Politics of Hate and Envy

By Walter E. Williams

Wednesday, January 29, 2014

Part of the progressive agenda is to create hate and envy. One component of that agenda is to attack the large differences between a corporation's chief executive officer's earnings and those of its average worker. CNNMoney published salary comparisons in "Fortune 50 CEO pay vs. our salaries" (http://tinyurl.com/c2b24rv). Wells Fargo CEO John Stumpf's annual salary is $2.8 million. CNN shows that it takes 66 Wells Fargo employees, whose average salary is $42,400, to match Stumpf's salary. It takes 57 Wal-Mart employees, who earn $22,100 on average, to match CEO Michael Duke's $1.3 million. At General Electric, 44 employees earning $75,300 a year match CEO Jeff Immelt's $3.3 million salary. For people with little understanding, such differences seem patently unfair. Before touching on the fairness issue, let's look at some high salaries that progressives ignore.

Forbes lists the "Highest-Paid Football Players 2013" (http://tinyurl.com/kw4dv3d). Drew Brees, quarterback for the Saints, earned $40 million. If the average Saints organization employee earned $45,000, it would take almost 900 of them to match Brees' salary. Patriots quarterback Tom Brady earned $31.3 million, and Los Angeles Lakers star Kobe Bryant earns $23.5 million for playing basketball. It would take the earnings of more than 1,200 workers making $45,000 a year to match the earnings of Brady and Bryant.

But the "unfair" salaries of sports players pale in comparison with movie stars. According to Forbes' listing of the highest-paid actors (http://tinyurl.com/k3p8djs), Robert Downey Jr. earned $75 million from June 2012 to June 2013. Channing Tatum: $60 million. Hugh Jackman: $55 million. Let's suppose the cameraman working with Downey earned $60,000. It would take the salaries of 1,250 of them to equal his salary. Oprah Winfrey's 2012 salary came to $165 million, thousands of times what the earnings of people who work for her are.

Though sports and Hollywood personalities earn multiples of CEO salaries, you'll never find leftists and progressives picketing and criticizing them. Why? The strategy for want-to-be tyrants is to demonize people whose power they want to usurp. That's the typical way tyrants gain power. They give the masses someone to hate. In 18th-century France, it was Maximilien Robespierre's promoting hatred of the aristocracy that led to his acquiring dictatorial power. In the 20th century, the communists gained power by promoting public hatred of the czars and capitalists. In Germany, Adolf Hitler gained power by promoting hatred of Jews and Bolsheviks.

I'm not equating America's progressives and liberals with Robespierre, Josef Stalin and Hitler. I am saying that promoting jealousy, fear and hate is an effective strategy for leftist politicians and their followers to control and micromanage businesses. It's not about the amount of money top executives earn. If it were, politicians and leftists would be promoting jealousy, fear and hatred toward multi-multimillionaire Hollywood actors, celebrities and sports stars. But there is no way that politicians could usurp the roles of Drew Brees, Kobe Bryant, Robert Downey Jr. and Oprah Winfrey. That means celebrities can make any amount of money they want and it matters not one iota politically. Do you think President Barack Obama would stoke the fires of hate and envy by remarking that he thinks that "at a certain point, you've made enough money" -- as he did in a 2010 Quincy, Ill., speech -- in regard to the salaries of Winfrey, Brees and Hollywood celebrities?

Why the high salaries? Ask yourself: If a corporate board of directors could hire a person for $45,000 who could do what a CEO could do, why would they pay CEOs millions? If an NFL team owner could hire a person with the athletic ability and decision-making capacity of Drew Brees for $100,000, why would he pay Brees $40 million? If some other actor could have created as many box-office receipts, why would movie producers have paid Downey $75 million?

There's another important issue. If one company has an effective CEO, it is not the only company that would like to have him on the payroll. In order to keep him, the company must pay him enough so that he can't be lured elsewhere.

Okay Mr. President, you want to talk about “inequality”? Let’s talk about it.

By Nick Sorrentino

Wednesday, January 29, 2014

I woke up this morning to Steve Liesman on CNBC explaining the theme of the State of the Union Address. You see, since 1980 middle class wages have only gone up only 50% in inflation adjusted terms whereas for the top 1% of earners income has gone up by 210%. Something clearly must be done. How can such a disparity be? This is unfair. Can’t the government “solve” this?

The new narrative which has likely been crafted by John Podesta super crony capitalist extraordinaire, is that Congress (specifically the Republican controlled House) isn’t letting the president address the issue of income inequality.

“It’s those old guys who don’t care about you who are holding back the manna from heaven aka Washington DC. It’s their fault not mine. I’m not incompetent and way out of my league even after 5 years in the White House. Not my fault. It’s the selfish and rich Republicans. They want you to remain poor.”

Rally the base when times are bad is the old political wisdom, and times are very bad for this president. Shore up the folks who will defend you no matter what and change the conversation from Obamacare. Anything but Obamacare.

Given that the ACA is Obama’s chief “achievement” to date this is a particularly sad state of affairs. The president’s “pivot” (the word is right up there with “optics” in my book) toward income inequality is a cynical political move. The White House is desperate to regain at least some momentum in the face of a 2013 which was one failure after another.

But since Mr. Obama seems keen on bringing it up, let’s talk about inequality.

Despite what the establishment #oldmedia always say, the increased income inequality that we see is not the result of the “rich” taking advantage of unfettered markets and then making a mint at the expense of everyone else. Capitalism, free markets, free thinking, entrepreneurship, innovation, is not the problem. Capitalism is in most respects the cure. No, the problem is that business and government have increasingly partnered with one another to make some very rich and to shut out others. It’s too little capitalism which is the problem.

Let’s take a look at the most obvious example, Wall Street.

Has Wall Street reaped the windfall it has over the past 5 years because of the free market, because of capitalism?

Absolutely not. Had the free market been allowed to work in 2008 Goldman Sachs, AIG, Citi, Bank of America, and Morgan Stanley would probably be history. These banks leveraged themselves out too far and got caught exposed. Their greed did them in. Mr Market made a margin call and many “masters of the universe” turned out to have feet of clay after all. The banks should have been allowed to collapse so that better managed banks could fill in the space.

The banks weren’t too big to fail. They could have failed and life would have gone on. ATMs would have kept working. The sun would have still risen in the east. The economy after a period of adjustment would have righted itself and emerged much healthier for having jettisoned the poorly managed firms. Lloyd Blankfein would have been out of a job, but he’d have survived somehow in the Hamptons.

But that isn’t what happened as we know. The managers of these institutions knew how to manipulate the levers of power. They were able to engineer a massive bailout, which started at $700 billion and just grew from there. In the years after the bailout bonuses were paid out at the big banks with abandon. These bonuses were for the most part paid for by the American taxpayer. No wonder people are angry.

But the bailouts weren’t capitalism. The bonuses which were paid to Jamie Dimon and friends weren’t a result of “free markets.” They weren’t the just rewards of building a better mousetrap, or even building a better derivative algorithm. They were the result of crony capitalism, a soft form of fascism, which is of course a form of socialism. The bankers made millions because the state redistributed the income of everyday Americans and gave it to Wall Street.

Or take for example the sell off of the taxpayer’s (forced) position in GM at a loss last year. In addition to losing $10 billion on the deal for the taxpayers, the deal done by Treasury unleashes the executives which so long as money was still owed to the taxpayer couldn’t go nuts with executive compensation. Now, after the $10 billion taxpayer loss they and the GM board are free to do as they wish in the pay department.

Or what about the huge percentage of so called “green” energy initiative grants and loans which went to politically connected people in 2009. Folks made millions, in wind, solar, algae, and who knows what else, all again courtesy of the US tax payer. Almost none of the ventures were economically viable. But lots of people got paid that is for sure.

There are probably thousands of other examples over the last 10 years or so (and many more going back way before the past decade,) ranging from war profiteering of all sorts, to cronyism in the new healthcare law, to draconian copyright laws which are a subsidy to Hollywood, to, well, there are many other examples which we have chronicled at Against Crony Capitalism.

So we shouldn’t be surprised that there is so much income inequality. Business and government in this country have partnered up. Sometimes the government has the upper hand. Sometimes business does. But both parties engage in the crony capitalism waltz to enrich themselves, to the exclusion of a large part of the American population.

And at the heart of it all, is the Federal Reserve.

Nothing creates illegitimate inequality (there is legitimate income inequality which exists in a free price system) like the Federal Reserve.

0% interest rates are for the most part pretty good for rich people. Money which is super cheap can be used to speculate and invest at almost no cost. In theory such low rates are also good for home buyers. Low rates keep monthly payments lower. More people buying homes (with lower payments) spurs the economy and then the economy roars back to life as we all buy Sub Zero freezers and SUVs. This was the logic behind the housing boom in the mid 2000s and it is the same logic the Fed is using now (with less success.)

But 0% rates also means that savers are hung out to dry. The prudent middle class is hammered. Those who have a nice nest egg built up over a lifetime of hard work and thrift find that unless they take on significant risk there is no return for their money. $500,000 in a CD not so long ago yielded an yearly payout of $25,000. Now because of the Fed keeping money cheap artificially that same $500,000 might yield $5,000 on an annualized basis if one is lucky.

Over time granny finds that $5000 per year isn’t enough to get by on even though her house is paid off. She finds she must dip into her nest egg a little more each year, which also in turn lowers her already modest yield. Soon the nest egg is gone.

Of course she can always seek increased yield in other places like the stock market, (which though they won’t say it is exactly where the Fed wants granny to put her money) but widows and orphans really have no business there. It’s bad enough for granny to lose her pool of wealth over years. Losing much of it in an afternoon is tougher to take. But that is what our current monetary policy encourages.

Not so long ago granny could keep up. She could beat inflation and pay her living expenses. When she died her wealth was passed on to the next generation.

But now, thanks to the Fed and it’s policies which benefit the hedge fund guys instead of the average saver it is unlikely that much of granny’s wealth will be passed on. Wealth has been pulled from the middle class.

“Inequality” has been exacerbated by a government which is too large. The only way to get the economy on track is to lessen the footprint of government. Free prices. Free markets. Let people create. Make it easier to start businesses

But Obama is unlikely to talk about how after years and years of failure government must now get out of the way. (Boy how great would that be?) Or how government sponsored public/private partnerships steal money from the average American. Or how the government enabled the biggest bonus binge Wall Street has ever seen. Or how granny is getting clobbered because of loose monetary policy.

No, he will talk about how the economy has worked for the “rich” while others have fallen behind. But he won’t call for freer markets and an end to price fixing at the Federal Reserve. He will instead insist that government “do something.” What that something is I’m not sure but the term “shovel ready” will likely make an appearance somewhere along the line, with its old buddy “infrastructure improvement.”

The president will continue to wag his finger at the House GOP a bit and threaten to use executive actions to go around them. He’ll try to look like he means business.

Obama also talks about the need to raise the minimum wage, which is basically economic suicide but makes for good sound bites. He will give hope to people who are hurting but who unfortunately may not understand that if the minimum wage is raised they may soon be out of a job.

In short Obama will be long on proposals, long on rhetoric, but woefully short on understanding. Pretty much the to story of his presidency before the the most recent State of the Union address.

Obama's Power Grab Not Without Precedent

By Scott Erickson

Wednesday, January 29, 2014

In the build up to Tuesday night's State of the Union address, Obama administration officials had increasingly referenced the president's intention to utilize a "pen and phone" strategy to pursue his liberal agenda, relying on executive orders in place of the often difficult process of negotiating with congress.

Mr. Obama, obviously frustrated by his administration's inability to fully accomplish its legislative objectives, had sought to cast Republicans as the sole impediment standing between his policies and a flourishing economy.

What he had failed to acknowledge, however, was his own inability to build support for his legislative priorities among either members of congress or the American people.

In his State of the Union address, Mr. Obama made little mention of the need for working across the aisle to engage his ideological adversaries.

Instead, Obama asserted that, when he deemed necessary, he would bypass the legislative process and instead utilize the seemingly ever expanding power of the executive pen.

Obama said, “America does not stand still – and neither will I. So wherever and whenever I can take steps without legislation to expand opportunity for more American families, that’s what I’m going to do."

The president's movement toward enhancing the power of the executive at the expense of congress has angered many. Senator Ted Cruz (R-TX) lamented, "The Obama administration has been so brazen in its attempts to expand federal power that the Supreme Court has unanimously rejected the Justice Department's efforts to expand federal power nine times since January 2012.”

Mr. Obama's pivot away from the constitutional prerogatives of congress in favor of a more unilateral approach to managing government is not the first such effort on the part of a chief executive to wrest control from a separate but co-equal branch of government.

Next week marks the 77th anniversary of the announcement of Franklin Roosevelt's proposed Judiciary Reorganization Bill. Frustrated by the Supreme Court having invalidated multiple elements of his signature New Deal, FDR sought to pass legislation through the heavily Democrat-controlled congress that would allow him to fundamentally alter the makeup of the Supreme Court and pack the Court with judges more sympathetic to his New Deal endeavors.

The plan called for allowing the president to appoint an additional justice to the Supreme Court for every sitting justice over the age of 70. Given the makeup of the Supreme Court at the time this would have allowed Roosevelt to appoint an additional 6 justices.

As the constitution made no provision for the number of justices on the Supreme Court, Roosevelt's scheme was not seen as overtly unconstitutional. It was, however, seen a brazen attempt to circumvent the constitution's inherent system of checks and balances and it was met with immediate criticism.

Jeff Shesol, author of Supreme Power: Franklin Roosevelt v The Supreme Court, stated that upon learning of FDR's plan, even members of his own administration reacted with incredulity. "John Nance Garner, who was Roosevelt's vice president, went back with him to Capitol Hill, stood in the well of the Senate and, as the plan was read aloud to the senators, Garner held his nose and gestured thumbs down,” said Shesol.

As debate over FDR's court packing scheme intensified in the ensuing months, the public grew increasingly unsupportive of his idea. Although personally popular, FDR’s attempt to pack the court with political cronies was seen as far more offensive than was the court having invalidated many of FDR’s legislative undertakings.

In an article for the American Political Science Review, author Gregory Caldeira wrote that the central debate had less to do with the specifics of New Deal legislation, rather, "FDR's proposal forced the public to choose between the widely approved policies of an extremely popular president and the institutional integrity of a controversial Supreme Court."

The public ultimately supported the maintenance of governmental checks and balances and soured on FDR’s attempt to inflate the power of the presidency at the expense of the judiciary.

Following a series of influential events that included the retirement of Justice Willis Van Devanter as well as the Court’s validation of the Wagner Act, a significant piece of Roosevelt’s New Deal, an amended version of the Judiciary Reorganization Bill was passed on August 26, 1937, having been stripped of its most contentious elements, including the increase in Supreme Court justices.

President Obama, himself enjoying far less public support than FDR in his day, ought take a hard look at history and consider a renewed attempt at building consensus through leadership rather than opting for the imperious approach of governing through executive fiat.

Pens and phone calls may allow for the easier implementation of Mr. Obama’s agenda but it would be inconsistent with the Founder's intent of a government predicated upon, among other things, the separation of powers.

Understandably, the public at times becomes frustrated by warring factions in Washington but it will always opt on the side of maintaining institutional integrity over the whims of a frustrated executive. Mr. Obama should accept that reality and understand that leading a divided government often requires conciliation, not an aggrandized executive.

The Need for Economic Freedom

By Ed Feulner

Tuesday, January 28, 2014

My last column focused on why the United States is no longer among the top 10 nations listed in the annual Index of Economic Freedom. But it’s important to put this in a larger context and explain why it matters.

The freest societies in history have always been the most prosperous. The more freedom that people have to engage in entrepreneurial and other economic activities, the more products, processes, innovation, jobs, wealth and opportunity will be created. And that greater prosperity means a better living standard for all the people.

History has shown that only in times of economic turmoil have the forces opposed to individual liberty been able to fully seize power. No revolution has overthrown a government in times of widely shared prosperity.

In the United States, the 10 states noted for the greatest amount of freedom, opportunity and encouragement of business activity are also the fastest-growing and most prosperous. On the other hand, the states with the greatest burden of taxes, regulations and restriction on businesses are the 10 slowest-growing states.

The link between freedom and prosperity also holds true on the world stage. For 20 years now, The Heritage Foundation has produced the Index in cooperation with the editors of The Wall Street Journal. Each year the Index ranks more than 175 nations in terms of their level of economic freedom, characterizing them as “free,” “mostly free,” “moderately free,” “mostly unfree” and “repressed.”

During this entire period, Hong Kong has always been ranked number one in the Index, thanks to its small government, low taxes and light regulations. As former Attorney General Edwin Meese, now the Ronald Reagan Distinguished Fellow at The Heritage Foundation, put it in a 1999 Heritage lecture, “Economic freedom and economic prosperity rise and fall together.”

He cited the remarkable history of Hong Kong is a brilliant illustration of the value of political and economic freedom:

    “A century and a half ago Britain’s Lord Palmerston dismissed Hong Kong as ‘a barren rock with hardly a house upon it.’ One can only wonder what Lord Palmerston might think if he could visit Hong Kong today.

    “He would walk among skyscrapers that hold the offices of 9,000 multi-national companies. His eyes would behold the fifth-largest banking center on earth, and the eighth-largest stock market. He would stroll among citizens who earn the sixth-highest per capita income in the world.

    “He would see a conduit through which flows 70 percent of all foreign investment in China. And he would no doubt be dumbstruck to see all this dynamic economic energy being generated on an island with a population smaller than that of Chicago.”

By contrast, nations such as the United Kingdom and United States, once admired throughout the world for their commitment to economic freedom, have seen a sharp decline in the Index ratings.

“The record of increasing economic freedom elsewhere makes it inexcusable that a country like the U.S. continues to pursue policies antithetical to its own growth, while wielding its influence to encourage other countries to chart the same disastrous course,” writes Index editor Terry Miller in a recent op-ed for The Wall Street Journal. (The entire list can be found at heritage.org/index.)

The need for U.S. lawmakers to get serious about cutting government down to size, overhauling our tax system, and transforming costly entitlement programs should be obvious. Yet for many of them, passing a pork-packed omnibus spending bill is the order of the day.

What’s needed instead is greater economic freedom. That means greater economic prosperity. And greater economic prosperity means a better life for all the people.

The Index findings reinforce the eloquent words with which Attorney General Meese concluded his Heritage lecture: “To attain freedom is mankind’s highest aspiration. To use freedom wisely is mankind’s urgent responsibility. To preserve freedom is mankind’s continuing challenge. May we all be equal to that task.”