terms of capital intensity they are just the opposite."
A spokesman for Paulson said he had nothing more to add on the subject.
Former Wall Street practitioners say the Street does not lend itself to a lot of introspection. "The world of investment bankers and especially the trading floor region is notoriously hermetically sealed,'" says Kenneth Froewiss, a retired JPMorgan Chase investment banker and former finance professor at New York University's Stern School of Business. "The walls may be filled with screens beaming the latest news, but there is typically an obliviousness as to what is happening across the street."
LESSONS LEARNED
There are exceptions, of course. Some are saying it may be time for the government which has bailed out the banking system to help millions of struggling homeowners.
One of those is former top Pacific Investment Management Co executive Paul McCulley, best known for his analysis on central banks and monetary policy when he worked at the world's biggest bond fund. McCulley, who retired a year ago from Newport Beach, California-based PIMCO to become a consultant with a public policy firm, enjoys the wealth he accumulated in his old role. He lives in a house by the water where he docks his two boats. But he says Wall Street went too far.
"Our society was ripe for a convulsion about social justice, and Occupy Wall Street was the catalyst for that," says McCulley. "New York can be very insular. It is not the real world and neither is Newport Beach."
Now that he's no longer working for PIMCO, McCulley is a bit more free to speak his mind. And he says the only way to jumpstart the U.S. economy is for the federal government to get behind a serious program to encourage consumer debt forgiveness and principal reductions on mortgages by banks. ( http://www.reuters.com/article/2011/10/03/us-haircut-idUSTRE79125J20111003 [at http://investorshub.advfn.com/boards/read_msg.aspx?message_id=67654623 ])
McCulley noted that mortgage firms Fannie Mae and Freddie Mac have been propped up by about $169 billion in federal aid since they were rescued by the government in 2008, yet there's a "a moral overtone" to the argument against reducing mortgage debt burdens for individual borrowers.
"Wall Street capitalism has given us a foul stench in our society," says McCulley.
The disconnect continues.
Just this week, top executives at Fannie and Freddie found themselves drawing fire on Capitol Hill for trying to distribute nearly $13 million in bonuses to key employees.
And the October 31 collapse of MF Global Holdings is prompting some critics to say Wall Street hasn't learned any lessons from the financial crisis. The futures brokerage house filed for bankruptcy after investors and traders became fearful that MF Global had taken on too much exposure to European sovereign debt in a bid to juice revenues.
The risky trade was put on by former New Jersey Governor Jon Corzine, a former Goldman Sachs Group chief executive. Last year, Corzine was saying Wall Street investment banks had taken on too much risk in the months leading up to the financial crisis. On the lecture circuit Corzine was calling for tighter regulation of Wall Street, even while his firm was borrowing more and more money to bet on some of the riskiest European debt. A Corzine representative declined to comment. ( http://www.reuters.com/article/2011/11/03/us-mfglobal-corzine-idUSTRE79U0TT20111103 )
William Cohan, the author of several Wall Street-related books and a former Lazard investment banker, said MF Global was acting as if the 2007-2008 crisis never happened: "You would have to be living under a rock if you didn't get the message of the financial crisis."
(Reported by Matthew Goldstein and Jennifer Ablan, with additional reporting by Sam Forgione; editing by Michael Williams and Claudia Parsons)
Copyright 2011 Thomson Reuters
http://www.reuters.com/article/2011/11/18/us-wallst-disconnect-idUSTRE7AH0Z620111118 [no comments yet]
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Welfare for Millionaires
Part-time actor Dave Glennon dressed as a corporate executive at Occupy L.A.
Robyn Beck / AFP-Getty Images
Daniel Stone
Laura Colarusso
Nov 14, 2011 12:00 AM EST
Class warfare is a politically charged term these days, from the Wall Street protests [ ] to the Capitol Hill negotiations over curtailing the nation’s debt. But a new congressional analysis, obtained by Newsweek, may fuel populist outrage by showing the extent of government subsidies that go to the wealthiest people in America.
From unemployment payments to subsidies and tax breaks on luxury items like vacation homes and yachts, Americans earning more than $1 million collect more than $30 billion in government largesse each year, according to the report assembled by Sen. Tom Coburn [ ], a Republican from Oklahoma, who is so often at odds with members of both parties that colleagues call him “Dr. No.” The Internal Revenue Service provided the data showing how much money was going to the much-referenced top 1 percent.
In all, millionaires receive hefty help from Uncle Sam. The $30 billion in handouts, to put it in perspective, amounts to twice as much as the government spends on NASA, and three times the budget of the Environmental Protection Agency. On the other hand, it would only cover the cost of fighting about three months in Iraq and Afghanistan. Still, eliminating them would help make a small dent in the $1.5 trillion congressional leaders are trying to find by Thanksgiving.
Jon Bon Jovi [ ], the millionaire rock star cited in the report, took federal dollars to raise honeybees on his property. Together billionaire moguls David Rockefeller and Ted Turner have also accepted more than half a million dollars in farm payments. Basketball legend Scottie Pippen took $210,520 in agriculture subsidies while making his fortune playing for the Chicago Bulls. To make matters worse, the government disclosed to Coburn that some recipients of farm subsidies got it by mistake. Tax records show that more than three fourths of high earners collecting farming money list their primary residence in a city—land unsuitable for farming.
Top earners, surprisingly, also get significant amounts of unemployment insurance and disaster payments. Since 2004, people with seven-figure salaries have accepted more than $9 billion in Social Security. A small band of GOP senators, led by Sen. Lindsey Graham, the South Carolina Republican, have proposed “means testing” to shrink Social Security payments for people who probably don’t need them.
The biggest money comes—or goes, rather—through unpaid taxes. More than 1,500 millionaires paid no income tax last year, according to federal records, mainly due to tax loopholes and savvy accountants. Tax breaks taken by millionaires on things like mortgage interest ($27.7 billion), rental expenses ($64.2 billion) and electric vehicles ($12.5 million) keep cash from entering the federal coffers.
“The country is sucking wind right now,” Coburn says. “We end up subsidizing the very wealthy and not helping the ones who really need the help.” The Oklahoman is one of few Republicans who support tax increases as part of a plan to reduce the deficit. Meanwhile, antitax activist Grover Norquist, a frequent nemesis for Coburn, says the whole system is too complex, and too unfair, and that lawmakers need to get rid of loopholes and to lower rates across the board.
Many federal programs maintain broad appeal, especially in such a volatile economy. Agricultural subsidies help farmers handle large swings in commodity prices.
But Coburn’s report is certain to generate arguments on the other side about tax fairness. Why, some might wonder, shouldn’t people who feed the government get to reap its benefits? Millionaires “pay a lot into the system,” says Joseph Thorndike, head of the Tax History Project, a Washington analysis group. “The government comes to the rescue of people in bad moments, and it should do that blindly.”
Yet the crux of the argument—that millionaires are using the social safety net as a luxury hammock—fuels an ongoing campaign by the White House to raise some taxes on top earners. “Republicans need to stop supporting tax breaks for the richest Americans so we can use some of that money to create jobs and reduce the deficit,” says White House spokesperson Amy Brundage. Or as Obama likes to put it, folks like him can afford to give more and take less.
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Related Stories
The Tea Party Pork Binge
http://www.thedailybeast.com/newsweek/2011/10/30/conseratives-brought-nation-to-default-ask-for-govt-handouts.html
The Dirty Dozen
http://www.thedailybeast.com/newsweek/2011/10/30/fiscal-conservatives-with-a-taste-for-pork.html
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© 2011 The Newsweek/Daily Beast Company LLC
http://www.thedailybeast.com/newsweek/2011/11/13/coburn-report-welfare-for-millionaires.html [with comments]
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Intelligence? Talent? No, the ultra-rich got to where they are through luck and brutality.
By George Monbiot
November 7, 2011
Published in the Guardian 8th November 2011
If wealth was the inevitable result of hard work and enterprise, every woman in Africa would be a millionaire. The claims that the ultra-rich 1% make for themselves – that they are possessed of unique intelligence or creativity or drive – are examples of the self-attribution fallacy. This means crediting yourself with outcomes for which you weren’t responsible. Many of those who are rich today got there because they were able to capture certain jobs. This capture owes less to talent and intelligence than to a combination of the ruthless exploitation of others and accidents of birth, as such jobs are taken disproportionately by people born in certain places and into certain classes.
The findings of the psychologist Daniel Kahneman, winner of a Nobel economics prize, are devastating to the beliefs that financial high-fliers entertain about themselves(1). He discovered that their apparent success is a cognitive illusion. For example, he studied the results achieved by 25 wealth advisers, across eight years. He found that the consistency of their performance was zero. “The results resembled what you would expect from a dice-rolling contest, not a game of skill.” Those who received the biggest bonuses had simply got lucky.
Such results have been widely replicated. They show that traders and fund managers across Wall Street receive their massive remuneration for doing no better than would a chimpanzee flipping a coin. When Kahneman tried to point this out they blanked him. “The illusion of skill … is deeply ingrained in their culture.”(2)
So much for the financial sector and its super-educated analysts. As for other kinds of business, you tell me. Is your boss possessed of judgement, vision and management skills superior to those of anyone else in the firm, or did he or she get there through bluff, bullshit and bullying?
In a study published by the journal Psychology, Crime and Law, Belinda Board and Katarina Fritzon tested 39 senior managers and chief executives from leading British businesses(3). They compared the results to the same tests on patients at Broadmoor special hospital, where people who have been convicted of serious crimes are incarcerated. On certain indicators of psychopathy, the bosses’s scores either matched or exceeded those of the patients. In fact on these criteria they beat even the subset of patients who had been diagnosed with psychopathic personality disorders.
The psychopathic traits on which the bosses scored so highly, Board and Fritzon point out, closely resemble the characteristics that companies look for. Those who have these traits often possess great skill in flattering and manipulating powerful people. Egocentricity, a strong sense of entitlement, a readiness to exploit others and a lack of empathy and conscience are also unlikely to damage their prospects in many corporations.
In their book Snakes in Suits, Paul Babiak and Robert Hare point out that as the old corporate bureaucracies have been replaced by flexible, ever-changing structures, and as team players are deemed less valuable than competitive risk-takers, psychopathic traits are more likely to be selected and rewarded(4). Reading their work, it seems to me that if you have psychopathic tendencies and are born to a poor family you’re likely to go to prison. If you have psychopathic tendencies and are born to a rich family you’re likely to go to business school.
This is not to suggest that all executives are psychopaths. It is to suggest that the economy has been rewarding the wrong skills. As the bosses have shaken off the trade unions and captured both regulators and tax authorities, the distinction between the productive and rentier upper classes has broken down. CEOs now behave like dukes, extracting from their financial estates sums out of all proportion to the work they do or the value they generate, sums that sometimes exhaust the businesses they parasitise. They are no more deserving of the share of wealth they’ve captured than oil sheikhs.
The rest of us are invited, by governments and by fawning interviews in the press, to subscribe to their myth of election: the belief that they are the chosen ones, possessed of superhuman talents. The very rich are often described as wealth creators. But they have preyed upon the earth’s natural wealth and their workers’ labour and creativity, impoverishing both people and planet. Now they have almost bankrupted us. The wealth creators of neoliberal mythology are some of the most effective wealth destroyers the world has ever seen.
What has happened over the past 30 years is the capture of the world’s common treasury by a handful of people, assisted by neoliberal policies which were first imposed on rich nations by Thatcher and Reagan. I am now going to bombard you with figures. I’m sorry about that, but these numbers need to be tattoed on our minds. Between 1947 and 1979, productivity in the US rose by 119%, while the income of the bottom fifth of the population rose by 122%. But between 1979 and 2009, productivity rose by 80% , while the income of the bottom fifth fell by 4%(5). In roughly the same period, the income of the top 1% rose by 270%(6).
In the UK, the money earned by the poorest tenth fell by 12% between 1999 and 2009, while the money made by the richest 10th rose by 37%(7). The Gini coefficient, which measures income inequality, climbed in this country from 26 in 1979 to 40 in 2009(8).
In his book The Haves and the Have Nots, Branko Milanovic tries to discover who was the richest person who has ever lived(9). Beginning with the loaded Roman triumvir Marcus Crassus, he measures wealth according to the quantity of his compatriots’ labour a rich man could buy. It appears that the richest man to have lived in the past 2000 years is alive today. Carlos Slim could buy the labour of 440,000 average Mexicans. This makes him 14 times as rich as Crassus, nine times as rich as Carnegie and four times as rich as Rockefeller.
Until recently, we were mesmerised by the bosses’ self-attribution. Their acolytes, in academia, the media, think tanks and government, created an extensive infrastructure of junk economics and flattery to justify their seizure of other people’s wealth. So immersed in this nonsense did we become that we seldom challenged its veracity.
This is now changing. On Sunday evening I witnessed a remarkable thing: a debate on the steps of St Paul’s Cathedral between Stuart Fraser, chairman of the Corporation of the City of London, another official from the Corporation, the turbulent priest Father William Taylor, John Christensen of the Tax Justice Network and the people of Occupy London(10). It had something of the flavour of the Putney debates of 1647. For the first time in decades – and all credit to the Corporation officials for turning up – financial power was obliged to answer directly to the people.
It felt like history being made. The undeserving rich are now in the frame, and the rest of us want our money back.
http://www.monbiot.com
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References:
1. http://www.guardian.co.uk/science/2011/oct/30/daniel-kahneman-cognitive-illusion-extract
2. http://www.guardian.co.uk/science/2011/oct/30/daniel-kahneman-cognitive-illusion-extract
3. Belinda Jane Board and Katarina Fritzon, March 2005. Disordered Personalities at Work.
Psychology, Crime & Law, Vol. 11(1), pp. 17-32. DOI: 10.1080/10683160310001634304
4. Paul Babiak and Robert Hare, 2007. Sankes in Suits: when psychopaths go to work. Harper, London.
5. http://www.nytimes.com/imagepages/2011/09/04/opinion/04reich-graphic.html
6. The graph here shows the average income of the top 1% rising from just over $400,000 in 1980 to $1,138,000 in 2008, measured in 2008 dollars. The income of the bottom 90% flatlined during the same period. http://motherjones.com/mojo/2011/10/one-percent-income-inequality-OWS
7. http://www.poverty.org.uk/09/index.shtml
8. http://www.poverty.org.uk/09/index.shtml
9. Branko Milanovic, 2011. The Haves and the Have-Nots: a brief and idiosyncratic history of global inequality. Basic Books, New York.
10. The debate was organised by Reclaim the City: http://www.reclaimthecity.org/
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© 2011 George Monbiot
http://www.monbiot.com/2011/11/07/the-self-attribution-fallacy/
the Guardian opening (same text follows):
The 1% are the very best destroyers of wealth the world has ever seen
Our common treasury in the last 30 years has been captured by industrial psychopaths. That's why we're nearly bankrupt
George Monbiot
guardian.co.uk, Monday 7 November 2011 15.30 EST
http://www.guardian.co.uk/commentisfree/2011/nov/07/one-per-cent-wealth-destroyers [with comments]
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Insight: Why Wall Street still doesn't get it
An Occupy Wall Street campaign demonstrator stands in Zuccotti Park, October 17, 2011.
Credit: Reuters/Shannon Stapleton
By Matthew Goldstein and Jennifer Ablan
NEW YORK | Fri Nov 18, 2011 7:23am EST
NEW YORK (Reuters) - It was a telling moment at the height of the Occupy Wall Street protests.
John Paulson, the hedge-fund trader who famously made billions betting on the collapse of the housing market, was threatened by the demonstrators with a march on his Upper East Side home in New York last month. Paulson responded by putting out a press release that described his $28 billion, 120-person fund as an exemplar of the American Dream: "Instead of vilifying our most successful businesses, we should be supporting them and encouraging them to remain in New York City."
Other captains of finance like to portray themselves as humble entrepreneurs. One owner of a multi-billion-dollar hedge fund grumbled in the midst of the financial crisis that he has to worry not only about making trading decisions but also about "all the hassles the come with running a small business."
With U.S. cities moving this week to crack down on Occupy Wall Street encampments - including the one in New York's Zuccotti Park - the staying power of the movement is in question. Whatever its future, it's clear that so far, the Occupiers haven't changed many minds on Wall Street over blame for the country's hard times. The cognitive disconnect between the protesters and the captains of finance is alive and well.
David Mooney, chief executive officer of Alliant Credit Union in Chicago, one of the nation's larger credit unions, used to work at a one of Wall Street's top banks, JPMorgan Chase. There's a vast cultural gap between Wall Street and his new world, he says: Old friends from the Street, he says, now jokingly refer to him as a "socialist." A credit union is supposed to be run in the interests of all members, he says, while commercial bankers tend to see consumers as customers who can be "exploited" by layering on more fees.
Says Mooney: "I don't say this lightly, but the consumer is simply an income stream and exploiting that is the purpose of the banking organization."
In conversations with nearly two dozen current and former bankers, finance professionals and money managers across the United States, the prevailing sentiment is that the anger at Wall Street's elite is misguided and misdirected. Blame the politicians and policymakers in Washington, many of them say, for encouraging people to buy homes they couldn't afford and doing nothing to stop or discourage U.S. consumers from piling on more than $10 trillion in household debt.
"I think everyone gets what the anger is about... But you just can't say, 'Well I want all debts forgiven.' That is not happening," says one West Coast trader, who like most still working in the financial services industry, declined to be identified by name in this article.
The disconnect, says Jason Ader, a former top Wall Street casino analyst turned hedge fund manager, is in part a simple product of Wall Street's isolation from the hardship out there. Ader says he spends a lot of his time in Las Vegas, one of America's hardest-hit housing markets, and thus wasn't too surprised by this fall's anti-Wall Street outburst.
"I see plenty of despair in places like Las Vegas, where in some neighborhoods every other house is vacant or foreclosed and lots are overgrown by weeds," says Ader, who sits on the boards of Las Vegas Sands Corp and a small Nevada community bank called Western Liberty Bancorp.
But the 43-year-old Ader, who manages $200 million in his hedge fund, says it's a different story for many of the wealthy who work in finance in New York City and don't spend a lot of time in states with high unemployment and high foreclosure rates. Living in Manhattan or the Hamptons or hedge fund havens like Greenwich, Connecticut, can lead to a bit of myopia, he says.
"At first I had friends who were scratching their heads at the protests," says Ader.
BLAME GAME
To put it bluntly, many on Wall Street still see the events leading up to the financial crisis as a case of banks having legitimately sold something - whether it be mortgages or securities backed by those loans - that someone wanted to buy.
Thomas Atteberry, a partner and portfolio manager with Los Angeles-based First Pacific Advisors, a $16 billion money management firm, says his success "wasn't a gift" and he had to work hard to get where he is. Atteberry says he understands the frustration many feel about income inequality. But he said the problem isn't with those who are successful, but rather our "tax codes and regulations."
While some members of the financial elite say they are willing to pay higher taxes, they note the picture for Wall Street firms is not as sunny as some on Main Street might paint it. Wall Street banks already are beginning to shed jobs, and consulting firm Johnson Associates Inc. is predicting bonuses for those who remain will shrink by 20 percent to 30 percent.
Complaints over new financial regulations burdening Wall Street firms are a major reason blamed for the layoffs. Sit down with a hedge fund manager or a top trader and it won't take long before he or she grabs some spreadsheet that shows all the new rules and regulations coming out of the Dodd-Frank financial reform bill.
Many of America's well-to-do, not just Wall Streeters, say they don't feel particularly advantaged. A recent survey by marketing firm HNW Inc. found that half of the nation's richest 1 percent "don't see themselves as being part of that elite group." Also, 44 percent of those surveyed told HNW's pollsters they already pay too much in taxes.
Maybe it is just the ethos of Wall Street, where success is defined solely by who makes the most money, that makes it hard for financiers to feel they've wronged anyone. But in a time of 9 percent unemployment and 15 percent of U.S. citizens receiving food stamps, some Wall Street alums say the financial elite are doing themselves no favors by giving the appearance of shrugging off the current mood.
"I think Wall Street hasn't taken in how much anger there is out there and they haven't taken partial responsibility for the financial crisis," says Brookings Institution fellow Douglas Elliott, who was an investment banker for two decades before joining the liberal-oriented public policy group. "I think both sides - Wall Street and Main Street - misunderstand each other."
Some who get paid to advise the rich on how to deal with the media and the public are telling clients to pay attention.
Robert Dilenschneider, founder and principal of The Dilenschneider Group corporate consulting group, recently sent a report to his clients telling them that many of the protesters taking part in the Occupy movement are not a bunch of unemployed crazies and hippies.
"The CEOs in big board rooms in Paris, in Zurich and New York don't normally think about people who are demonstrating in parks," says Dilenschneider, whose firm advises some of the biggest companies in the world. "In the banking and financial area, we are telling our clients you have to explain more completely what makes up your business and why your profits are what they are."
MOM AND POP HEDGE FUNDS
Some of the disconnect is simply a matter of lifestyle and the fact that the super wealthy really do live differently from everyone else. Hedge fund managers and bankers fly around on private jets, live in palatial penthouse apartments overlooking Central Park and have second homes in the country.
In New York City, the average pay for those working in finance is $361,183, more than five times the average salary of $66,106 for all workers in the city, according to the New York State Department of Labor.
This disparity in income and attitudes was evident in the response of hedge fund managers like Paulson who portrayed themselves as humble businessmen. Says Wall Street historian Charles Geisst, "Hedge funds may be small businesses in terms of labor intensity, but in terms of capital intensity they are just the opposite."
A spokesman for Paulson said he had nothing more to add on the subject.
Former Wall Street practitioners say the Street does not lend itself to a lot of introspection. "The world of investment bankers and especially the trading floor region is notoriously hermetically sealed,'" says Kenneth Froewiss, a retired JPMorgan Chase investment banker and former finance professor at New York University's Stern School of Business. "The walls may be filled with screens beaming the latest news, but there is typically an obliviousness as to what is happening across the street."
LESSONS LEARNED
There are exceptions, of course. Some are saying it may be time for the government which has bailed out the banking system to help millions of struggling homeowners.
One of those is former top Pacific Investment Management Co executive Paul McCulley, best known for his analysis on central banks and monetary policy when he worked at the world's biggest bond fund. McCulley, who retired a year ago from Newport Beach, California-based PIMCO to become a consultant with a public policy firm, enjoys the wealth he accumulated in his old role. He lives in a house by the water where he docks his two boats. But he says Wall Street went too far.
"Our society was ripe for a convulsion about social justice, and Occupy Wall Street was the catalyst for that," says McCulley. "New York can be very insular. It is not the real world and neither is Newport Beach."
Now that he's no longer working for PIMCO, McCulley is a bit more free to speak his mind. And he says the only way to jumpstart the U.S. economy is for the federal government to get behind a serious program to encourage consumer debt forgiveness and principal reductions on mortgages by banks. ( http://www.reuters.com/article/2011/10/03/us-haircut-idUSTRE79125J20111003 [at http://investorshub.advfn.com/boards/read_msg.aspx?message_id=67654623 ])
McCulley noted that mortgage firms Fannie Mae and Freddie Mac have been propped up by about $169 billion in federal aid since they were rescued by the government in 2008, yet there's a "a moral overtone" to the argument against reducing mortgage debt burdens for individual borrowers.
"Wall Street capitalism has given us a foul stench in our society," says McCulley.
The disconnect continues.
Just this week, top executives at Fannie and Freddie found themselves drawing fire on Capitol Hill for trying to distribute nearly $13 million in bonuses to key employees.
And the October 31 collapse of MF Global Holdings is prompting some critics to say Wall Street hasn't learned any lessons from the financial crisis. The futures brokerage house filed for bankruptcy after investors and traders became fearful that MF Global had taken on too much exposure to European sovereign debt in a bid to juice revenues.
The risky trade was put on by former New Jersey Governor Jon Corzine, a former Goldman Sachs Group chief executive. Last year, Corzine was saying Wall Street investment banks had taken on too much risk in the months leading up to the financial crisis. On the lecture circuit Corzine was calling for tighter regulation of Wall Street, even while his firm was borrowing more and more money to bet on some of the riskiest European debt. A Corzine representative declined to comment. ( http://www.reuters.com/article/2011/11/03/us-mfglobal-corzine-idUSTRE79U0TT20111103 )
William Cohan, the author of several Wall Street-related books and a former Lazard investment banker, said MF Global was acting as if the 2007-2008 crisis never happened: "You would have to be living under a rock if you didn't get the message of the financial crisis."
(Reported by Matthew Goldstein and Jennifer Ablan, with additional reporting by Sam Forgione; editing by Michael Williams and Claudia Parsons)
Copyright 2011 Thomson Reuters
http://www.reuters.com/article/2011/11/18/us-wallst-disconnect-idUSTRE7AH0Z620111118 [no comments yet]
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Welfare for Millionaires
Part-time actor Dave Glennon dressed as a corporate executive at Occupy L.A.
Robyn Beck / AFP-Getty Images
Daniel Stone
Laura Colarusso
Nov 14, 2011 12:00 AM EST
Class warfare is a politically charged term these days, from the Wall Street protests [ ] to the Capitol Hill negotiations over curtailing the nation’s debt. But a new congressional analysis, obtained by Newsweek, may fuel populist outrage by showing the extent of government subsidies that go to the wealthiest people in America.
From unemployment payments to subsidies and tax breaks on luxury items like vacation homes and yachts, Americans earning more than $1 million collect more than $30 billion in government largesse each year, according to the report assembled by Sen. Tom Coburn [ ], a Republican from Oklahoma, who is so often at odds with members of both parties that colleagues call him “Dr. No.” The Internal Revenue Service provided the data showing how much money was going to the much-referenced top 1 percent.
In all, millionaires receive hefty help from Uncle Sam. The $30 billion in handouts, to put it in perspective, amounts to twice as much as the government spends on NASA, and three times the budget of the Environmental Protection Agency. On the other hand, it would only cover the cost of fighting about three months in Iraq and Afghanistan. Still, eliminating them would help make a small dent in the $1.5 trillion congressional leaders are trying to find by Thanksgiving.
Jon Bon Jovi [ ], the millionaire rock star cited in the report, took federal dollars to raise honeybees on his property. Together billionaire moguls David Rockefeller and Ted Turner have also accepted more than half a million dollars in farm payments. Basketball legend Scottie Pippen took $210,520 in agriculture subsidies while making his fortune playing for the Chicago Bulls. To make matters worse, the government disclosed to Coburn that some recipients of farm subsidies got it by mistake. Tax records show that more than three fourths of high earners collecting farming money list their primary residence in a city—land unsuitable for farming.
Top earners, surprisingly, also get significant amounts of unemployment insurance and disaster payments. Since 2004, people with seven-figure salaries have accepted more than $9 billion in Social Security. A small band of GOP senators, led by Sen. Lindsey Graham, the South Carolina Republican, have proposed “means testing” to shrink Social Security payments for people who probably don’t need them.
The biggest money comes—or goes, rather—through unpaid taxes. More than 1,500 millionaires paid no income tax last year, according to federal records, mainly due to tax loopholes and savvy accountants. Tax breaks taken by millionaires on things like mortgage interest ($27.7 billion), rental expenses ($64.2 billion) and electric vehicles ($12.5 million) keep cash from entering the federal coffers.
“The country is sucking wind right now,” Coburn says. “We end up subsidizing the very wealthy and not helping the ones who really need the help.” The Oklahoman is one of few Republicans who support tax increases as part of a plan to reduce the deficit. Meanwhile, antitax activist Grover Norquist, a frequent nemesis for Coburn, says the whole system is too complex, and too unfair, and that lawmakers need to get rid of loopholes and to lower rates across the board.
Many federal programs maintain broad appeal, especially in such a volatile economy. Agricultural subsidies help farmers handle large swings in commodity prices.
But Coburn’s report is certain to generate arguments on the other side about tax fairness. Why, some might wonder, shouldn’t people who feed the government get to reap its benefits? Millionaires “pay a lot into the system,” says Joseph Thorndike, head of the Tax History Project, a Washington analysis group. “The government comes to the rescue of people in bad moments, and it should do that blindly.”
Yet the crux of the argument—that millionaires are using the social safety net as a luxury hammock—fuels an ongoing campaign by the White House to raise some taxes on top earners. “Republicans need to stop supporting tax breaks for the richest Americans so we can use some of that money to create jobs and reduce the deficit,” says White House spokesperson Amy Brundage. Or as Obama likes to put it, folks like him can afford to give more and take less.
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Related Stories
The Tea Party Pork Binge
http://www.thedailybeast.com/newsweek/2011/10/30/conseratives-brought-nation-to-default-ask-for-govt-handouts.html
The Dirty Dozen
http://www.thedailybeast.com/newsweek/2011/10/30/fiscal-conservatives-with-a-taste-for-pork.html
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© 2011 The Newsweek/Daily Beast Company LLC
http://www.thedailybeast.com/newsweek/2011/11/13/coburn-report-welfare-for-millionaires.html [with comments]
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upon the Right of Election, 1790
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