This Week

Summer begins this week, and we're here to help with your vacation reading list. Over the next few issues, we'll be highlighting the best new books on inequality. More below.

Also in this week's issue: the reason America's CEOs really do need all those big bucks they make.

Greed at a Glance: A New Cookie Monster

Want the best for your little ones? Conde Nast, one of the world's biggest magazine publishing empires, has just the mag for you — if you think $200 Roberto Cavalli kid sandals and $390 Fleurville diaper bags will help ensure you a happy household. Cookie, the new Conde Nast mag that carries the tagline “all the best for your family,” overflows with ads pitching $100 cashmere baby pants and other face-saving must-haves to anxious affluents. Media critic Larry Dobrow calls the new Conde Nast title “a mommy product bible,” a magazine “no more about what's best for one's family than The Empire Strikes Back is about the feasibility of interplanetary travel.”

When should wealthy parents tell their children about their family's fortune? PNC Wealth Management, a Pittsburgh consulting company, recently put that question to a national cross-sample of millionaire parents. About 40 percent of the affluents surveyed, notes American Public Radio reporter Sean Cole, “said you should wait until your kids are 21 before talking to them about the family estate.” One parent with a family telecom fortune worth over $50 million told Cole “her kids learn by example because the family doesn't live extravagantly.” The family, Cole later learned, seasonally shuttles between five houses . . .

The Donald is headed south.Megadeveloper Donald Trump has announced plans to erect a new 62-story tower in Panama City. The $220-million project, slated to open in 2009, will add 500 luxury apartments to the booming Panama scene. Behind the boom: “Real estate in Latin America is attracting significant interest amongst U.S. buyers searching for second- and third-vacation homes,” says Rogerio Basso, a Latin America real estate specialist for Ernst & Young, a New York consulting company . . .

American aficionados of the “flat tax” — the notion that the wealthy ought to pay taxes at the same exact rate as taxpayers of distinctly modest means — have been cheering Eastern Europe's Mikulas Dzurinda ever since he became Slovakia's prime minister eight years ago. Dzurinda delighted the jet-set crowd by pushing into law a flat tax that chopped the top tax rate on Slovakia's highest incomes down to 19 percent. This past Saturday, voters did some chopping of their own. They gave Dzurinda and his coalition less than 40 percent of their votes. The top vote-getter: a 41-year-old who vowed to reverse Dzurinda's tax-time generosity toward Slovakia's richest. Noted Robert Fico in his post-election victory speech: “We need a Slovakia with more solidarity and justice,” where “benefits from our country's development will not be restricted to a small group of people.”

A real-life parable for our reckless-pursuit-of-wealth times: Earlier this month, a Montclair, California man started digging near his front porch after a metal detector signaled the presence of gold underfoot. He spent the next 10 days digging for his golden fortune, even hiring two other other men to carry away the dirt. The hole would go on to hit 60 feet deep, the AP reports, before alarmed local fire department officials shut the digging down. Noted Fire Captain Rich Baldwin: “It's amazing no one got killed."

The Sky-High Cost of Keeping CEOs Free

We now know, thanks to a Washington Post report published Friday, why CEOs desperately do need all those millions they get in compensation. How else are they going to pay their legal bills?

The legal defense for former Enron CEO Jeff Skilling, last week's Post analysis revealed, has so far cost $65 million. A Houston jury last month convicted Skilling of conspiring to inflate Enron's share price.

Last year, former Tyco CEO Dennis Kozlowski saw his defense costs total $17.8 million — and, like Skilling, didn't see much return on his investment. A Manhattan jury found Kozlowski guilty of $150-million worth of grand larceny, conspiracy, securities fraud, and falsifying business records.

Former HealthSouth CEO Richard Scrushy has done considerably better. He spent $25 million on his defense against federal fraud charges, the first filed under Sarbanes-Oxley, the corporate reform law that Congress passed to prevent future Enrons. An Alabama jury last year acquited him.

Scrushy, in an unrelated case, is now awaiting a jury verdict on charges he paid a bribe to former Alabama Governor Don Siegelman.

What's driving legal fees in these CEO cases up to eight-digit levels? Start with the “labor” costs. In Skilling's case, five partners from the Los Angeles-based O'Melveny & Myers charged just above $800 an hour. A dozen other lawyers on the case labored at hourly rates between $200 and $500.

Expert witnesses came extra. Walter K. Rush, a former accountant with the federal Securities and Exchange Commission, devoted 954 hours to the Skillings defense — at a $600 hourly rate.

Who's paying the freight for these costs? Insurance policies handed Skillings $17 million for his defense. He paid another $23 million out of pocket and holds another $60 million in assets that could go toward his legal fees. But government prosecutors had that money frozen after his indictment, and former Enron employees want this $60 million distributed to Enron's victims.

Attorneys on the Skillings defense team are now urging the judge in the case to let them collect their unpaid bills first. In the meantime, these attorneys at O'Melveny & Myers — a 240-partner firm that recorded $1.65 million in profits per partner last year — are busy working on a Skillings appeal.

“We've just got to keep fighting a good fight,” says lead attorney Daniel Petrocelli — and keep those meters running.

Summer Reading:
Common Sense for a Fair Economy

Early in his sprightly new book, All Together Now: Common Sense for a Fair Economy, economist Jared Bernstein offers an observation that most Americans would indeed likely consider “common sense.”

“Individuals, families, and communities need economic security to realize their potential,” Bernstein writes, “and thus, that should be one of government's core functions.”

But today, throughout the United States, that “core function” seems to be disappearing, at every level. Average Americans find themselves increasingly insecure — in their jobs, in their retirements, in their quest for decent health care — and government appears not to particularly care.

What's going on here? Why isn't government helping average Americans gain the economic security they want — and expect — government to provide? Jared Bernstein, in All Together Now, has the answer.

Over recent decades, Bernstein explains, a new economic orthodoxy has come to dominate American politics, a perspective that Bernstein reduces to the acronym YOYO, an evocative shorthand for "you're on your own.”

YOYO economics, Bernstein notes, sit at “the heart of contemporary conservatism.” This you're-on-your-own thinking preaches “freer markets, less government, and more individualism.” Cut taxes, the YOYOers urge, and give taxpayers back their tax dollars. Get government out of the way and let Americans find the good life — on their own — in the marketplace.

Presidents and lawmakers who share this YOYO perspective have been setting America's economic course for most of the last 30 years, and no one has been tracking the impact of their YOYOism any more diligently than Bernstein, the co-author of the most important factbook series on the U.S. economy, the Economic Policy Institute's biennial State of Working America.

YOYO policies, Bernstein's All Together Now helps us understand, have been snuffing out the American dream for an entire generation. The typical hourly wage for American men, he points out, has actually shrunk, from an inflation-adjusted $15.76 in 1973 to $15.62 in 2005. During the same era, between 1979 and 2000, the real incomes of America's richest 1 percent soared 184 percent.

All this infuriates Bernstein, an economist who really does believe that economics, as a profession, ought to be about helping “society tap our collective potential.” In All Together Now, Bernstein lays out the elements of an economic policy that could do just that.

We have more on what's in this agenda, and, perhaps more importantly, what's not. You can read the full Too Much review here.

Stat of the Week:
Inequality Exposed, by a Business Journal

“The one truly continuous trend over the past 25 years,” notes a survey of inequality in the United States just published by the prestigious British business journal, the Economist, “has been towards greater concentration of income at the very top.”

“The figures are startling.” the Economist adds, citing the work of the University of California's Emmanuel Saez and Thomas Piketty of the Ecole Normale Supérieure in Paris.

The share of the nation's income going to the top 1 percent “has doubled from 8 percent in 1980 to over 16 percent in 2004,” the Economist points out. “That going to the top tenth of 1 percent has tripled from 2 percent in 1980 to 7 percent today. And that going to the top one-hundredth of 1 percent — the 14,000 taxpayers at the very top of the income ladder— has quadrupled from 0.65 percent in 1980 to 2.87 percent in 2004.”

Quote of the Week: A Musing Inspired by Paris Hilton

“Why exactly should the money handed down to super-rich heirs be tax-free while the money earned by your children be taxable income?”

Columnist Ellen Goodman, Boston Globe, June 16, 2006, in a piece opposing repeal of the federal estate tax. Senate Majority Leader Bill Frist (R-Tenn.) last week vowed to bring an amended estate tax repeal measure up for a vote before the July 4 recess.

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