Flashback – Hating the Rich

Millionaires, billionaires and highly paid executives are favorite targets for someone trying to garner support for a new program. We should hate the rich merely because they are rich. The government should take away their money to help the poor. In this stirred-up state of envy no one wants to think about how the anger is selective. Nor do they want to hear how such a move would dampen motivation at all levels while not really solving any problems. 

I pointed this out right before the 2016 election, and nothing has changed since then:

[Maybe hating is too strong a word for it. Maybe being angry or envious is a better description of those feelings, the feelings various politicians and organizations vigorously promote. But since those same organizations and advocacy groups freely use the words “hate” and “haters,” it’s probably not completely unfair. In this case the hating is not only selective, but also difficult to justify.

Here is a graphic that has been going around on social media. It shows the total compensation of health insurance company CEOs. The caption and comments imply that this is the reason for the sharp increase in Obamacare (ACA) premiums for 2017. Let’s take one example and see what’s going on.

Let's not quibble over the fact that the information is three years old or that they calculate daily pay based on 341 days in a year. If these folks have moved on, they were likely replaced by others who were equally well compensated. Instead take the first gentleman, Joseph Swedish as representative.

He is the CEO of WellPoint, which operates Blue Cross Blue Shield plans in 14 states. Here is some information from a CNBC report from 2014. “The company had 37.5 million members at the end of the quarter, up 2 million members from a year earlier.” Apparently he is doing a good job of growing the company and meeting analysts’ expectations. But is his pay driving up premiums?

Take the $17 million shown above and divide by the number of customers, 37.5 million, and get 45 cents per customer. Divide that by 12 to calculate the effect on monthly premiums and we find that if he were paid nothing, each customer might see a 3.8-cent reduction in monthly premiums – 3.8 cents!  (By saving this up for 10 years each customer could afford one trip to Starbucks.)

Maybe it’s the fact that the government forces us to buy health insurance that causes such a negative opinion of these CEOs. By contrast, we never seem to get upset about the amount paid to the Disney CEO or star athletes. We never hear people complaining that the ticket prices would be lower if their favorite quarterback made less money. We give these people our money freely, even line up to do it, in return for a limited amount of entertainment, and they also get rich.

Look at the recent Desert Trip concert in Palm Springs. Most of the 75,000 tickets were gone in less than five hours, with the good seats going for $1599 each. The promoter is expected to gross $160 million for the three-day event, while paying the headliners up to $7 million each (for showing up and playing for a few hours). The LA Times reports that these rock stars from the sixties continue to do very well for themselves. “Since 2000, the Rolling Stones have grossed more than $1.1 billion with their periodic tours, according to Pollstar, the concert-industry-tracking publication. [Paul] McCartney has racked up $761 million, [Pink Floyd’s Roger] Waters has pulled in $592 million, followed by [Bob] Dylan ($293 million), the Who ($200 million) and [Neil] Young ($153 million).”

We love to hate those one-percenters, the people making a lot more money than we do, but the outrage is selective. When it’s Mick Jagger, Bob Dylan, Lady Gaga, Peyton Manning, Rory McIlroy, George Clooney, Tom Cruise, or Oprah, then it’s OK. Making almost $50,000 a day is very impressive, but it pales in comparison to $500,000 - $750,000 for a single speech or an advance on a book in the millions. We love the ones who perform for us and hate the ones who help us pay our doctor bills. Objections to the rich being rich are both selective and difficult to justify.]

Mythology by Dimension

Last time I wrote about understanding the world by using the lens of mythology.  Everyone has beliefs that they’ve developed since childhood through interactions with parents, teachers, friends, reading and learning.  As this personal mythology matures it becomes a guide for action, a guide for making moral decisions, judging right and wrong.  We each see ourselves as heroes of our own stories, stars of an imaginary movie playing inside our heads.  When we act in concert with our beliefs we are behaving heroically.  Otherwise we are cowards and a disappointment to ourselves.

Our friends, the people we hang out with, what I have called the tribe reinforce these beliefs.  (I purposely use primitive terms like tribe and mythology to emphasize the primitive nature of these reactions.  These core beliefs go deep and are very hard to change.)  When ideas contrary to our mythology arise our tribe helps us combat them by finding examples of how we are right and by shouting down the opposition, portraying them as villainous, evil, stupid, idiotic, naïve, and greedy.  The “others” are purposely lying to us to advance their selfish goals.

But that is usually not the case.  Those we consider villains are heroes of their own mythology, fighting the good fight on the side of what they believe is right.

That’s why we see so much division in the country today.  Everyone is so busy accusing each other of villainy, pointing fingers and calling names, that nothing gets settled.

Now comes the behavioral model.  Behavior has consequences.  If actions hurt you, stop doing them.  If actions cause suffering for others or fail over the long term to relieve their suffering, stop doing them.  We must use these same criteria to adjust our own behavior and to challenge the actions of others.  Name-calling and accusations don’t solve anything.  Behavior is the guide.  Unfortunately personal mythology blinds individuals to many behavioral errors.  Here are a few examples by dimension.

Economic understanding points out that there is no magic money tree.  Money always comes from somewhere, and we can usually trace it back to our own pockets.  When sympathetic juries hand out large awards to compensate for a loss, they fail to understand that insurance companies do not have a big, endless pool of money.  They get their money from us in premiums and will find a way to recoup the loss.  Their competitors will also see how such actions increase their risk and will take defensive action.  Everyone’s premiums go up.  It’s a myth that no one is hurt and only good comes out of this redistribution from the rich companies to the poor victims, but many cling to this myth.

Economic understanding points out that the economic “pie” is not fixed.  It’s not always a zero sum game with winners and losers.  The standard of living for everyone in the US has increased dramatically over the last century – for everyone!  The rich are better off than they were with more luxuries.  The poor are better off than they were with more conveniences.  Delivering fresh produce to a food pantry last year I heard clients discussing the best place to buy an inexpensive microwave oven.  Fifty years ago no one, rich or poor, had a microwave oven!  The rich are getting richer, but that does not imply the poor are getting poorer.  (Note: This Congressional Budget Office report shows distribution of income growth 1979-2007 was skewed toward the higher incomes, but all income levels experienced some growth.)

Many companies and industries are big and powerful.  Barring government interference, companies grow big by getting more customers.  The smart way to get more customers is to give them what they want at a reasonable price.  A bad way to attract customers is to treat them poorly or try to cheat them.  Most companies are smart enough to figure this out or they don’t stay in business very long.  A common myth is that all big companies are greedy and evil based on the actions of a few.  Sure CEOs are overpaid, but so are star athletes, TV and movie stars, super models and rock musicians; but you don’t hear people complaining about George Clooney making too much money.  And you don’t see people planning to skip the next Disney movie to protest how much the CEO is paid compared to the average Disney worker.  Our personal mythology is selective.

(In the interest of your time, I’ll continue the discussion on Friday.)

Outrageous CEO Pay

One of the biggest issues being debated on and off the campaign trail is the growing gap between the rich and the poor along with the shrinking of the Middle Class.  A main target of many of the protests and disparaging remarks is the ratio of CEO pay to that of the average worker in the company.  It is one of the statistics invariably mentioned when discussing the disturbing growth of income inequality.

CEO pay is a popular topic among candidates because almost everyone agrees that CEOs are paid outrageous amounts.  “According to the Economic Policy Institute, from 1978 to 2013, CEO pay at American firms rose a stunning 937 percent, compared with a mere 10.2 percent growth in worker compensation over the same period, all adjusted for inflation. In 2013, the average CEO pay at the top 350 U.S. companies was $15.2 million.” Every other week we see headlines like these:  “JP Morgan CEO gets 35% pay raise to $27M amid cutbacks” and “Viacom CEO Pay Rose 22 Percent in Year Stock Tumbled.”

Ordinary citizens have trouble even grasping the size of these pay packages, so a convenient way to talk about it is to use this ratio of CEO pay to the pay of the average worker in the company.  One source gives this ratio as “20-to-1 in 1965 and 29.9-to-1 in 1978, growing to 122.6-to-1 in 1995, peaked at 383.4-to-1 in 2000, and was 295.9-to-1 in 2013.  (In most news reports and political speeches the drop since 2000 is not mentioned, nonetheless it still has grown by a factor of 15 times for no apparent reason.)  Other sources have the ratio as high as 475-to-1.

There seems to be nothing to be done short of government intervention, but perhaps there is another solution!  Americans can wait around until the big companies’ lobbyists and our representatives decide what action, if any to take, or they can take some action on their own, immediately – voting with their dollars.

Take business away from some of the top offenders until they get the message.  But is anyone willing to do it?

From another source I got a list and arbitrarily set a ratio of 150:1 as the cutoff.  Of the top 100 companies in US, the worst offenders are:  AFLAC (157), Altria (175), Boeing (198), CVS (422), Deere(150), Goodyear Tire (322), Honeywell (211), Twenty-First Century Fox (268) and Walt Disney (273).

The big question is:  Are enough people really upset enough about high CEO pay to do something about it, or is it something they just like to complain about?  Would we find another insurance company (even if we think the duck is amusing), take our prescriptions to a different pharmacy (even if we admire them for banning tobacco products), buy a different brand tire or – and here’s a big one – stay home from movies like The Revenant and Star Wars, or tell the kids no trip to Disney World and no Frozen or Star Wars memorabilia until the CEO takes a paycut?  I think not.

Just as we don’t mentally group our favorite sports heroes, movies stars, television personalities and music entertainers in with the hated one-percent, I think we would give many of these CEOs a pass and continue to patronize their companies.

Note:  Some of the biggest offending companies listed elsewhere include Discovery Communications, Chipotle, Walmart, Target, Macy’s and Starbucks.  It’s just a matter of who is doing the calculations, but these are a few more to consider.

CEOs and Welfare Cheaters

The subjects I address are based on the premise that behaviors have matching consequences.  Touch a hot stove and get burned.  Be convicted of a crime and have trouble finding a good job.  Fail to save while you’re working and become dependent on the government/charity for a not-very-comfortable retirement.  Graduate from high school and have a better chance at a good job.  There are a few exceptions, and as usual, I want to show surprising similarities between two classes of people not usually associated.

The first group is overpaid CEOs who take money from the owners of the corporation when they have clearly not earned it.  The second group consists of those who accept money from the government when they are not eligible.

We are asked to believe that those who rise to become CEOs have very special talents, and that no one else could do what they do.  They are special, and their time is so valuable that they travel in private jets and chauffeured limousines.  Their special status justifies lavishly decorated offices with thousand-dollar trashcans.  Their decisions affect the lives of thousands, but if they make mistakes and lose their jobs, they have developed a network of contacts to help them find another high-paying position quickly.  (They may have screwed up, but they’re still special).  Others pay the price while boards of directors continue to treat CEOs like rock stars, often ignoring these quirks and errors, while rewarding them at levels hundreds of times the pay of an average worker.  Take for example the ousted JC Penney CEO who made over $53.3 million while putting the company in a position where survival is now questionable.  (Several others a few years ago collected huge bonuses on the heels of a government bailout.)  They play on their status to avoid consequences, while gathering wealth and fame.  Then, in retirement, they consult and write books.  Contrast this behavior with that of Pope Francis who shows everyone, not just Catholics, that a position of power need not be automatically linked to a lifestyle of luxury, privilege and self-indulgence.  This characterization does not apply to all CEOs and top executives, but there are enough of them in the news to give the rest a bad name – a few bad apples but too few exemplary ones.

At the other extreme, dishonest behavior can also lead to favorable consequences.  They haven’t the status, and we find nothing to admire about them; but they seem to use a similar rationale that they are special and deserve to be treated differently.  “Since 2003, there's been a 29% jump in Americans with little or no work experience getting disability payments, according to the Social Security Administration. Over the same time, there's been a 44% increase in disability claims by people formerly in the workplace.”  With no evidence of an epidemic of injury or illness, a reasonable conclusion is that a major proportion of this increase must be attributed to cheaters, people who feel they have the right to continue their cash flow from the government without working, taking the money indirectly from us while ignoring the rules that the rest of us follow.  Last Sunday a 60 Minutes segment showed the depth of the problem.  Again it’s not a majority, but statistics tell a distressing story.

The behaviors and attitudes of these groups from each end of the socio-economic spectrum are so similar.  Except for the level of power, the main difference is that those who benefit by claiming disability, the cheaters, have only an indirect obligation to society, the same obligation shared by the rest of us to act honestly and not take what we don’t deserve.  Their actions are illegal, and if caught, they may be punished.  Those CEOs, on the other hand, have a direct and explicit obligation to shareholders, customers and especially to employees to be faithful stewards of the corporate resources, using them to provide quality products and secure jobs. Irresponsible actions may be unethical, but only in rare cases are they prosecuted and rarely do they act guilty or remorseful.  When things go well, they take credit.  When things go poorly, they blame the economy.  Both groups justify their actions by feeling privileged with a primary obligation to themselves, regardless of the effect on others. Both act without consequences with few mechanisms in the system to correct this misalignment.  It’s the height of irresponsibility, but the appropriate consequences are missing.

Unfortunately there is little we can do to balance the scales. There is no sense of shame.  Ordinary stockholders have little influence.  Reporting slackers is frowned upon.  As long as enough Americans consider it cool to be a powerful, but self-serving executive or a clever slacker abusing the system, the behavior will continue at a cost to us as customers and taxpayers.  It would take a groundswell of citizens with economic understanding and true feelings of contempt toward such behavior, as well as the lawyers and boards of directors who support them, to begin to right the equation.