Last week JPMorgan Chase's Board approved a 74 percent pay raise for its CEO, Jamie Dimon, for 2013, a year when JPMorgan barely escaped a criminal penalty and paid $20 billion in fines and penalties for wrongdoing -- much of it on his watch.
Sometimes we get numb to numbers like $20 million. To put it in perspective, in 2013, Dimon made $9,615 per hour. In other words, he made more in the first two hours of the first workday of the year than a minimum-wage worker made all year long.
There has been much debate about whether Dimon deserved his big increase in a year that the bank paid so much in fines, and narrowly avoided criminal prosecution.
Still others are outraged that Wall Street bankers whose reckless speculation lead to the collapse of the world economy -- and cost 8 million Americans their jobs -- should continue to be rewarded with lavish economic benefits.
But the real scandal is the fact that for more than 30 years, a tiny slice of Americans have rigged the rules of the economic game so they could siphon off all of the more than 80 percent increase in our per capita gross domestic product.
Last week the New York Times reported that even though Dimon's massive pay package was inconceivable to most ordinary Americans: "... in the world of executive compensation, especially when viewed from the rarefied perspective of other chief executives, and more broadly on Wall Street, Mr. Dimon's pay -- and how it is determined -- is not only defensible, but laudable."
Yep. To other CEOs his $20 million salary seems quite reasonable. After all, the chairman of the JPMorgan Compensation Committee was Lee R. Raymond, former chairman and CEO of Exxon Mobil. When he left Exxon he got a $400 million retirement package -- no kidding.
The Compensation Committee apparently reasoned that "in context," Mr. Dimon's compensation package was quite reasonable. Mr. Raymond's successor at Exxon Mobil, Rex Tillerson, was paid $40.3 million in 2012. Leslie Moonves, CEO of CBS, was paid $62.2 million. Larry Ellison of Oracle brought home $96.12 million.
And these salaries are nothing compared with the incomes of some of Wall Street's greatest speculators -- people like John Paulsen, who several years ago made a whopping $5 billion.
What do the very rich do with all of this money?
Of course most of it is used to invest in making more money. It isn't hard to make lots of money if you have some to start with. If you have $50,000 of savings in the stock market, just let it sit and stock prices go up 40 percent over a couple of years, you make $20,000 -- not bad. But if you have a million dollars in the same stock market and expend the same effort you make $400,000.
And they spend it. According to a study by the Institute for New Economic Thinking, in 2012, 38 percent of all personal consumption expenditures were made by the top 5 percent of earners. That's up from 27 percent in 1992. In response, the New York Times reports that "the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls ever further away." As it result the Times reports firms like Olive Garden, Red Lobster, J.C. Penney and Sears that cater to the middle class are struggling and fine-dining restaurants and retailers are thriving.
And the very rich also use their extraordinary wealth on other "critical necessities":
- How about a Seamagine Aurora personal submarine -- great for ice-diving or spotting tropical fish. It's safe down to 3,300 feet, comes in three, four or five person designs and sells for a mere $3 million.
I do begrudge the greed that says that in order for a few very wealthy people to afford their lavish life styles it is right to prevent most ordinary Americans from sharing in the benefits of our society's growing economic productivity.
The thinking that underlies these kinds of massive CEO salaries was elucidated in the New York Times by Professor Christopher Armstrong of the Wharton School of the University of Pennsylvania.
"You want the board to be sophisticated," he said. "They know the labor market for bank senior executives."
After all, JPMorgan shares had soared 37 percent in 2013. And even after $20 billion in penalties and fines, JPMorgan's profits were $18 billion on total sales of $100 billion. In other words if there had been no fines, JPMorgan would have made profits of $38 billion -- or $.38 cents of profit on each dollar of bank revenue.
Of course the Board was happy with Dimon, but that is the moral of the story. Multi-national corporations, and especially Wall Street Banks, have consolidated so much economic power that they have managed to create an economic environment where they -- and a small number of very wealthy people -- can siphon off every dollar generated by America's economic growth. That is not just political rhetoric. That is the empirical experience of the last thirty years of American economic history.
It is that rigged system of concentrated economic power that has to be changed -and that change will not happen as a result of the "magic of the free market place." It will happen as a result of the policies of a democratically elected government. Every policy of the federal government must be viewed through the lens of its effect on insuring that all Americans benefit from our economic growth -- not just the wealthiest among us.
The new health care law will make a dent in economic inequality by providing everyone access to health care and preventing ordinary people from going bankrupt just because they get sick.
Five other major changes are critical:
1). Increasing the minimum wage. What is required is to make it federal policy that no one who works full time will live in poverty -- that hard work pays off for everyone -- that everyone receives a living wage with no exceptions.
We heard a lot last election from the Republicans about "makers and takers." They say the "makers" work hard and create wealth, while the "takers" just try to sponge off the "makers" to get "entitlements."
If you ever take the subway to work at 5 a.m., you see who the real "makers" are. They are ordinary working people -- black, Latino, white, Asian -- who get to work before the sun rises to mop the floors and bake the bread and serve the McDonald's breakfast sandwiches. All of those people deserve a living wage.
2). Policies that allow every worker the opportunity to collectively bargain over their wages and working conditions through a union - in both the public and private sector. From the 1930s through the early 1970s it was collective bargaining that created the American middle class -- gave us the weekend, the eight-hour day, middle-class wages, pensions and health care benefits. Collective bargaining allows ordinary working people to be more than commodities to be paid according to what the "market will bear." Collective bargaining is necessary to rebuild the middle class once again.
3). Trade and tax policies that protect the rights of workers with just as much ardor as they protect the rights of corporations. Policies that don't encourage firms to outsource jobs to the areas where they can pay people 85 cents an hour.
4). A social safety net that truly protects Americans from unforeseen economic problems -- and includes unemployment insurance for the long-term unemployed.
5). Breaking up the big banks and returning to a policy that makes it impossible for Wall Street bankers to recklessly speculate with government insurance dollars.
In the next several months we can begin that process by ending Republican cuts in unemployment insurance for the long-term unemployed, and by passing the Harkin-Miller bill to increase the minimum wage from $7.35 per hour to $10.10 -- and index that wage to inflation.
Opponents of raising the minimum wage will cry out that if it is increased, employers will cut back on new jobs. That's the same thing opponents said every time the minimum wage was increased over the last 50 years -- and it never happened.
Instead it turns out that workers have more money in their pockets to buy goods and services, and employers have to create more jobs to satisfy the demand. And it's true, initially it might take a little bite out of the bottom lines of the WalMarts and McDonalds of the world and put some of those dollars into workers' pockets instead. It's about time.
And of course, all that new demand will be for things like food, education, clothing, and new housing -- the necessities of life rather than the personal submarines, extravagant watches and $4,000 blouses that Jamie Dimon and his crowd can afford. Yet another reason to raise the minimum wage.