How CEOs pulled off their coup, ending the Golden Age of growth for the middle class while beginning the current era of the CEO as modern-day superyacht-owning Emperor…
What few people appreciate is the extent to which the tax code and related laws are written by lobbyists working for the rich. Books have been written about all the corporation specific loopholes that were written into the tax code under the Reagan administration.
Executive pay has nothing to do with their actual performance. Golden parachuts are written into their contracts before the assume their duties. Someone like Carley Fiorina can reduce the value of a company like Hewlett Packard by 75% and still exit with a $27 million dollar payout.
Very few CEO's add any value to the companies they head. For every Steve Jobs or Larry Ellison there is a Steve Balmer or a Lou Gerstner or a Tim Cook. Their compensation is not tied to the performance of the company but rather the stock price so profits are used not for rewarding the people who actually do the work or for new research and development but instead to buy back stock and artificially increase its price and generate false profits for shareholders and nice bonuses for executives.
Corporate board members are complicit in the compensation for the CEO(s). They are all thick as thieves. Then there are the members that serve on more than one corporate board. It is a round-robin of the rich and richer.
When the execs choose to cash-in their shares, the "insider information" is baked-in to this formula. Screw the employees, screw the customers, and ultimately our nation by not paying taxes for the infrastructure they wear-out.
Glad you wrote about this in a way people can digest the law and history, Thom.
This article was so helpful in my understanding of what has caused both the relatively low wages of the middle class and the huge profits of company executives. This inequality is increasing and by identifying one of the root causes, it gives us an idea of what to try to change! Thanks, Thom.
I'm a new subscriber, after reading your Daily Rants' for the last couple years. You truly have a gift for explaining difficult (to me, anyway) , and often complex economic events /policies/etc. in a clear and contextual way. Thank you! I've never understood how a company's value can continue to rise, while the level of their product, customer svc., and stagnating wages, etc. deteriorates or doesn't innovate--- does not experience the natural consequences one might expect? But with laws written and/or repealed since the Reagan era--, such as stock buyback schemes you've described above, its no wonder the American people are struggling. The new American Dream seams to have morphed into: striving to maintain the gains ones family (and the generations before)have achieved up to the 1980s. Like ducks on water, all energy focused on staying afloat & not going under.....the 21st Century, American dream.
Thank You- I took the time to subscribe today after following you since 2007. We met in elevator at Families USA in D.C. This article will help me as I advocate for my fellow citizens.
Been a long while so i cannot cite the paper, but remember reading a financial paper on stock buybacks that adds to your article. Companies will buy back their stock, enriching the executives, the company can write off those expenses vs any salary amount over $1mm (?), and then they issue stock options to themselves which basically creates more company stock which brings the total amount of stock in the company back to the level prior to the company buying back their shares. Rinse and repeat
I just incorporated last month. I still believe in the American dream, but think we need to be the CEO we want to see.
I come from a mostly politically indifferent people. I vote, but don’t have time for protest marches. However, I cannot abide domestic terrorists and the politicians that say that Jan 6th was just normal tourists.
I know my people don’t have time to pay attention to politics and work hard just to keep the rent paid and put food on the table. The most I can ask is 10 seconds to put on a democracy awareness möbius ribbon or put a American infinity sticker on their car to show our politicians that we care.
Watch the short TikTok for a explanation of how the Möbius strip is the perfect symbol for our Constitution and democracy. https://www.tiktok.com/t/ZTRUYghw2/?k=1
Thanks for your work and reading this far. I still have my copy of We the People: A Call to Take Back America
Thom, I have to call BS on this, a little. My main reason to get an MBA was to understand business logic. It's never personal. Imagine you are in a market where every profit center is a massive capital investment, $1 billion for a small project. Nobody builds anything that large without a contract to pay it off. If you made an extra $5 B this year, it wouldn't make sense to build large projects with no buyer. If you keep too much cash around, you can be bought with your own cash. Typically, the company will pay out half as dividends and buy back stock with the other half. The majority of employees hold stock, and benefit. Wall street has inordinate power over publicly traded companies. I'm uncertain if that prevents or causes more stupid moves.
Thanks for the example of how the oligarchs will eventually undo regulations that were put in place after the previous oligarchs crashed the economy.
As you've written, oligarchs have taken control of our economic and political systems in the past. Their greed lead to the Civil War, The Great Depression, and multiple market crashes in the 21st Century. After the Civil Great Depression, our political system instituted new laws to prevent massive abuse of the many by the few. But overtime, since we've compromised on the new laws and left the greedy oligarchs free to start over, they begin anew to dismantle the New Deal laws that limited their greed for income and wealth. Your details above demonstrate one of many such reversals.
As you've also mentioned, massive tax cuts for oligarchs are another example of the undoing laws that limit ‘economic liberty’ of the oligarchs. Just before the end of the 19th century, there was the final nail in the coffin for FDR's 1933 Glass-Steagall Act when the Clinton Administration and the Republican Congress passed the 1999 Gramm-Leach-Bliley Act. The end of this law was a slow incremental process to re-empower the bank oligarchs:
- A Chicago Tribune editor wrote on February 24, 1933, that “the only difference between a bank burglar and a bank president is that one works at night.”
Our historic battle with oligarchs will continue to repeat until we do something different. This is, at least, our third go around to put limits on greedy, still powerful, oligarchs. We need to do more than just re-implement laws that only temporarily limit their greed. We need to limit their power that allows them to keep coming back and tearing down our economy and threaten our democracy.
Where do these greedy, authoritarian, oligarchs get their staying power? They get it from our economic system that favors the few. Just as slavery and automation empowered white slave owners and just as feudalism empowered a few families of royalty over many serfs, capitalism empowers the few employers over the many employees. Capitalism, regulated or not, has left employers in charge of the main tool of capitalism, the work place - the means of production. As long as they have this control over work place created profit and as demonstrated by our national history of oligarch rebirth, they will be able to eventually reverse any law that limits their greed.
What we need to end this cycle of greed. We need to remove the oligarchs from their position of power over the workplace and control over profit. We need to upgrade our authoritarian economic system to a democratic economic system where workers control the work place and the distribution of the profit they produce. Workers in control won’t send their jobs overseas. Workers in control won’t pollute their communities. Workers in control won’t let profit accumulate with a few employees to empower oligarchs.
Once the power source of oligarchs is eliminated, other laws limiting oligarch income and wealth, like a wealth or a meaningful inheritance tax, can remain effective indefinitely. Ending the cycle of greed and diminishing excessive growth of income and wealth will also leave our elected representatives free to represent us and free to equally protect and empower all workers/citizens.
For more on democratizing the work place, empowering employees, and eliminating employer oligarchs:
The "Share Buyback" Looting of American Business
What few people appreciate is the extent to which the tax code and related laws are written by lobbyists working for the rich. Books have been written about all the corporation specific loopholes that were written into the tax code under the Reagan administration.
Executive pay has nothing to do with their actual performance. Golden parachuts are written into their contracts before the assume their duties. Someone like Carley Fiorina can reduce the value of a company like Hewlett Packard by 75% and still exit with a $27 million dollar payout.
Very few CEO's add any value to the companies they head. For every Steve Jobs or Larry Ellison there is a Steve Balmer or a Lou Gerstner or a Tim Cook. Their compensation is not tied to the performance of the company but rather the stock price so profits are used not for rewarding the people who actually do the work or for new research and development but instead to buy back stock and artificially increase its price and generate false profits for shareholders and nice bonuses for executives.
This is an absolute must read by everyone. It will make perfectly clear why our economy is in the disastrous state that it is now.
Corporate board members are complicit in the compensation for the CEO(s). They are all thick as thieves. Then there are the members that serve on more than one corporate board. It is a round-robin of the rich and richer.
When the execs choose to cash-in their shares, the "insider information" is baked-in to this formula. Screw the employees, screw the customers, and ultimately our nation by not paying taxes for the infrastructure they wear-out.
Glad you wrote about this in a way people can digest the law and history, Thom.
This article was so helpful in my understanding of what has caused both the relatively low wages of the middle class and the huge profits of company executives. This inequality is increasing and by identifying one of the root causes, it gives us an idea of what to try to change! Thanks, Thom.
Thank you. This is vital information for us to have.
Thom,
I'm a new subscriber, after reading your Daily Rants' for the last couple years. You truly have a gift for explaining difficult (to me, anyway) , and often complex economic events /policies/etc. in a clear and contextual way. Thank you! I've never understood how a company's value can continue to rise, while the level of their product, customer svc., and stagnating wages, etc. deteriorates or doesn't innovate--- does not experience the natural consequences one might expect? But with laws written and/or repealed since the Reagan era--, such as stock buyback schemes you've described above, its no wonder the American people are struggling. The new American Dream seams to have morphed into: striving to maintain the gains ones family (and the generations before)have achieved up to the 1980s. Like ducks on water, all energy focused on staying afloat & not going under.....the 21st Century, American dream.
Thank You- I took the time to subscribe today after following you since 2007. We met in elevator at Families USA in D.C. This article will help me as I advocate for my fellow citizens.
Been a long while so i cannot cite the paper, but remember reading a financial paper on stock buybacks that adds to your article. Companies will buy back their stock, enriching the executives, the company can write off those expenses vs any salary amount over $1mm (?), and then they issue stock options to themselves which basically creates more company stock which brings the total amount of stock in the company back to the level prior to the company buying back their shares. Rinse and repeat
I just incorporated last month. I still believe in the American dream, but think we need to be the CEO we want to see.
I come from a mostly politically indifferent people. I vote, but don’t have time for protest marches. However, I cannot abide domestic terrorists and the politicians that say that Jan 6th was just normal tourists.
I know my people don’t have time to pay attention to politics and work hard just to keep the rent paid and put food on the table. The most I can ask is 10 seconds to put on a democracy awareness möbius ribbon or put a American infinity sticker on their car to show our politicians that we care.
Watch the short TikTok for a explanation of how the Möbius strip is the perfect symbol for our Constitution and democracy. https://www.tiktok.com/t/ZTRUYghw2/?k=1
Thanks for your work and reading this far. I still have my copy of We the People: A Call to Take Back America
Thom, I have to call BS on this, a little. My main reason to get an MBA was to understand business logic. It's never personal. Imagine you are in a market where every profit center is a massive capital investment, $1 billion for a small project. Nobody builds anything that large without a contract to pay it off. If you made an extra $5 B this year, it wouldn't make sense to build large projects with no buyer. If you keep too much cash around, you can be bought with your own cash. Typically, the company will pay out half as dividends and buy back stock with the other half. The majority of employees hold stock, and benefit. Wall street has inordinate power over publicly traded companies. I'm uncertain if that prevents or causes more stupid moves.
Hi Thom,
Thanks for the example of how the oligarchs will eventually undo regulations that were put in place after the previous oligarchs crashed the economy.
As you've written, oligarchs have taken control of our economic and political systems in the past. Their greed lead to the Civil War, The Great Depression, and multiple market crashes in the 21st Century. After the Civil Great Depression, our political system instituted new laws to prevent massive abuse of the many by the few. But overtime, since we've compromised on the new laws and left the greedy oligarchs free to start over, they begin anew to dismantle the New Deal laws that limited their greed for income and wealth. Your details above demonstrate one of many such reversals.
As you've also mentioned, massive tax cuts for oligarchs are another example of the undoing laws that limit ‘economic liberty’ of the oligarchs. Just before the end of the 19th century, there was the final nail in the coffin for FDR's 1933 Glass-Steagall Act when the Clinton Administration and the Republican Congress passed the 1999 Gramm-Leach-Bliley Act. The end of this law was a slow incremental process to re-empower the bank oligarchs:
https://www.history.com/topics/great-depression/glass-steagall-act.
- A Chicago Tribune editor wrote on February 24, 1933, that “the only difference between a bank burglar and a bank president is that one works at night.”
Our historic battle with oligarchs will continue to repeat until we do something different. This is, at least, our third go around to put limits on greedy, still powerful, oligarchs. We need to do more than just re-implement laws that only temporarily limit their greed. We need to limit their power that allows them to keep coming back and tearing down our economy and threaten our democracy.
Where do these greedy, authoritarian, oligarchs get their staying power? They get it from our economic system that favors the few. Just as slavery and automation empowered white slave owners and just as feudalism empowered a few families of royalty over many serfs, capitalism empowers the few employers over the many employees. Capitalism, regulated or not, has left employers in charge of the main tool of capitalism, the work place - the means of production. As long as they have this control over work place created profit and as demonstrated by our national history of oligarch rebirth, they will be able to eventually reverse any law that limits their greed.
What we need to end this cycle of greed. We need to remove the oligarchs from their position of power over the workplace and control over profit. We need to upgrade our authoritarian economic system to a democratic economic system where workers control the work place and the distribution of the profit they produce. Workers in control won’t send their jobs overseas. Workers in control won’t pollute their communities. Workers in control won’t let profit accumulate with a few employees to empower oligarchs.
Once the power source of oligarchs is eliminated, other laws limiting oligarch income and wealth, like a wealth or a meaningful inheritance tax, can remain effective indefinitely. Ending the cycle of greed and diminishing excessive growth of income and wealth will also leave our elected representatives free to represent us and free to equally protect and empower all workers/citizens.
For more on democratizing the work place, empowering employees, and eliminating employer oligarchs:
https://www.democracyatwork.info
`Besos` must have already "blacklisted" Ur September release, #Thom. Ur link to `Amazon` will not accept the #Kindle version.