What’s old is New Again

This NY Times piece is making a comparison to yesteryears when those mansions in Newport, RI were built. It starts with Sanford I. Weil of Citigroup and how he compares to Andrew Carnegie.

First, how does this period compare:

Only twice before over the last century has 5 percent of the national income gone to families in the upper one-one-hundredth of a percent of the income distribution — currently, the almost 15,000 families with incomes of $9.5 million or more a year, according to an analysis of tax returns by the economists Emmanuel Saez at the University of California, Berkeley and Thomas Piketty at the Paris School of Economics. (I have posted from their data in the past.) Such concentration at the very top occurred in 1915 and 1916, as the Gilded Age was ending, and again briefly in the late 1920s, before the stock market crash.

Mr Weil view:

“I once thought how lucky the Carnegies and the Rockefellers were because they made their money before there was an income tax,” “I want to give away my money rather than have somebody take it away,”

We have Mr. Kenneth C. Griffin, who received more than $1 billion last year as chairman of a hedge fund, the Citadel Investment Group, declared:

“The money is a byproduct of a passionate endeavor.”
“We have helped to create real social value in the U.S. economy,” he said. “We have invested money in countless companies over the years and they have helped countless people.” “The income distribution has to stand,” Mr. Griffin said, adding that by trying to alter it with a more progressive income tax, “you end up in problematic circumstances. In the current world, there will be people who will move from one tax area to another. I am proud to be an American. But if the tax became too high, as a matter of principle I would not be working this hard.”

Such positions are summed up with:

“Carnegie made it abundantly clear that the centerpiece of his gospel of wealth philosophy was that individuals do not create wealth by themselves,” said David Nasaw, a historian at City University of New York. and the author of “Andrew Carnegie” (Penguin Press). “The creator of wealth in his view was the community, and individuals like himself were trustees of that wealth.”

Really? They are the Trustees?

Can it be anymore egocentric? Why yes they can:

Lew Frankfort, chairman and chief executive of Coach the manufacturer and retailer of trendy upscale handbags, who was among the nation’s highest paid chief executives last year, recaps the argument. “The professional class that developed in business in the ’50s and ’60s,” he said, “was able as America grew at very steady rates to become industry leaders and move their organizations forward in most categories: steel, autos, housing, roads.”

That changed with the arrival of “the technological age,” in Mr. Frankfort’s view. Innovation became a requirement, in addition to good management skills — and innovation has played a role in Coach’s marketing success. “To be successful,” Mr. Frankfort said, “you now needed vision, lateral thinking, courage and an ability to see things, not the way they were but how they might be.” (Like this was not needed in the past?)

Please note, Mr. Frankfort is not emphasizing the manufacturing, he is emphasizing the marketing.

What would be the “problematic circumstances” of being more progressive in the tax structure? Why do they not want to pay the help that they acknowledged got them where they are? Even in the good old days of Carnegie, paying the help was not considered a charitable thing to do.

I have posted that things have changed. We make money differently today. The article notes:

The Glass-Steagall Act of 1933 outlawed the mix, blaming conflicts of interest inherent in such a combination for helping to bring on the 1929 crash and the Depression. The pen displayed in Mr. Weill’s hallway is one of those Mr. Clinton used to revoke Glass-Steagall in 1999. He did so partly to accommodate the newly formed Citigroup, whose heft was necessary, Mr. Weill said, if the United States was to be a powerhouse in global financial markets.

The article does offer counter opinions to this self aggrandizement. I’ll leave it to you to read the rest except for this which I think sums up the counter opinion (in a more polite manor than I would have):

“I don’t see a relationship between the extremes of income now and the performance of the economy,” Paul A. Volcker, a former Federal Reserve Board chairman, said in an interview, challenging the contentions of the very rich that they are, more than others, the driving force of a robust economy.

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