The Lemmy and Vikram Pandit

Kudos, firstly, to Citibank shareholders. From the New York Times:

Citigroup received a particularly public rebuke on Tuesday when its shareholders voted to reject the bank’s executive compensation package at its annual shareholder meeting. Citigroup was required to hold this vote as part of the “say on pay” provision of the Dodd-Frank Act that mandates that companies hold advisory shareholder votes on their executive compensation pay. While the shareholder rejection is only advisory, it creates a major headache for Citigroup. 

... 

 Last year, the Citigroup board paid Mr. Pandit almost $15 million, plus one-time retention awards with a potential value of $34 million.... [A] proxy advisory firm recommended against Mr. Pandit’s package because parts of his awarded pay were not based on Citigroup’s financial performance, Citigroup stock had declined by more than 90 percent in the last five years and Mr. Pandit’s pay package was not in alignment with that of his peers. 

Citigroup in part defended this pay package by arguing that Mr. Pandit had not received a meaningful salary for the three previous years, being paid only a dollar a year. This was nice of Mr. Pandit, but it must be put against the fact that Citigroup paid about $800 million to acquire Mr. Pandit’s hedge fund, Old Lane, an investment that Citigroup subsequently wrote off completely. And Mr. Pandit received an $80 million payment from Citigroup last year as part of the Old Lane buyout. He’s not about to become part of the 99 percent anytime soon.

As the Lemmy (or LMI, or Lifetime Median Income or $1.36 million  -- the total amount of revenue the median American can expect to make over his lifetime) was defined to make large amounts of money more understandable, let's re-write the last two paragraphs above using the Lemmy.

Last year, the Citigroup board paid Mr. Pandit almost 11 Lemmies, plus one-time retention awards with a potential value of 25 Lemmies.... [A] proxy advisory firm recommended against Mr. Pandit’s package because parts of his awarded pay were not based on Citigroup’s financial performance, Citigroup stock had declined by more than 90 percent in the last five years and Mr. Pandit’s pay package was not in alignment with that of his peers. 

Citigroup in part defended this pay package by arguing that Mr. Pandit had not received a meaningful salary for the three previous years, being paid only a dollar a year. This was nice of Mr. Pandit, but it must be put against the fact that Citigroup paid about 588 Lemmies to acquire Mr. Pandit’s hedge fund, Old Lane, an investment that Citigroup subsequently wrote off completely. And Mr. Pandit received a 59 Lemmy payment from Citigroup last year as part of the Old Lane buyout. He’s not about to become part of the 99 percent anytime soon.

Matt Ygelsias notes that another SEC rule should be coming into play shortly.

Dodd-Frank instructs the SEC to promulgate a rule requiring firms to publish information about the ratio of CEO compensation to median employee compensation.

Introducing ... the Lemmy

And the Lemmy Tax.

Named after Motörhead bassist and founder Ian Fraser Kilmister, the Lemmy is the pronunciation for the LMI, or Lifetime Median Income. As the disparity between the 1% and everyone else has grown, it has become harder and harder to to illustrate how much money some of these guys are making. For example, when we learn that Mitt Romney made $20.9 million last year, it seems like a lot -- but can we properly understand how much of "a lot" it is?


Here's where the Lemmy is useful. The LMI is based on a simple formula:

Median Income per Year x Total Years Working

which gives us a basic calculation of how much the average American could expect to make over the course of his life. In short, this is the total aggregate revenue value of an average American life.


According to the Social Security Administration, the median income in 2010 was $26,364, and inflation in 2011 ran at 3.2%, so let's bump that figure up to $27,207. And figuring the average work life at 50 years (which might be a bit high, but we're being conservative here), that gives us a 2011 Lemmy of $1,360,000.


So Mitt Romney' $20.9 million translates into 15.4 Lemmies. Which means that if you took fifteen average (median) Americans, put them to work and then grabbed every penny they ever made, over the course of their entire lifetime -- literally leaving them with nothing -- you still wouldn't have as much money as Mitt Romney made last year.


We raise this idea because the New York Times published  a list of the top five most profitable hedge fund managers for 2011. They are:

	NAME	FIRM	VALUE
1	Ray Dalio	Bridgewater Associates	$3.9 billion
2	Carl Icahn	Icahn Capital Management	$2.5 billion
3	James H. Simons	Renaissance Technologies	$2.1 billion
4	Kenneth C. Griffin	Citadel	$700 million
5	Steven A. Cohen	SAC Capital Partners	$585 million

But these numbers are simply too big to comprehend. But with the Lemmy, we can put a more human face on these stats.

	NAME	FIRM	LEMMIES
1	Ray Dalio	Bridgewater Associates	2888
2	Carl Icahn	Icahn Capital Management	1838
3	James H. Simons	Renaissance Technologies	1544
4	Kenneth C. Griffin	Citadel	514
5	Steven A. Cohen	SAC Capital Partners	430

So last year, Ray Dalio made, roughly, the same amount as 2888 people would -- over the course of their entire lifetimes. Or, to put it another way, in one year, Ray made as much as an average American would in 2888 lifetimes. With life expectancy now being about 78 years, it would take that average American 225,264 years to make that much (if you include childhood and senescence).

The only problem with this (yes, the only one) is that there were no humans 225,000 years ago (the Middle Paleolithic era) -- there were only Neanderthals. So, technically speaking, you'd need to go back to 225,000 years, be reborn 2888 times and change species, from Homo neanderthalensis to Homo sapiens (and eventually to the sub-species Homo sapiens sapiens).

Lemmy?

In short, Ray Dalio made more last year than one median person could have in all of human history. So good for Ray, but we'd like to see him pay a bit more in taxes.

Readers of our earlier posts may remember that we've already called for a top marginal rate of 50% (as well as treating capital gains and the like as regular income). But because these numbers are so obscene, we'd like to introduce a surtax, applicable to a portion of the 1%.  Here goes:

The Lemmy: If you make more in a year than the average American does in his life, your top marginal rate goes to 55% (with the top bracket starting at one Lemmy). 

The Double Lemmy: If you make more in a year than the average American does in two lifetimes, your top marginal rate goes to 60% (with the top bracket starting at two Lemmies). 

The Triple Lemmy: If you make more in a year than the average American does in three lifetimes, your top marginal rate goes to 65% (with the top bracket starting at three Lemmies).

To be fair, the idea behind the Lemmy Tax is meant to address gross inequality more than raise money. But instituting the Lemmy Tax on just these five gentlemen would raise over $1.4 billion when compared to this site's tax reform package, and over $4.8 billion when compared to current tax law.

Now here's the cool part. Because the Lemmy is based off of median personal income, the level at which any of the Lemmy Taxes would kick in goes up whenever personal income increases. So the interests of the 1% become aligned with those of the rest of us, which is a good thing as median personal income has barely grown in the last twenty years. In 1990, it was $14,498, which converted to 2010 dollars gets you $24,199. So in twenty years, median personal income has gone up $2164, or about 9%.


Meanwhile, the top 1% have seen their average income increase by 47% in that same time period, and by 52% if you include capital gains. (Folk at the median personal income have virtually no capital gains.)

From the Top World Incomes Database

If the median personal income had grown by 50% since 1990, it would be at $36,300, and the Lemmy would be $1,815,500. That's roughly an extra half-million a year that would not be subject to our surtax.


Bonus question: Why no Quadruple Lemmy? Because of The Case for a Progressive Tax: From Basic Research to Policy Recommendations by Peter Diamond and Emmanuel Saez. (Obama nominated Diamond, a Nobel laureate, to the Federal Reserve Board, but mouth-breathing Sen. Richard Shelby blocked the vote.) Paul Krugman explains:

D&S analyze the optimal tax rate on top earners. And they argue that this should be the rate that maximizes the revenue collected from these top earners — full stop. Why? Because if you’re trying to maximize any sort of aggregate welfare measure, it’s clear that a marginal dollar of income makes very little difference to the welfare of the wealthy, as compared with the difference it makes to the welfare of the poor and middle class. So to a first approximation policy should soak the rich for the maximum amount — not out of envy or a desire to punish, but simply to raise as much money as possible for other purposes. 

Now, this doesn’t imply a 100% tax rate, because there are going to be behavioral responses – high earners will generate at least somewhat less taxable income in the face of a high tax rate, either by actually working less or by pushing their earnings underground. Using parameters based on the literature, D&S suggest that the optimal tax rate on the highest earners is in the vicinity of 70%.

Or, to put it another way, 70% or so is where the Laffer Curve kicks in -- where you actually raise less money with higher rates. A Quadruple Lemmy would put us at 70%, so to be cautious, we simply won't go there.

Good News, Again

As Steve Benen at the Rachel Maddow Show blog notes, initial unemployment claims continued to dip. From the Department of Labor press release:

U.S. jobless claims fell by 15,000 to a seasonally adjusted 358,000 in the week ended Feb. 4, the Labor Department said Thursday. Economists surveyed by MarketWatch had estimated claims would rise to 370,000. Claims from two weeks ago were revised up by 6,000 to 373,000. The four-week average of claims, meanwhile, dropped by 11,000 to 366,250, the lowest level since April 2008.

And Steve provides the following helpful chart:

And Steve notes:

In terms of metrics, keep in mind, when these jobless claims fall below the 400,000 threshold, it's considered evidence of an improving jobs landscape. When the number drops below 370,000, it suggests jobs are actually being created rather quickly.

And we are finally below 370,000. All in all, this suggests that the numbers we've been seeing lately are not aberrations, but are evidence of a recovery with some legs.

For fun, we went to the St. Louis Fed to see what initial unemployment claims were under Clinton, Bush and Obama.

So clearly we have a ways to go, but it's also clear how god-awful the recession was. Clinton's initial unemployment claims peaked out at about 400,000, and Bush -- even with 9/11 didn't get much above 480,000. But Obama had to face a high of over 640,000 claims, 33% worse than Bush.

We can also see that last year's Euro crisis took quite a toll on the recovery.

We were doing OK through April, but then it took us about eight months to bounce back.

There's indirect but confirming evidence from another, and unorthodox, source. MisterMix at Balloon Juice says that this "explains why the Republican Party is ginning up the culture war—it’s easier than acknowledging that the economy is getting better."

And we think he's onto something. Fighting a war over contraception when only 2% of Catholic women rely on what is known as "natural family planning") seems ludicrous. But it does play well with the base. From the Public Religion Research Institute:

So When Will The Recession Be Over?

Not for a while.

Matt Yglesias at Slate helpfully provides the following:

Remember that the current labor report showed an increase of 234,000 jobs -- which is 26,000 more than the curve which has recession ending in ... 2024. (For these purposes, we're saying that the recession ends when all the jobs lost during the recession have been recovered.)

At 321,000 jobs per month (which would be an increase of 33% over the current level), we're out of the recession in 2017. And at 472,000 (which more than doubles the current rate), we're done next year.

So we remain firm in our support for an additional stimulus package, but an imperfect but more realistic alternative would be what Yglesias calls for today -- a new quantitative easing policy, QE3. The Fed has already had the common decency to say that it now plays "to keep short-term interes rates near zero until late 2014," according to the New York Times. But the Fed can do more and -- most importantly -- it doesn't have to face the obstructionism created by the Republicans in Congress.

We have never been big fans of quantitative easing -- we strongly prefer the federal government work to create more demand directly through a stimulus -- but it looks like it's done some good, and it's one of the few things the Fed can do by itself.

Meaning it's one of the few things that can be done -- period.

Who is the Man Who Has Contributed Almost 9% of All SuperPAC Money?

Harold Simmons.

He's contributed $5.5 million of the $62.8 million collected in contributions (so far).

From D Magazine

So who is Harold Simmons? Forbes has him as the 33rd richest man in America, with a net worth of $9.3 billion. Matt Taibbi say he used $3 million of that to fund the Swift Boaters in 2004. Wikipedia says:

In 1960, using $5,000 of his savings, and a $95,000 loan, he bought a small drugstore, University Pharmacy on Hillcrest Avenue, across from the campus of Southern Methodist University.^[8] Before Simmons owned it, University Pharmacy was the site of a racially charged sit-in in January, 1961, when its owner C.K. Bright sprayed insecticide over and around 60 students, only two of whom were black seminary students.^[10] Simmons purchased the store and parlayed it into a chain of 100 stores, which in 1973 he sold for more than $50 million, to Eckerd Corporation. This launched his career as an investor, when he used the proceeds of that sale to begin speculation in the financial services industry. By 1974, he had been indicted for and acquitted of wire and mail fraud, and involved in a pension-related lawsuit brought against him by the United Auto Workers.^[11][12]

Simmons developed his "all debt and no equity" philosophy of capital management from having observed banks as a bank examiner, realizing that "Small banks in Texas were casual about getting the maximum use of their funds. . . banks were the most highly leveraged thing I saw. They borrowed most of their money and really didn't need much equity except for purposes of public confidence." Understanding that banks could be bought entirely with borrowed money, Simmons theorized that he should "buy a bunch, because one bank could be used to finance another. All debt and no equity."^[13]

Simmons conducted a widely publicized but unsuccessful takeover attempt on the Lockheed Corporation, after having gradually acquired almost 20 per cent of its stock.... At the time, the New York Times said, "Much of Mr. Simmons's interest in Lockheed is believed to stem from its pension plan, which is over financed by more than $1.4 billion. Analysts said he might want to liquidate the plan and pay out the excess funds to shareholders, including himself." 

Oh, and:

In August 1997, President Bill Clinton used a line-item veto to draw attention to the type of "special benefits" that investors such as Simmons employ to avoid paying capital gains taxes since the early 1980s. Simmons had formed the "Snake River Sugar Cooperative" of 2,000 beet farmers and classified it as a joint-venture, shared ownership co-op, to purchase his Amalgamated Sugar Company, for $260 million. At the time, Charles Schumer, serving as a House Representative from New York, wrote a letter to Clinton stating that the measure before him for consideration would benefit Simmons with a $104 million tax deferral. Simmons stated at the time that his tax deferral was only $80 million.^[18] 

A  billboard on the eastern edge of Andrews, Texas, supporting construction of
Simmon's low-level nuclear waste storage facility.

From D (as in Dallas) Magazine's article "Harold Simmons' Nuclear Option":

Ask most anyone in Andrews or Andrews County if they’ve heard of Dallas billionaire and philanthropist Harold Simmons, and they’ll give you a blank stare or a quick “no.” But when you ask whether they know about Simmons’ firm, Waste Control Specialists—WCS for short—the answer is immediate. 

They know Waste Control is the company that wants to bury and permanently store the nation’s low-level radioactive waste in their county. And, “I’m in favor of it,” says Garry Evans, 50, a radiologic technologist, as he eats a tennis-shoe-size breakfast burrito at La Mexicana restaurant across from the WCS headquarters in downtown Andrews (pop. 10,300), the county’s only town. Evans goes on to make a convincing argument on behalf of a man he’s never met. “I think it’s good for the economy. It has to go somewhere. What can you do with pastureland?”

The answer seems obvious. Most people in Andrews County—about six hours west of Dallas-Fort Worth, off I-20—either want to allow low-level radioactive waste to be buried there, or they don’t care. That may be because, for the last 14 years, Simmons and his hired guns have shook hands, twisted arms, and spent at least $150 million to make it happen.

And Matt Taibbi reports that:

So what did Harold Simmons get for his money? A lot. 

For starters, a group of Perry appointees on the Texas Commission on Environmental Quality gave Simmons a license to build his hazardous nuke dump, even after the TCEQ's own team of scientists agreed that the project was too risky, given how dangerously close it lies to the Ogallala aquifer*, which provides drinking water for seven states.

When I visit the site in September, it has just rained in the area for the first time in a year - really - and there is water all over the place. Rod Baltzer, the president of WCS, insists that the wastewater is being contained and disposed of in a safe, orderly fashion. But it's hard not to look beyond the dump to nearby Eunice, New Mexico, visible just a few miles away, and wonder about the wisdom of taking a private company's word that there is no contaminated water running underground to the nearby town. Especially since another of Simmons' companies, NL Industries, has already been caught leaking radioactive waste into an aquifer in Ohio. In a supremely ironic demonstration of how the modern system of payola capitalism works, Simmons is now being paid millions by taxpayers, via the federal Energy Department, to clean up his own mess, moving radioactive waste from his dump in Ohio to the one in Texas. 

All of this is key to understanding Perry, because the WCS landfill so perfectly fits the business model of his key donors. The company leases the land for the dump, meaning that WCS keeps the lion's share of the profits, while the liability mostly stays with the state. There's no real regulation to speak of, and many of the state's decisions appear to have been greased by massive campaign contributions or other favors: The executive director of the state's environmental commission, for instance, received a job as a lobbyist for WCS not long after helping the firm get its license. 

What's more, the company even got the government to pay for the landfill, lobbying the town of Andrews to float a $75 million bond issue to finance the construction of two new dump sites on the property. And in a final insult, WCS managed to negotiate a loophole exempting it from having to pay school taxes in Andrews. Instead, it offers a few small scholarships a year. 

Water-pumping windmills tapping into the Agallala aquifer, via Charles Pierce.

* The Ogallala aquifer has gotten some attention lately, as the initial proposal for the XL pipeline would run underneath it. (XL has since offered to re-route the pipeline, according to Business Insider, "a move the company previously claimed wasn't possible." In reviewing the potential environmental impact of the pipeline, John Stansbury, professor of environmental water resources at the University of Nebraska,  took a look at what a worst-case scenario might be:

Stansbury estimated that worst-case spill would contaminate nearly five billion gallons of groundwater, and that the "plume" of benzene and other contaminants would be 40 feet thick, 500 feet wide, and 15 miles long.

Just the kind of place for nuclear waste.

A Little Bit More Good News

Via Calculated Risk, we learn that the Department of Labor is reporting that:

In the week ending January 28, the advance figure for seasonally adjusted initial claims was 367,000, a decrease of 12,000 from the previous week's revised figure of 379,000. The 4-week moving average was 375,750, a decrease of 2,000 from the previous week's revised average of 377,750.

And Calculated Risk helpfully provides the following graph of the four-week moving average of initial claims. 

The four-week moving average is helpful because the claims tend to bounce around a bit. A couple of weeks ago, we noted that initial claims had fallen to 352,000, which is lower than today's report of 367,000. But the moving average at that time was 379,000, and now its 375,750. As Steve Benen (then at Political Animal) noted at the time:

In terms of metrics, keep in mind, when these jobless claims fall below the 400,000 threshold, it’s considered evidence of an improving jobs landscape. When the number drops below 370,000, it suggests jobs are actually being created rather quickly.

What this means is that if -- if-- we can get a couple more weeks of improving initial unemployment claims we should -- should -- should be entering a virtuous cycle, where the economy's improving performance becomes self-reinforcing. 


And now Steve Benen (newly moved to the Maddow Blog) reports that:

In terms of metrics, keep in mind, when these jobless claims fall below the 400,000 threshold, it's considered evidence of an improving jobs landscape. When the number drops below 370,000, it suggests jobs are actually being created rather quickly.

Okay, that wasn't helpful, but it is a message that bears repeating.

Obama Has Lowered the Deficit ...

... and that's not a good thing.

Obama has been hammered by the Republican presidential candidates over rising spending and expanding deficits. Mitt Romney, for example, runs the following on his web site:

During the Bush years, the nation’s deficit—the gap between what Washington collects and spends each year—hovered between 2 percent and 4 percent of GDP. These levels were already problematic and a cause for concern. During the Obama administration, however, the deficit exploded to 10 percent of GDP.

And, technically, Romney is right.

Created at usgovernmentdebt.us.

Romney fails to mention, however, three things. Firstly, after spiking to 10% for FY 2009, the deficit has been coming down -- though it's still higher than it used to be. (The red column is a projection based on this year's budget.) Secondly, presidents don't get to start their terms with a clean slate. Instead, they inherit the economic situation left behind by the former president. This is why the graph shows a surplus for Bush's first year -- FY 2001. Thirdly, the deficit is not simply a function of spending. It also involves revenues from taxes, and those plunged when we hit the recession, and they've get to recover to their pre-recession high.

From the Federal Reserve Bank of St. Louis

Spending has flattened, and revenues are beginning to pick up. But there's an argument -- okay, several arguments -- that this is a bad thing. To understand this, we need to remember that while the federal government can take counter-cyclical measures to combat a recession, states can't (and which is why our calls for a new stimulus package include compensatory aid to the states), as they are required to balance their budgets. So while the federal government has increased spending, no small part of that was negated by a decrease by spending by the states.

From Jared Bernstein (who takes his info from the BEA).

If state spending had no effect on GDP, we would have seen growth for the last quarter at 3.1% instead of the 2.8%. It's not a huge difference, but right now every tenth of a percent counts.

And, as Paul Krugman notes, many of those cuts have occurred in investments.

 Paul continues:

We’re sacrificing the future as well as the present. Oh, and the cuts that aren’t falling on investment in physical capital are largely falling on human capital, that is, education.

It’s hard to overstate just how wrong all this is. We have a situation in which resources are sitting idle looking for uses — massive unemployment of workers, especially construction workers, capital so bereft of good investment opportunities that it’s available to the federal government at negative real interest rates. Never mind multipliers and all that (although they exist too); this is a time when government investment should be pushed very hard. Instead, it’s being slashed.

What an utter disaster.

It is worth noting, though, that things would be much, much much worse if any of the Republican candidates were in actually in office right now.  All of Romney, Gingrich, Santorum and Paul support balanced budget legislation and, as we saw with state spending, balancing the budget during a recession is pro-cyclical -- it makes the recession worse.

Worser -- all of the Republican candidates are offering up tax plans with tax cuts that would make the deficit much worse. The Washington Post refers to Tax Policy Center calculations (but fails to provide a link) that Romney's plan would cost $180 billion, that Gingrich's plan would cost $850 billion, and that Santorum's plan would cost $900 billion — all for 2015 alone.

Ron Paul's plan was not scored by the Tax Policy Center, but according to his web site he would "[restrain] federal spending by enforcing the Constitution’s strict limits on the federal government’s power [to] help result in a 0% income tax rate for Americans." Presumably this would make the deficit worse, if the country were to survive.