Category: Law and Inequality

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What’s Wrong With A Company Paying for a CEO’s Family to Fly?

120px-Bombardier.learjet60.vp-crb.arp.jpgMichelle Leder, of Footnoted, was on NPR’s Marketplace yesterday. The story: the worst examples of agency-costs in footnotes in SEC filings in 2007. (She doesn’t sell it that way, but that’s what it is.)

Bloggers have highlighted a few of Michelle’s “best” finds, including Edward Mueller’s agreement, as CEO of Quest, to permit his family members to use the company plane to travel back and forth to California (where his family was based) to Denver (where Qwest is headquartered.) Although the story was hyped as permitting Mueller’s daughter to commute daily to school — something of a modern-day Leonard v. Pepsico, there is no evidence that the family plans to fly back and forth in this way.

But who cares anyway? Increasing numbers of high-level executives work far away from home, commuting to headquarters for parts of the week. (The consultants’ four day week, but permanently.) Encouraging them to do so maximizes shareholder wealth because it (presumably) allows recruitment of talent that wants to live elsewhere. Now the problem with these schemes is that it is taxing for the executive and her/his home life to be separated from the family. As Professor Joan Heminway explains here, personal turmoil in a CEO’s life can have materially adverse consequences for shareholder value, and well-run companies probably ought to do everything they can to make executives personally happy.

So why not pay for a family to commute back to California, to enable a family member to finish her last year of high school surrounded by friends, while coming “home” to Denver when possible? If that makes Mueller happy, and reduces the chance that he would live in California and commute to Denver, Qwest’s shareholders win. If the argument is simply that the CEO should pay for this travel out of his own pocket, the flight costs will be imputed as income to him under the agreement, so the economics are basically the same. Given disclosure, these kinds of perks should be seen simply as salary-substitutes, at worst, and as ways to reduce the chance of disruption by increasing the CEO’s chance of having a normal family life.

Dailykos (which originally brought the story to my attention) had this to say:

And as this president likes to remind us, this is the ownership society, so don’t be surprised to learn that some of your retirement funds are going to fuel up that jet so an execu-kid can zip off to the prom.

But this is plainly silly. Would we prefer that Qwest simply paid Mueller more money? Or not disclosed the behavior?

The Heroism of Susan Pace Hamill

It is now sadly all too common to see public intellectuals pointedly ignoring–or even cheering on–growing inequality. Bloodless statistical accounts tend to miss the consequences that flow for poor families when taxes on the wealthiest are cut and social programs are gutted accordingly.

Professor Susan Pace Hamill has done an extraordinary job in turning public attention to this problem. According to the NYT’s David Cay Johnston, “her latest effort is a book, As Certain as Death (Carolina Academic Press, 2007), that seeks to document how the 50 states, in contravention of her view of biblical injunctions, do more to burden the poor and relieve the rich than vice versa.” Some statistics are really striking:

The poorest fifth of Alabama families, with incomes under $13,000, pay state and local taxes that take almost 11 cents out of each dollar. The richest 1 percent, who make $229,000 or more, pay less than 4 cents out of each dollar they earn, according to Citizens for Tax Justice, an advocacy group whose numbers are generally considered trustworthy even by many of its opponents.

As a cursory Google search shows, Professor Pace Hamill has honed her message with extraordinary clarity and skill in a variety of forums–law review articles, books, interviews, and even sermons. Prof. Pace Hamill’s engaged scholarship and contributions as a public intellectual provide a great model for those who seek to develop religiously inspired legal theory.

Hat Tip: TaxProfBlog; Mirror of Justice.

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Thoughts on Giving (and a book recommendation)

Mountain Beyond Mountains.jpg

So it’s Christmas Eve and for many C is for charity and C is for consumerism too. As Frank points out giving can be difficult in part because so many charities have become huge operations and one may wonder whether the money is going to the programs or to the administrative overhead. CNNMoney has a recent article about how to evaluate a charity. It suggests that 75% of the budget should go to its mission (what I call program) leaving 25% for administrative and fundraising costs (yes it costs money to ask for money). The article recommends Give.org and CharityNavigator.org as sites to see how a group uses funds.

Forbes has a survey of the top 200 charities by assets and efficiency. (TIP: use the sort by feature, not the article links. The links go to a useless slideshow. The sort by takes on to the charts.) Here is the efficiency list. Now it may be that some charities are not that efficient but still pretty good. Forbes suggests that 90% is quite possible and that under 70% is suspect. Remember it takes money to attract talent and raise money. Looking for charities with high efficiency is great but some programs require more in staffing to achieve goals. So another way to look at a charity is whether they offer some sort of metrics. Unlike private enterprise the return will not be as easily quantified. Still by setting goals, evaluating them, and seeing where program may need to change, many charities are better able to raise money. For it is easier to give money if one has a sense that someone is at the helm and making sure that the program is working. It may not succeed on each goal but it is focused on understanding why. In addition the idea of social entrepreneurship (see also The New Heroes) which focuses on a problem and tries to find solutions on a large scale uses some of this approach.

Now for a little consumerism. Someone I consider a friend of Concurring Opinions, Patrick S. O’Donnell, often shares excellent insights and further reading suggestions. In one such comment

Patrick mentioned several items for those interested in inequality and development. One of the mentioned authors is Paul Farmer. Although reading Farmer’s work is worth the time, one may desire something a little different from policy this time of year. As such I recommend Mountains Beyond Mountains by Tracy Kidder. It details how Dr. Farmer began and continues his impressive work in changing public health systems. So if you want to spend a little holiday money on yourself and want to read a great story that also reveals the problems and some solutions for a major social issue, get the book. I will warn that a friend told me about it, and I hated him for a bit, because I could not put it down and tend to other tasks until I finished.

Ed. Note: Ah yes Frank notes in the comments that one can give to Farmer’s cause at this link. Or I find this link easier for giving directly to Partners in Health.

Police on Steroids, Profs on Ritalin

cyborgflower.jpgThere has been some excellent blawgospheric comment on the Mitchell Report, a Black Sox scandal for our age (see, e.g., Jeff Lipshaw, Howard Wasserman, Michael Dimino and Alfred Yen). My question is: what will be the cultural impact? I think two recent stories on performance enhancement in other fields provide some clues, and suggest the wisdom of the PCBE’s worries.

First, the Village Voice has a long story on some possibly inappropriate steroid/HGH use in the NYPD. I say “possibly” for two reasons: 1) the slippery “therapy/enhancement” distinction here and 2) the threat posed by bulked up criminals. The Voice reports that “the Brooklyn District Attorney’s Office knows of 29 cops and at least 10 NYPD civilian employees—all well under the age of 60—who have received prescriptions for [steroids for] hypogonadism.” Doctors quoted in the story find it implausible that so many officers would have this disorder–but there are probably other physicians who have a much broader concept of disease. And if suspects are bulking up on illegal substances, who can blame the cops for trying to catch up?

The other story is on concentration-enhancing drugs increasingly used not only by students (an old problem), but now by professors. Andrew Sullivan asks, “So if a prof wants to do a little Provigil, it’s no worry for me. Why should it be a worry for anyone but the prof himself?” I think there are several reasons, not least the potential for medicalized competition to invade spheres of life we now deem constitutive of our identity. But for now let me just focus on how the police and profs examples intersect.

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Understanding Resistance to Redistribution

Over at Balkinization, Professor Brian Tamanaha worries that the “fabled American Dream, the supposed glue that holds our society together across its many fault lines, is a delusion for many.” He points to “new research [that] suggests the United States’ much-ballyhooed upward mobility is a myth, and one that’s slipping further from reality with each new generation.” (Even The Economist has recognized the problem!) Tamanaha wonders why the issue has so little visibility in national political debates, and gives several good reasons. I’d like to focus on one of them: the sense that increasing inequality “feels irresistible, the product of structural factors beyond our control.”

First, though this sense may be widespread, it is highly contestable empirically, and doesn’t really “ring true” at an intuitive level. Let’s not even talk about the justice or appropriateness of an executive making hundreds of times more than line workers–what about people who almost got to the top spot? As Eduardo Porter reports, “widening disparities in business, which show up in a variety of other ways, reflect a dynamic that is taking hold across the economy: the growing concentration of wealth and income among a select group at the pinnacle of success, leaving many others with similar talents and experience well behind.”

A form of “legitimation theodicy” has become important for some at the top, who reach for sports metaphors:

[Some] very wealthy men in the new Gilded Age talk of themselves as having a flair for business not unlike Derek Jeter’s “unique talent” for baseball, as Leo J. Hindery Jr. put it. “I think there are people, including myself at certain times in my career,” Mr. Hindery said, “who because of their uniqueness warrant whatever the market will bear.”

The flip side of this is a well-cultivated sense among the “losers” in the new economic order that their fates are their own fault. This is one reason why the SCHIP battle is so hard-fought right now: it is very important for those pursuing an inequality-enhancing agenda to insist that some people do not deserve health insurance. . . . and that that sin is so egregious as to be visited even upon their children.

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Posner: Show Me the Money (and Little Else)

Many scholars are interested in new ways of measuring well-being that go beyond crude measures of income. I have thought of the UN Human Development Index as a good step in this direction, but Richard Posner has come out against it.

I agree with Posner’s critique of commensurability implicit in such a ranking, and his points about the distortions that can be caused by the “bunching” of many countries around one indicator. But if there are going to be rankings by income, I would think he would welcome alternative perspectives. Instead, he frets that the US loses out in the UNHDI because its life expectancy figures are lower than many other countries. I found this section of his critique troubling:

If a country devotes resources to improving life expectancy, it has to give up some other good. It is hard to say that the United States is making a mistake in not spending more resources on extending life expectancy; many Americans think that we spend too much on health care already. One reason (though by no means the only one) that the United States ranks only 44th in life expectancy is that our large black population has an abnormally high death rate; the average life expectancy of black male Americans is only 69. This shockingly high death rate reflects deep-seated problems of American blacks that would probably cost an enormous amount of money to solve. The political will to expend those resources does not exist. This may be a misfortune, a tragedy, or even a sin, but to use it to push the United States down in an index of human development is a political judgment, rather than anything determined by neutral social science.

Query: is the UN constrained to measure well-being only via neutral social science? Is that even possible? Well-being and development are inherently normative concepts. Their capacity to reflect a society’s “misfortunes, tragedies, or sins” is a feature, not a bug.

Bargain Men

Wealth watcher Robert Frank presented some survey data on “marriage for money” in the WSJ last week. Willingness to marry for money was surprisingly widespread, but the question’s tactful wording casts some doubt on the data:

According to a survey by Prince & Associates, a Connecticut-based wealth-research firm, the average “price” that men and women demand to marry for money these days is $1.5 million. The survey polled 1,134 people nationwide with incomes ranging between $30,000 to $60,000 (squarely in the median range for nationwide incomes). The survey asked: “How willing are you to marry an average-looking person that you liked, if they had money?”

The question really gets at how much of a difference there is between a) an “average-looking” person and the respondent’s ideal match, and b) “like” and “love”. . . and since we don’t know if some respondents imputed the latter into the former, it’s not that useful. But I’ll give Prince & Associates credit for limiting the survey to people in a narrow income band–I’ve argued elsewhere that such “willingness to accept” figures are meaningless otherwise.

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How the Economics of the Well-Off Can’t Help the Uninsured

Two of the most perceptive health policy analysts, Drs. Steffie Woolhandler and David U. Himmelstein, provide a good “reality check” for those who think a Massachusetts-style health plan can fully handle the problem of the uninsured. (Though it took me a long time to figure out their title, “I am not a Health Reform,” was a play on Nixon’s “I am not a Crook.”)

Woolhandler and Himmelstein observe that the past twenty years of failed state-based health care reform (and mandates) do not bode well for the plans now being discussed among presidential candidates:

In 1971, President Nixon sought to forestall single-payer national health insurance by proposing an alternative. He wanted to combine a mandate, which would require that employers cover their workers, with a Medicaid-like program for poor families, which all Americans would be able to join by paying sliding-scale premiums based on their income.

Nixon’s plan, though never passed, refuses to stay dead. Now Hillary Clinton, John Edwards and Barack Obama all propose Nixon-like reforms. Their plans resemble measures that were passed and then failed in several states over the past two decades.

W&H are particularly disappointed by the recent Massachusetts plan; “even under threat of fines, only 7 percent of the 244,000 uninsured people in the state who are required to buy unsubsidized coverage had signed up by Dec. 1. Few can afford the sky-high premiums.” W&H should also acknowledge that in some cases the uninsured themselves are responsible; according to one recent study, “twenty-five percent are eligible for public coverage.”

W&H suggest that mandates will not work, but do not have the space to fully explore why. I think they are right to emphasize lack of affordability in plans, but a recent book suggests some deeper issues. Charles Karelis’s The Persistence of Poverty: Why the Economics of the Well-Off Can’t Help the Poor argues that we cannot expect impoverished individuals to react to economic incentives the same way that middle- and upper-class people do.

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Verkuil and Klein on Privatization

Philip Dynia at the Law & Politics Book Review has commented on Paul Verkuil’s Outsourcing Sovereignty: Why Privatization of Government Functions Threatens Democracy and What We Can Do about It. Dynia characterizes the book as a sober and penetrating analysis of two disturbing trends:

Who is really in charge of government policy making? Verkuil sets himself the task of demonstrating two points: (1) that important work both significant to and often inherent in the concept of government is being contracted out to the detriment of democratic policy making, and (2) that the trend can (and though he does not say so directly must) be moderated, if not reversed, by changes in the way government operates.

Dynia calls Verkuil’s “command of the relevant literature . . . prodigious,” and notes his skill at “incorporat[ing] constitutional, statutory, administrative, and contractual sources.” Here are some of the conclusions that Dynia draws from Verkuil’s book:

[T]he ratio of political appointees to the number of senior career managers must change. Verkuil cites a report by the National Commission on the Public Service (the Volcker Commission) which notes that President Kennedy had 286 political leadership positions to fill, President Clinton 914, and President George W. Bush 3,361. Such a large number of political appointees paralyzes government . . . . Moreover, studies have shown that politically appointed bureau chiefs get systematically lower management grades than bureau chiefs drawn from the civil service . . . . In short, FEMA’s Michael Brown . . . is just the pathetically obvious tip of [an iceberg of] cronies.

I look forward to comparing Verkuil’s book to Naomi Klein’s The Shock Doctrine, a polemical take on privatization.

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Welcome to the Disciplinary Corporation

Panopticon2.jpgThe market has done a characteristically fantastic job of “trimming the fat” at nursing homes–i.e., squeezing out more profit by providing less care. One may wonder, how do the residents of such homes get taken care of when staff are fired and other corners are cut? The WSJ reports on one solution: drug them.

Nearly 30% of the total nursing-home population is receiving antipsychotic drugs. . . . In a practice known as “off label” use of prescription drugs, patients can get these powerful medicines whether they are psychotic or not.

Federal and some state regulators are pushing back, questioning the use of antipsychotic drugs and citing nursing homes for using them in ways that violate federal rules. New York has increased its focus on antipsychotics in nursing homes, training inspectors to spot signs of medication abuse.

Meanwhile, some employees are finding their health increasingly managed by their employers. “Employers Tell Workers To Get Healthy or Pay Up” is the headline, and here are some of the pressures:

Employees at some companies who are overweight, smoke, or have high cholesterol, for instance, and who don’t participate in supplementary wellness programs, will pay more for health insurance. In extreme cases, employees’ insurance deductibles could rise by $2,000.

What I wonder is: will the same people who are so distressed by the possibility of government-mandated purchase of health insurance also rise up against the corporate imposition of health standards? Or is paternalism perfectly fine when it’s a product of the market?

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