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Taking income from the rich reduces the incentive to get rich, which in turn reduces overall wealth.
I didn’t put it in those words, but I certainly used to believe the larger argument that this claim is supposed to support. The larger argument is part of a tax-reduction or flat-tax scheme based on the notion that higher taxes stifle economic growth, especially higher taxes on the wealthy. The above quote about reducing the “incentive to get rich” is just one of the many ways in which people have tried to support the tax-reduction argument. I used to put my own version this way: “Rich people didn’t get rich by being stupid about their money.” Another example would be the small business owners who explained how they were trying to keep their income under $250,000 in order to avoid Obama’s tax hikes. Unfortunately, small business owners who say things like that contradict my own claim that rich people are not stupid about their money.
If I understand anything about the American Dream, I understand that getting rich is its own incentive. It is clearly the denouement of every rags-to-riches story, but, more to the point, it is clearly the case that no one wants to get richer more than those who are already rich. If you wonder, for instance, why there was such a booming market for what have now become toxic assets, it’s largely because people who already had a lot of money could not bear the thought of letting their riches sit without generating even more wealth. To be fair, this impulse to generate profit is precisely what makes the rich chafe when faced with higher taxes. After all, nothing is less profitable than giving away your money, which is why the rich-not to mention everyone else-hate higher taxes.
But can a tax ever be so high that it “reduces the incentive to get rich”? How high would such a tax have to be? Of course, it depends upon how hard the work is, and no job is so easy that it’s worth paying 100% in income tax. That being said, if you gave away a dollar for every rich person who would trade their job with the garbage man in order to avoid a 39% tax rate, I bet you would still walk away with change from a sawbuck. Put another way, and irrespective of the tax burden, not being poor is always an excellent incentive to get rich. And just as getting rich is a universal incentive, paying taxes is an odious burden to rich and poor alike. But it is a mistake to equate a hatred of income taxes with a distaste for income itself.
It would be a mistake, but it is a mistake that some people are apparently willing to make. ABC News has reported on a lawyer whose business plan involves keeping her income below Obama’s $250,000 cut-off for a higher tax rate: “We are going to try to figure out how to make our income $249,999.00,” said this perspicuous businessperson. Apparently, there are indeed upper-middle class proprietors who lack a basic understanding of the term marginal in the phrase marginal tax rate. Such a misunderstanding discounts the argument I myself used to make, which is that rich people did not get rich by being stupid about money.
Fortunately for the pensive attorney and people like her, a term has been invented that dresses their ignorance of accounting in the garb of academic respectability. The term is “work disincentive,” and it purports to describe the negative effects of certain policies on work ethic. One example of a work disincentive, it is claimed, would be welfare payouts, since they are benefits received without being earned as wages. Another disincentive, and the one of concern to the attorney and her ilk, is supposedly a higher marginal tax rate. If I’m going to be taxed more for earning more, the argument goes, what’s the point of going through all the trouble of earning more? Or, like Mr. Birnbaum said, “Taking income from the rich reduces the incentive to get rich.”
Writing in The Wall Street Journal, a Citi executive named Jonathan Clements gave his own first-person example of a disincentive after the House of Representatives threatened a 90% tax on bonuses paid by companies receiving taxpayer money. As Clements explains it:
A 90% tax is downright stupid, creating bizarre disincentives. Exhibit A? That would be me. Once my total income hits $250,000 for the current calendar year, I will have no incentive to work a single day more in 2009. After all, for every extra dollar of income I earn above $250,000, I will lose 90 cents of the bonus I received earlier this year.
His plan, should this eventuality come about, is to “ask Citi for an unpaid sabbatical. Forget earning more income. There’s no point.” While a 90% tax would, all things being equal, be a disincentive to earning more than $250,000, the case is both extreme and extremely unlikely. But even if the tax does go into effect, at this point in time, all things are not equal. While Clements’ math and basic logic may be sound, his grasp of the economic reality of our times is either woefully misinformed or-and this seems more likely-a willful bluff.
It doesn’t take long to find a couple of adequate rebuttals in the comments section to Clements’ article. Steve Alpher points out:
In case you don’t read the papers, the company you work for is essentially owned by the government. It would not exist anymore had the government not purchased a huge stake in it and guaranteed its debts. In other words you are a government worker. If you want to make a lot more money with the possibility of a bonus for exceptional performance, I suggest you try and find a job in the true private sector.
What Clements omits from his autumn-sabbatical fantasy is that, of all industries, the finance industry is currently stocked with a surfeit of talent that is more than willing to work all year long for a lousy quarter mill, as long as it means avoiding the kinds of jobs that make the whole conundrum moot. Regarding such jobs, another poster in the comments section suggests:
Take a real job – changing tires in a gas station maybe, cleaning the floors and stocking shelves in a hardware store, busing tables; for that matter, fill in as a teacher’s aide where the bathroom breaks are restricted and for $9.50 an hour – no benefits, no pension – you can wipe the drool off a four-year-old, distribute cookies at break time, or hand out battered textbooks because there’s no money in the budget to buy new ones; help a cop and stand in a busy intersection for an hour in the rain directing traffic; take a landscape job – leave your rental apartment at six in the morning and drive your old car to a rich guy’s football-field-sized lawn, follow the mower all day and then drive to the next rich guy’s lawn (you don’t know why the guy is rich or why he became rich, only that he’s taking advantage of tax codes you as a mower-pusher don’t have, will never have and which he is working very hard to be sure you don’t get.) Spend the next month buying day-old fruit and day-old bread in the supermarket; bag groceries for a week; talk to the people working two 30 hour-a-jobs (that way their employers can pay minimum wage and don’t have to pay for benefits; stop whining.
Everybody has an incentive to get rich. But in an economy like this, there’s an incentive to have any kind of work at all. The idea that rich or poor or middle class will increase its leisure time as a sort of tax rebellion at a time when everybody lucky enough to have a job is ready with a snappy “yes, suh!” in answer to the boss’s most outlandish demands, that idea is either mistaken or disingenuous or both.
But the truth of the matter is that people like the tax-wary attorney or the laid-back executive were not meant to be truly rich. With regards to small business, the attorney clearly lacks the sensibility it takes to become a big business. While she finagles to keep from having to pay a higher rate on money she makes over $250,000, some lawyer with common sense and drive is building a multimillion-dollar partnership. Sure, he begrudges every dollar the government takes, but he wasn’t foolish enough to quit the race for want of winning by a mile. Meanwhile, I dare Jonathan Clements to ask for a sabbatical from Citi in September. Though if they give it to him, in all honesty, I will only take it as further proof that the well-off get to play by different rules than the workaday.
It’s interesting that we rarely hear this disincentive argument applied to the lower-middle class, where the progressive income tax has similar effects. For instance, someone who makes less than $32,000 a year pays at a marginal rate of 15%. However, above that level, the rate increase to 25%. Where are the articles written by sheet-metal workers and beauticians explaining how they won’t work overtime because it will push them into a higher tax bracket? Where are the waitresses asking to take the fourth quarter off so that their marginal tax rate won’t go up on the money earned over 32 grand?
In the end, maybe I was right, and rich people don’t get rich by being stupid about their money. Instead, they pay other people to be stupid about money and to codify and inculcate that stupidity in the minds of the merely well-off and their loyalists among the poor. Rich people have every right to hate paying their taxes, but don’t believe for a second that they plan to stop getting rich. There is no disincentive to getting rich, just as there are no lengths to which the rich will not go to stay that way. Among those lengths are outright lies about their accounting and their intentions. This, however, is the time to call their bluff.
When Lehman Brothers went down, we stared for a moment into the trembling abyss, and then we leapt back from the brink. When Lehman flat-lined, we saw enough to know that the risk was too great, that we were lucky to have survived one such failure, and that the brothers of Lehman must be propped up at any cost. Then we came to know AIG, the great mother of the prodigal brood. Her dependents scampered around without her as if they were grown men, but they all came running home as soon as they felt the pangs of hunger. And when AIG herself tottered, casting an ecliptic shadow across the economy, Uncle Sam scrambled to save her, to save himself, to save us all. That was the day capitalism ended, when the government bought the nation’s private property at the price of a 79.9 percent stake in the company that insured the securities made from the mortgages that Americans took on the houses that they called their homes.
Maybe you thought you’d get a chance to stand on your porch with your rifle and fight them off when they finally came to take your land? You probably still haven’t considered that it’s over, it’s already done; it happened six months ago in a moment of passion and with the stroke of a pen. If you’re still waiting for it, that’s only because you missed the point all along: this is America, and in America the bad guys don’t take your land. In America, the good guys take your land. You were worried about commies or jihadis pouring like locusts across the Montana-red dawn, wrecking and wreaking and taking everything you have because they hate you and they hate the way you live. Instead, it was the good guys who did it to you, the guys that believe in working for a living and maybe just a little bit more, something extra that you can put to work for you. In the end, it worked so hard for you that you bought your own home twice. First, when they gave you the keys to your house, and then again after your debt had been siphoned into the whirlwind around Wall Street, where you invested in it a second time, buying stocks with prices elevated by the heaven-bound value of your three-bedroom, two-and-a-half baths. By the time AIG got involved, you could have bought your house three times if that was what you wanted, and you could laugh in the face of anybody who tried to tell you it was too much.
Even the government didn’t try to slow you down. Perhaps it was sensitive to how much you distrusted its intervention. You weren’t wrong to think the government would take over if it got the chance, but you were wrong to think that’s what the government wanted to do. The government is a red-blooded and blue-flagged dude just like you. The government doesn’t believe in pinko nonsense and European namby-pambula any more than you do. But the government did exactly what it had to do when it saw that nothing and no one else could save your property. So it bought up everything there was to buy, and promised to buy what couldn’t be sold, and it did it all so that you could lean back against that wall and say, “This wall is mine, and the floor beneath my feet.”
The government loves you so much: it loves your dreams and autonomous delusions, it loves you enough to keep pretending that the deed hasn’t already been done. It already did what you never wanted it to do, and so far it’s been gracious enough to let you act like you’re still your own man. But it’s not so sad–is it?– that the worst you could imagine has happened, and it turns out the government doesn’t want you to change at all. It wants nothing more than to help you go on living the way you’ve been living, believing what you’ve been believing, and hoping what you’ve always hoped. Even when it bought your land and backed up all the biggest enterprises around, even then it acted with honest reluctance. Even today, the government has done as much to avoid advertising its ownership as you have done to bemoan the mere possibility of it.
A freedom-loving American couldn’t ask for an easier apocalypse.
Our days of calling the French “cheese-eating surrender monkeys” are over. What is becoming increasingly clear is that the American people are still more content than our French counterparts to let our elected representatives do our dirty work for us. The same congressional body that renamed French Fries in response to French opposition to the War in Iraq is now hard at working trying to enact what it perceives to be the will of the people with its confiscatory and possibly illegal tax schemes. Claims seem overblown, at best, that a tax on the bonuses paid by companies that receive federal bailout money might be unconstitutional, as do claims about the uncontainable rage of the electorate. In the midst of reports that AIG executives are living in fear, the strongest evidence of grassroots opposition is a small cluster of pasty weenies marching in circles outside the AIG headquarters. These are certainly not the bloodthirsty hordes that have encouraged AIG security officials to warn their employees against wearing company logos, as though the executives in question were McDonald’s employees adorned with golden arches and name tags. Beyond these fears, the best evidence of public outrage is still relegated to the incorporeal anonymity or the internet. Take, for instance, this foam-flecked tirade from an obvious maniac stalking the Daily News discussion forums:
I don’t get it. The promise of these bonuses was made BEFORE the company NEARLY collapsed. It is only solvent because of the bailout. If the government had not stepped in, no company, no bonuses. And now that they’ve been propped up by public funds they MUST honor agreements that would’ve been worthless if they had been left alone? Perhaps the government should’ve negotiated that more carefully. But the first 350 billion was a no-strings-attached giveaway. Now we’re legally bound to let them pick our pockets for bonuses. And people don’t believe in the concept of corporate welfare?
Let the walls of the mighty shudder with the echoes of madness such as this!
Meanwhile, over in France, people have already taken to the streets in greater number, and more violently, than America has yet to seriously consider. Some of us might not have liked their reluctance to enlist in our Iraqi brow-beating coalition, but you can’t fault the willingness of the French people to talk shit to power on their own turf.
Back in America, there are still plenty of people trying to talk sense, to be reasonable, and to placate the mob. The most spurious argument in favor of calm is the semantic one, which claims that what are called “bonuses” are more than just icing on the salary cake, but rather a part of the basic compensation of employees at that level. Related to this is the idea that, in order to keep the best employees, these bonuses must be protected in order to encourage the talent that is the most able to help the company weather the storm. A blue-collar analogy would be the case of a waitperson in a restaurant. Wait staff are routinely paid a base salary that falls below minimum wage because of the assumption that such employees’ salaries are significantly augmented by gratuities. Arguably, there is a sense in which confiscating the bonuses of AIG executives has something in common with confiscating a waiter’s tips. If your goal is to prop up a local restaurant, some would argue, you don’t achieve that goal by taking away the tips of your waiters. The best waiters, obviously, will go to work for better restaurants, leaving only the kind of waitstaff whose service is so lousy that they are not accustomed to receiving significant gratuities, anyway. Not exactly the best way to attract new customers to a floundering restaurant.
The problem with an analogy, however, is knowing how far to take it. For instance, is the restaurant in question fundamentally sound, or is its kitchen serving up poison with every plate? And how’s the job market, anyway? It it really so competitive that restaurants are scrambling to snag the few great waiters out there, or are good waiters lined up six deep at every table? Why isn’t the long-term benefit of keeping the restaurant afloat clear enough to keep a few good waiters around? Didn’t anybody save enough money to keep their eyes on the prize?
Back in the real world, it’s not so much the prize of future value that keeps a company like AIG afloat. Rather, it’s the near-certainty that letting the behemoth go down will take everyone else with it. But the “too big to fail” scenario is one we’ve dealt with since last fall, when the woes of AIG first came into the open. However, coming into the open has not even yet become true transparency, and six months later there is still serious confusion regarding the financial crisis and AIG’s role in it. So while the government continues to bail out the company for no other reason than that it can find no alternative, the company itself still believes, like Navin R. Johnson, “It’s a profit deal!” Still, there is short-term profit and there is long-term profit; and if long-term profit is profitable enough to account for short-term losses, there are supposed to be people willing to make the short-term sacrifice. At the moment, the fact that AIG employees have not shown a willingness to take short-term cuts means one or both of two things: 1) they fundamentally don’t believe the company will become profitable within a time-frame they can afford, or 2) theyare fundamentally unintrested in thinking beyond the exigencies of short-term profits. Since the first option is what sustains the status quo and the second option is what established the status quo and its trajectory towards insolvency, there is every reason to believe that AIG and its financial compatriots understand both angles and still don’t give a fuck.
And so does the government. Chris Dodd puts a wrinkled face on the ongoing conflict of interest that has government inextricably bound with the financial services industry. But campaign contributions are to politics what executive bonuses are to the corporate world: dying parakeets in a poisoned mine. In this sense, the commentators who try to draw our attention back to the big picture are not wrong to do so. Here is part of Steven Pearlstein’s take from an article entitled “Let’s Put Down the Pitchforks”:
As the financiers see it, there’s a big difference between the government that sets tough terms for participation in its financial rescue programs and a government that is a fickle and unreliable partner, that tries to micromanage their businesses and changes the rules of the game with every zig and zag of public opinion. That may be an exaggerated view, but it is the financiers’ view and one we need to be mindful of, since at this point we need their money and cooperation as much as they need ours.
In what sense is the financial world, and AIG in particular, really doing anybody any favors? In what sense do we have to care about how “the financiers see it”? Joe Nocera attempts to shed some light on these questions, or at least the question of why we’re bending over backwards to support the ingrates at AIG:
But there is a much bigger issue that has barely been touched upon by Congress: the way tens of billions of dollars of taxpayers’ money has been funneled to A.I.G.’s counterparties — at 100 cents on the dollar. How can it possibly make sense that Goldman Sachs, Bank of America, Citigroup and every other company that bought credit-default swaps from A.I.G. should be made whole by the government? Why isn’t it forcing them to take a haircut?
AIG’s counterparties are names that are familiar to us because they have already accepted bailout money, each on its own behalf. What Nocera is pointing to, however, is the fact that that money has not been enough to keep these counterparties afloat. As the insurer of last resort for these major financial institutions, AIG has long since contracted to insure these companies against precisely the losses they are all facing. In an article called “The Real AIG Outrage,” the Wall Street Journal reports that executive bonuses were both a drop in the bucket and beside the point:
Taxpayers have already put up $173 billion, or more than a thousand times the amount of those bonuses, to fund the government’s AIG “rescue.” This federal takeover, never approved by AIG shareholders, uses the firm as a conduit to bail out other institutions. After months of government stonewalling, on Sunday night AIG officially acknowledged where most of the taxpayer funds have been going.
In other words, AIG is a secondary channel for government bailout money to reach major financial institutions. The conflict of interest goes well beyond the possible influence of campaign contributions on congressional decision making. In an important sense, AIG is doing the same job as the Federal Reserve or the Treasury, namely, funneling taxpayer money to overextended banks. The problem, at the moment, is that this is all old news. At least as early as November 2008, the New York Times was reporting on how government money was being used to cover the losses of AIG’s counterparties. The same article also points to the fact that neither AIG nor the government wanted to make clear “the names of the company’s biggest counterparties or their amount of exposure.” From the beginning, then, there has been an unwillingness on the part of both the government and the company to establish transparency. Ostensibly, this was because opening the books would continue to undermine investors’ critically shaken confidence. Still, even at the time, there were those who knew that current efforts would not allow the ghosts of AIG to rest in peace: “I think it will help, but I don’t think it will solve the whole problem,” said Donn Vickrey. He was right, as months later we find ourselves spluttering about the constitutionality of taxing bonuses and floundering to understand how, to paraphrase steves33, a company that would not exist but for our intervention nevertheless has us by the balls.
The answer is not new news, though the consequences need to be newly understood. It is important to remember that AIG represents the third order of magnitude added to the housing market bubble which so unceremoniously burst over a year ago. At that time, virtually every home-owner in America was counting money that, within a few months, would no longer exist to be counted. In the worst cases, they were counting the value of a mortgage that would soon go into foreclosure. Less drastically, but no less real, even solvent home-owners were measuring equity that would shortly begin to evaporate.
The housing bubble would have been bad enough, in its own right, but super-added to that bubble was an enormous balloon based upon the securitization of the mortgages in the housing market. These securities represented a whole new bubble of perceived value, which the shadow banking industry used to leverage itself into the stratosphere. The mythical conceit of the shadow bankers, however, was the exact same as the one shared by home-owners: they believed that the value of residential real estate would continue to rise, without a significant break or adjustment, forever. Or, at least, they believed they could sustain such a fantasy without being the ones who got stuck holding the bag.
To hedge against the possibility of getting stuck with the bag, the shadow banks bought insurance in the event that their mortgage-back securities might someday be worthless. The insurance helped investors comply with regulations, such as they were, and it could be bought cheap because the insurer, American International Group, believed the same myth as everybody else. Thus, insurance against the failure of securities based on subprime mortgages–or investments in the possibility of such failure–became the third sphere of excess value pumped up around the muscular myth of the American home. The upshot was that AIG was exposed to trillions of dollars of losses that it never thought it would have to face. And just like homeowners never had houses that were worth as much as they thought they were, AIG will never actually be called upon to pay up on all its notional exposure. But also like the homeowner, that’s no consolation for AIG, which is nevertheless accountable for way more in real coverage than it has cash-on-hand. Hence the billions of dollars from Uncle Sam.
In a way, though, AIG is helping Uncle Sam get money back into the credit market faster than the old man can move the money by himself. On some level, that’s what the bailout has been about under both Bush and Obama, and so there is some sense in calling bullshit on our elected representatives and their histrionic grandstanding. And there are those, like the aforementioned Steven Pearlstein, who are even willing to call bullshit on the American people themselves:
A final point on outrage: We need to save some of it for ourselves. While it was Wall Street that got rich by peddling new ways for Americans to live beyond their means, the decision to do so was ours. It was we who ran up the credit card bills, we who drew down the equity in our homes and we who refused to tax ourselves for the government services we demanded. Wall Street bankers may have been the pushers, but it was we Americans who became addicted to the easy credit.
I’m not sure Pearlstein recognizes how apt his metaphor is. Though he seems to be arguing for the culpability of the everyman, he is really calling the everyman a junkie, strung out on the illicit product of the drug dealer. I’d like to give him the benefit of the doubt and think that Pearlstein is a civil libertarian, in which case the buyer’s responsibility is equal to that of the seller. But pushers and addicts are creatures of the war on drugs, and it is that deeper truth of this comparison that works against the point Pearlstein thinks he is trying to make. Home buyers, pensioners, and contributors to 401ks were treated like so many addicts for decades, pushed to buy increasingly exotic fixes on the basis of how good it would make them feel. Only, instead of a war to eradicate the pushers and their destructive product, the shit was legalized and valorized throughout society.
The truth is that AIG and the government are already 80 percent one and the same. That’s the stake taxpayers took in the company as a condition of the original bailout, a fact which could put both the current vitriol of congress and the public’s surprising lack of unrest in a different light. Executive bonuses at AIG amount to little more than a government-run enterprise pretending that it is still privately run. This is embarrassing to the government in the same way that Rod Blagojevich was embarrassing to the president. AIG is almost entirely owned by U.S. taxpayers and is serving as a proxy for the bailout of other companies that are still nominally private. Its actions have about as much to do with free enterprise as an Army quartermaster selling grenades on the black market. The anger expressed by members of congress is largely hand-waving intending to preempt the real anger of the people. That anger, so far, is a phenomenon that is more often referred to than actually expressed, and the government, of all entities, wishes to keep it that way.
Perhaps the American money junkies are still sedated by the financial narcotics that we have been hot-boxing for so long. Whatever the case, our unrest is dull and lethargic when compared to the agitation of the French, a people we have only been too happy to ridicule for their willingness to sit by the sidelines. Maybe it’s time to see that there is a difference between staying home when called to war in a foreign land and lying down like a common cur in the dust bowl of our own back yard.
Vive la Résistance!
If you haven’t already, read Postmodern Pulitzers, Pt.1: Shock Journalists and Satire Scoop Corporate News
CNBC Gambles with Nothing to Lose
The first time I saw Charlie Rose, he was interviewing the TV actor Michael Richards. The interview took place while Seinfeld was still on the air and Richards was in his prime, over a decade before he disgraced himself during a stand-up performance at a comedy club in LA. I was struck, at the time, with the uncharacteristic reserve that is characteristic of the actors who are interviewed by Charlie Rose. Here was Kosmo Kramer, the wacky, spaced-out next-door neighbor, quietly discussing his career, his method, and his beliefs on the darkened set of Rose’s studio. It was probably the first time I had ever seen an actor without the veneer of some shtick or pose, the actor as the human being the actor took himself to be. Weeks later, by accident, I watched Michael Richards when he appeared on David Letterman’s show, also, ostensibly, to do an interview. Only this time, Richards was most definitely “on,” channeling Kramer as he bounded around the set, crawled across the stage, and tore up cue cards. Of course, I had seen entertainers interviewed on late night shows before, but it had never occurred to me that they were all doing bits. Promoting a movie or TV show, sure, but it was the real person we were seeing, the actor not the character, wasn’t it? In retrospect, the quiet introspection of the actor on Charlie Rose proved to me that the last person who thought that the Michael Richards on the Letterman show was the real Michael Richards was the real Michael Richards himself. In any event, when I saw CNBC’s Jim Cramer interviewed by Jon Stewart on The Daily Show, it was this old Kramer that came to mind.
In contrast to what you might expect, the Comedy Central show brought out the real Jim Cramer rather than the raving prop-comic he portrays on his own show, Mad Money. Cramer sat, uncomfortable and diffident, while Jon Stewart ran intellectual circles around him, scolding him at will, pausing only occasionally to tell a joke which, naturally, also came at Cramer’s expense. It must be a difficult thing to be interviewed by Stewart. On the one hand, he can always fall back on the fact that his show is a comedy show, intended to provoke the laughter of college-educated twenty-somethings. Incisive criticism or investigation, when it occurs, is purely a byproduct of the entertainment process. Nevertheless, as Stewart often proves, there is nothing that excludes him from playing hardball with reporters and analysts who purport to be straightforward information providers or ingenuous commentators. The result is that any “serious” media figure who comes on the show does so at a decided disadvantage, at least if that figure has either an image to maintain or something to hide.
The irony then, is that the Daily Show’s irony is precisely what allows it to provide some of the most honest interviews on television. The tried-and-true, unspoken agreements that persist in the straight media are bound to be spoken aloud on the Daily Show. People used to trust comedians like David Letterman to play by the rules, to allow them to play their roles and yet call them by their stage names. These days, however, personalities who agree to be interviewed by Jon Stewart display the same quiet demeanor they used to reserve for Charlie Rose. With Charlie, they enjoy the freedom and distance from the roles they play, and it is this dropping of their guard that Charlie expects of them. With Jon, they fear the consequences of playing the role, knowing that the only thing he wants more than the real thing is the chance to catch them doing a bit. In this case, they find that the only safety is to drop their hands and take their lumps. Stewart likes to remind his subjects that comedy can be a bully, punching harder the more you fight back.
Jim Cramer certainly took his lumps, and the question arises as to why he would willing subject himself to such punishment. The answer, of course, has to do with ratings, not just the ratings of Cramer’s own show, but also of his network in general. It’s been a volatile season for CNBC, as the New York Times reports:
After it achieved record ratings last fall, the network’s audience remains above its annual average. But CNBC’s executives and hosts seem well aware that their ratings have traditionally stagnated in down times for the Dow. “People do not want to come to a show each night and hear how poor they are,” Mr. Cramer said.
So on the one hand, CNBC has been doing better than ever, but on the other, it knows that the current recession is not a recipe for continued success. This is especially true when the Daily Show is packaging the worst calls of your on-air talent and playing them back in one long onslaught of bad advice. The network had nothing to lose, in other words, by letting some of that said talent go up against Jon Stewart, where they might at least get a chance to get a word in edgewise. As discussed in the last post, the original talent slated for the Daily Show was not Jim Cramer; rather, it was a second-stringer named Rick Santelli. However, the faux-populism of Santelli’s on-air outburst turned out to be more anemic than the network originally thought, and CNBC ditched the disgruntled middle-class libertarian in favor of the relatively left-leaning Jim Cramer, who sports a working-class mug and rolled-up sleeves. The purpose, in either case, was the same for CNBC: to broaden its audience in an uncertain media market.
During the interview with Jim Cramer, Jon Stewart repeatedly asked questions along these lines: “Who are you responsible to? The people in the 401ks and the pensions or the Wall Street traders?” Cramer was wise enough not to respond directly, because the answer is and always has been that CNBC is responsible, first and foremost to “Wall Street traders that are doing this for constant profit,” as Stewart put it. And you don’t have to take my word for it. You can take the word of CNBC’s president, Mark Hoffman, who in 2007 said:
We have an extremely affluent audience, a very well-educated audience. . . .
We’re about any street where people either have wealth or aspire to have wealth. . . .
We’re very focused on an investor audience. We always frame that news and information with the biggest business stories, political stories of the day. We like that audience. What we do resonates very well with them, and we do not ever want to put that audience in jeopardy.
It turns out that Jon Stewart didn’t have to ask Jim Cramer who his network was beholding to, because Cramer’s boss had spelled it out in detail over a year ago.
And that’s always been the case with CNBC. In fact, the network has gone to great lengths to ensure that people who “have wealth or aspire to have wealth” are counted in their audience. An article at Mediabistro.com states that “CNBC was the top network in Nielsen’s highest median income categories for March 2008.” This is not enough for CNBC, however, which worries that Nielsen ratings under-count their audience because it focus on home viewers. As a press release on CNBC.com takes pains to point out:
It’s important to note that the ratings only reflect CNBC’s measured audience. Nielsen Media Research does not accurately measure CNBC’s viewership as Nielsen’s audience universe is limited to “in-home” measurement and does not include “out-of-home” viewing in places like offices, restaurants, health clubs, hotel rooms and vacation homes where CNBC is significantly viewed.
The network even went so far as to commission a study of out-of-home viewing by their on-the-go audience, just to prove that they weren’t making it up.
This all sounds almost sinister during the second year of a recession the approach to which was virtually ignored by CNBC and its on-air talent. It’s important to remember, however, that CNBC itself is supported almost entirely by advertising revenues, which is why it has always been so important to the network to prove that not only was its meager audience decidedly rich, it was also significantly under-counted. However, these times are especially bad for companies whose profits are based on advertisements that appeal to a wealthy class that finds itself both drastically less wealthy in general and less inclined to splurge on luxury goods in particular. It’s important to remember that, at least in terms of TV ratings, richer is not necessarily better. That CNBC’s audience is more wealthy than Comedy Central’s audience does not, by any means, mean the CNBC is more wealthy than Comedy Central. The only audience that a small, rich audience beats is a small, poor audience.
Understanding this, perhaps we can get a sense of why CNBC was so thrilled at the apparent outpouring of popular support for Rick Santelli’s rant against the Obama home mortgage plan. For a moment, they thought they saw a chance to broaden their appeal to include more of us everyday, non-wealthy people, a move that could only help make CNBC itself more wealthy. However, after a closer look, the network decided that Santelli was not the right horse to back: He was, at best, an upper-middle-class whiner whose claim to fame was based on a lack of sympathy for the increasing number of people making less money than him. Jim Cramer, on the other hand, claimed to have lived out of his car at one point in is life, an anecdote that has decidedly more cache at this point in time. Thus, it was Cramer who got to go on the Daily Show and have his brow beaten by a comedian. Neither he nor CNBC had anything to lose, at that point. If Cramer managed to appeal to a wider audience, the insults at his expense would be worth bearing. If he did not, the network could always go back to pandering to its shrinking audience of wealthy out-of-home viewers.
Incidentally, initial reports suggest that the Daily Show‘s recent skewering of CNBC could have put a damper on the network’s ratings, though Cramer’s show might have benefited somewhat. If so, that seems at least fair, since he was the one who had to sit there and squirm while Jon Stewart made him look like a stammering supplicant to the court of public opinion.
“While Ronald Reagan was president, the rich got richer and the poor got poorer.”
–some liberal, circa 1990
I was a de facto Ronald Reagan conservative the first time I head the claim about the rich getting richer and the poor getting poorer. I had just entered high school, and I had no intention of being just another facile teenage liberal. In general, the dude was right when he said, “A man who is not a liberal when he is young has no heart, and a man who is not conservative when he is old has no brain.” My modus operandi, however, has been to do the opposite of what is generally true whenever possible. In high school I was, therefore, a conservative libertarian, that being as iconoclastic as a principled fourteen-year-old can be. This being the case, I was ready with an easy refutation of the liberals’ claims about the Reagan Era:
“The economy is not a zero-sum game.”
For whatever reason, a zero-sum game is what you call a game where someone must lose to the same extent that another person wins. Poker is a zero-sum game. Basketball is not. But conservatives, never afraid of a mixed-metaphor, usually use the example of a pizza or apple pie, wherein the slice that goes in my mouth is not going into yours. This, I argued at the time, was not the way the economy worked. In a properly free market, I would say, everybody gets richer. Then I would explain how a medieval king would envy the luxuries available too the denizens of a late-twentieth century trailer park. I would insist that it was envy, not economy, that drove the liberal’s resentment of the enrichment of the rich.
While it’s true that it’s bad economics to describe income as a zero-sum game, it’s bad logic it insist that for this reason it’s impossible for the rich to get richer while the poor get poorer. And it’s bad taste to assume that the poor should appreciate a pittance of nominal growth while the real disparity between rich and poor only widens. This is, obviously, an older me talking, one who finds adult-onset conservatism increasingly distasteful. Nevertheless, the liberals I was talking to 15 years ago–old and young–did a lousy job of arguing their case. Most, it seems, did little more than fulfill the role in which they are usually type-caste, which is that played by bleeding-heart milquetoasts who value emotion over evidence and prefer a warm sense of self-righteousness to cold, hard facts.
In an effort to split the difference and reconcile my increasingly-leftward inclinations with my cold-hearted desire to win at any cost, I recently went in search of some actual data. I found it in the U.S. Census Bureau report linked below:
The Changing Shape of the Nation’s Income Distribution.pdf
Did the rich get richer while the poor got poorer during the 1980s? I haven’t read the whole report and I barely understood the parts that I did read, but the short answer is yes, they did:
The 1980s have been widely characterized
as a period of rising income
inequality. While true, some of the
measures presented here suggest
that the rise in inequality started
earlier—in the mid-1970s. While
the Gini coefficient was unchanged
from 1973 to 1980, the MLD index
showed substantial growth—it rose
5.6 (±2.5) percent between those
2 years. From 1980 to 1986, both
the MLD and Gini measured an
increase in income inequality. The
Gini coefficient rose 5.5 (±1.9)
percent and the MLD increased by
10.9 (±2.5) percent during the same
period. The Gini coefficient also
increased from 1986 to 1992.
In other words, while income inequality definitely increased in the Reagan Era, there is some question about whether it was beginning to increase before that time. All in all, that’s a hair I’m willing to split while still claiming victory. Nevertheless, knowing as I do the layered depths of the Republican ideology, I know that I have barely scratched the rhetorical surface of the loyalist beast. What does it matter to a conservative if, in the end, the poor do get poorer? The philosophy of personal responsibility cannot fail to put the onus for such losses on the poor themselves, on their lack of initiative and hard work, on their willingness to suckle at the teat without learning to hunt for themselves.
Thus, the short history of a political bromide reaches a dead end–with or without facts. Perhaps this is why that nameless liberal who first told me about the inequity of the Reagan Era offered no data and just left it at that. What’s the point of marshaling evidence in support of a bald assertion if a new and unfounded argument waits in line to take the place of its fallen comrade?
I would appreciate the assistance of a contemporary conservative or libertarian in explaining one or both of the following:
a.) why my data is wrong and how, in fact, there was not an increase in wealth disparity during the 1980s.
b.) why an actual increase in disparity is not actually an unfavorable outcome.
If your response needs more room than the comments section allows, please email your missive and I will post it as a regular feature.
In exchange, I will offer, in the spirit of bipartisan compromise, my best efforts to savage and demean a liberal cause of your choosing, using all means at my disposal, including, but not limited to, facts, anecdotes, deductive and inductive logic, ad hominem attacks, gross mischaracterization, and blatant sophistry.
SplinterScript 