an unanticipated consequence of
Jack M. Balkin
Jack Balkin: jackbalkin at yahoo.com
Bruce Ackerman bruce.ackerman at yale.edu
Ian Ayres ian.ayres at yale.edu
Mary Dudziak mary.l.dudziak at emory.edu
Joey Fishkin joey.fishkin at gmail.com
Heather Gerken heather.gerken at yale.edu
Abbe Gluck abbe.gluck at yale.edu
Mark Graber mgraber at law.umaryland.edu
Stephen Griffin sgriffin at tulane.edu
Bernard Harcourt harcourt at uchicago.edu
Scott Horton shorto at law.columbia.edu
Andrew Koppelman akoppelman at law.northwestern.edu
Marty Lederman msl46 at law.georgetown.edu
Sanford Levinson slevinson at law.utexas.edu
David Luban david.luban at gmail.com
Gerard Magliocca gmaglioc at iupui.edu
Jason Mazzone mazzonej at illinois.edu
Linda McClain lmcclain at bu.edu
John Mikhail mikhail at law.georgetown.edu
Frank Pasquale pasquale.frank at gmail.com
Nate Persily npersily at gmail.com
Michael Stokes Paulsen michaelstokespaulsen at gmail.com
Deborah Pearlstein dpearlst at princeton.edu
Rick Pildes rick.pildes at nyu.edu
Alice Ristroph alice.ristroph at shu.edu
Neil Siegel siegel at law.duke.edu
Brian Tamanaha btamanaha at wulaw.wustl.edu
Mark Tushnet mtushnet at law.harvard.edu
Adam Winkler winkler at ucla.edu
I respect Tom Friedman's Cassandran efforts to curb American dependence on foreign oil. One can occasionally snicker at his exuberant style, but not the environmentalist substance. America needs more green hawks like him.
But I was taken aback by his casual comment on a radio show that American workers need to be "ten times as productive" as Indian or Chinese workers to maintain current earning levels. Over the past fifty years, we've seen CEO salaries go from about 50 times employee average pay to a 500 times multiple. If anyone needs to become "ten times more productive," it's those at the top of the "value chain." But the myth of the coddled everyman persists, spreading to a "new global elite," as Chrystia Freedland reports:
The U.S.-based CEO of one of the world’s largest hedge funds told me that his firm’s investment committee often discusses the question of who wins and who loses in today’s economy. In a recent internal debate, he said, one of his senior colleagues had argued that the hollowing-out of the American middle class didn’t really matter. . . . (emphasis added)
I heard a similar sentiment from the Taiwanese-born, 30-something CFO of a U.S. Internet company. A gentle, unpretentious man who went from public school to Harvard, he’s nonetheless not terribly sympathetic to the complaints of the American middle class. “We demand a higher paycheck than the rest of the world,” he told me. “So if you’re going to demand 10 times the paycheck, you need to deliver 10 times the value. It sounds harsh, but maybe people in the middle class need to decide to take a pay cut.”
The Gulf Between the Superclass and the Middle Class
One wonders how that "30-something CFO" in Freedland's story created such enormous value for his employer. Perhaps he helped structure its earnings into a "Dutch sandwich," speeding their way to "island havens that levy no corporate income taxes at all." Certainly a far more "productive" occupation than, say, an inner city school teacher's, neurosurgeon's, or janitor's daily grind (if your measure of productivity is "dollars saved for employer").
Indeed, as Bryce Covert observes, many of our financial millionaires worry that they are not getting their due. Perhaps the CFO is satisfied, but:
[Y]ou can't look to the banking industry for some humility in recognition of their sky-high checks. "The bottom line is all the people in investment banking understand that they work harder and are under more stress," Jeanne Branthover, a managing director at Wall Street recruitment firm Boyden Global Executive Search, told Bloomberg. "Many don't think they're paid enough."
Covert counters with a few earnings comparisons:
Compare the estimated $2 million in pay that an M&A banker with 10 years of experience can expect to the $80,970 per year the average teacher in the top 10% [of teachers] will get. . . . Sixty percent of new jobs last year were in temp work, leisure and hospitality, and retail. Leisure pays an average hourly wage of $13.14 and retail will get you $11.84, while temp packagers only get $8.62. Should a banker make 20 times what a cancer researcher does? Our compensation scales are out of whack.
In other words, perhaps the finance experts in the "new global elite" should think twice before pronouncing judgment on anyone else's excessive pay. In 2008, the head of the world's largest bank (Jiang Jianqing, who runs the Industrial and Commerce Bank of China) made less than $300,000. People like Dick Fuld, Angelo Mozilo, and Joe Cassano, who've emerged from the financial crisis with hundreds of millions of dollars, appear to be taking extremely large slices of a shrinking pie---and that shrinkage has a lot to do with their mismanagement.
The Gulf Between the Middle Class and the Global Poor
On the other hand, it would be much easier to make the case for maintaining US living standards if the country made some effort to conserve vital natural resources. As oil and commodities prices creep upwards, large numbers of US consumers appear happy to keep purchasing SUVs, and to vote for the only conservative party in the developed world that does not believe in the existence of climate change. We are using complex financial games to support an unsustainable living standard. While other countries give very low interest loans to solar power manufacturers, wegive them to bankers, who in turn seem fixated on supporting an already bloated housing sector. Rather than grapple with our foreign energy dependence, we exacerbate it by building ever larger homes.
In other words, average Americans waste enormous amounts of nonrenewable resources, even as hundreds of millions of people around the world are terrified that they won't be able to pay for food next month. Freedland's new "global elite" probably prides itself on rushing us to a future where globalization, by decimating the purchasing power of the American and European middle class, transfers a fairer share of resources to the BRICs. One projected that "if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade."
What seems to be envisioned here is a humane feudalism, where an economic aristocracy (say, the Duke of CNOOC, the Earl of Exxon, etc.) pays its vassals handsomely and maintains a globe of serfs a step or two "out of poverty." But don't count on that being a stable solution. Consider Sierra Club Chairman Carl Pope's observations about distribution in a globalized, "knowledge economy:"
We write and talk glibly about the increasing emphasis in our economies on "knowledge," but rarely focus on the reality that a knowledge-based society makes it far easier for much of the workforce to be left behind. Ugandan coffee farmers receive only 2.5 percent of the British retail price and 4.5 percent of the U.S. retail price for their coffee. A few cents added to a cup of coffee or a basket of strawberries would cover the costs of doubling or tripling the wages of peasant farmers. But if we raised prices in today's world economy, the increases would be absorbed not by the farmers but by marketing, wholesaling, and retailing markups.
It is easy for those in the (over)developed world to be too optimistic about how widely distributed those "marketing, wholesaling, and retailing markups" will be. For example, Greg Mankiw characterizes the return on education as a guarantee of some security, with a slight chance at vast wealth:
Perhaps, advanced degrees are like Willie Wonka’s famous chocolate bars. A few of them come with golden tickets that give you opportunities almost beyond imagination. Over the past several decades, as the return to education has increased, the value of those golden tickets has increased as well. But even if you aren’t lucky enough to get a golden ticket, you can still enjoy the chocolate, which by itself is well worth the price.
But as I recently noted in a review of Jonathan Zittrain's work on "ubiquitous human computing," the internet is enabling a globalized “race to the bottom” of labor and wage standards. An atomized mass of knowledge workers is bidding for bite-sized “human intelligence tasks," priced as low as a penny a pop. The internet is marvelous at transferring the "wealth of the network" upward, regardless of the skill of those at the top.
When Tom Friedman tells Americans that they need to become "ten times more productive," he's trying to inspire a rugged individualism of self-improvement. But accelerating inequality makes that aspiration a pipe dream for more and more of the global middle. We need forward-thinking collective action to prevent globalization from creating a new feudalist era of opulent and powerful elites deigning to grant the mass subsistence living standards. Sadly, the leading political force in the US today appears to be contemplating a far more individualist solution for raising household productivity.