The Ashford Zone Blog

Reed Hastings, the CEO of Netflix, earns $2.5 million a year in compensation.

Here's what he thinks:

I’M the chief executive of a publicly traded company and, like my peers, I’m very highly paid. The difference between salaries like mine and those of average Americans creates a lot of tension, and I’d like to offer a suggestion. President Obama should celebrate our success, rather than trying to shame us or cap our pay. But he should also take half of our huge earnings in taxes, instead of the current one-third.

Take half his income?  But won't that destroy incentive?

Some will tell you that would reduce the incentive to earn but I don’t see that as likely. Besides, half of a giant compensation package is still pretty huge, and most of our motivation is the sheer challenge of the job anyway.

Krugman:

A not-so-funny thing happened on the way to economic recovery. Over the last two weeks, what should have been a deadly serious debate about how to save an economy in desperate straits turned, instead, into hackneyed political theater, with Republicans spouting all the old clichés about wasteful government spending and the wonders of tax cuts.

It’s as if the dismal economic failure of the last eight years never happened — yet Democrats have, incredibly, been on the defensive. Even if a major stimulus bill does pass the Senate, there’s a real risk that important parts of the original plan, especially aid to state and local governments, will have been emasculated.

Somehow, Washington has lost any sense of what’s at stake — of the reality that we may well be falling into an economic abyss, and that if we do, it will be very hard to get out again.

***

It’s hard to exaggerate how much economic trouble we’re in. The crisis began with housing, but the implosion of the Bush-era housing bubble has set economic dominoes falling not just in the United States, but around the world.

. . . [M]ost economic forecasts warn that in the absence of government action we’re headed for a deep, prolonged slump. . . . The Congressional Budget Office . . . recently warned that “absent a change in fiscal policy … the shortfall in the nation’s output relative to potential levels will be the largest — in duration and depth — since the Depression of the 1930s.”

Pearlstein:

What really irks so many Republicans, of course, is that all the stimulus money isn't being used to cut individual and business taxes, their cure-all for economic ailments, even though all the credible evidence is that tax cuts are only about half as stimulative as direct government spending.

John Cole:

I really don’t understand how bipartisanship is ever going to work when one of the parties is insane. Imagine trying to negotiate an agreement on dinner plans with your date, and you suggest Italian and she states her preference would be a meal of tire rims and anthrax. If you can figure out a way to split the difference there and find a meal you will both enjoy, you can probably figure out how bipartisanship is going to work the next few years.

Meanwhile, we lost 598,000 jobs in January, making the unemployment rate 7.6%, the worst since 1976.

UPDATE:  North Carolina's unemployment rate remains above the national average.  It's at 8.7% according to the latest January numbers.

Kenneth D. Lewis, the chief executive of Bank of America, took home more than $20 million in 2007. Of that, $5.75 million was in salary and bonuses.

Vikram Pandit, who became chief executive of Citigroup in December of 2007 and previously held other senior positions at the bank, made $3.1 million.

Richard Wagoner, the chief executive of General Motors, made $14.4 million, much of it in stock, options and other non-cash benefits. He earned a $1.6 million salary.

That's what they earned for mismanaging their corporations so badly that the federal government, using your tax dollars, has to come and get them bailed out.

But now the Obama administration is expected to impose a cap of $500,000 for top executives at companies that receive large amounts of bailout money.

Make sense.  Long overdue.

And yet, there are detractors:

“That is pretty draconian — $500,000 is not a lot of money, particularly if there is no bonus,” said James F. Reda, founder and managing director of James F. Reda & Associates, a compensation consulting firm. “And you know these companies that are in trouble are not going to pay much of an annual dividend.”

Mr. Reda said only a handful of big companies pay chief executives and other senior executives $500,000 or less in total compensation. He said such limits will make it hard for the companies to recruit and keep executives, most of whom could earn more money at other firms.

“It would be really tough to get people to staff” companies that are forced to impose these limits, he said. “I don’t think this will work.”

Other whiners:

“If I didn’t pay [bonuses], the people were going to go. … These people didn’t choose to cure cancer. These people didn’t choose to do public service work…These people chose to make money.” [Jack Welch, former CEO of General Electric]

“The consequences of it are going to be a massive brain drain of senior talent from those companies that have taken TARP money to those companies that have not.” [Donald Straszheim, managing principal at Straszheim Global Advisor]

“Companies that need the most talented people to fix their problems won’t be able to pay them.” [Jamie Dimon, JPMorgan Chase & Co. Chief Executive Officer]

Here's the thing.  If, in these tough economic times, there exist executives who think it is good for a company that they receive $20 million in compensation, those executives are definitionally unqualified and shouldn't be hired in the first place.  Especially if they created the tough economic times (for all of us!) in the first place!!!

And there's something else here.  It's the unbelievable income inequality in this country.

In last Sunday’s Post, Robert Reich pointed out that the top 1% of the country possesses 20% of the nation’s income.  Last time that happened?   1928.  The top 10% possesses a full half of national income.  Take some time to study this chart from the NYT:

In 2005, the bottom 90% made only half of the income generated in the United States.  The top 10%, of course, made up the other half. 

Trickle-down?  Don't make me laugh.  The Bush tax cuts, the very thing Republicans want to add more of to the stimulus bill, didn't help average Americans, or even above-average Americans.  It created a class of uber-wealthy — which included the very same CEOs who got us into this economic mess in the first place.

So do I have sympathy for the CEO who will be forced to "only" make $500,000?  Hell, no.  And if the government won't limit CEO compensation, I think shareholders of these corporations should.

UPDATE:  Steve Benen:

Maybe, and I'm just throwing this out there, we shouldn't care if this cap makes it difficult to keep failed executives on in their current posts.

I suspect there are plenty of sharp people in the business world, anxious to make a name for themselves, would who love the opportunity to get $500,000 to turn around a company facing collapse, with the possibility of a huge pay day down the road if they succeed.

If this is the big argument against "draconian" limits on executive compensation, it's an awfully good idea.

Yup.

From CNN.  Having scoured the bill from top to bottom, the House Republicans put out a list of items that they found wasteful — i.e., "pork" that won't lead to job growth — in the Obama stiumulus bill.  They are:

• $2 billion earmark to re-start FutureGen, a near-zero emissions coal power plant in Illinois that the Department of Energy defunded last year because it said the project was inefficient.

• A $246 million tax break for Hollywood movie producers to buy motion picture film.

• $650 million for the digital television converter box coupon program.

• $88 million for the Coast Guard to design a new polar icebreaker (arctic ship).

• $448 million for constructing the Department of Homeland Security headquarters.

• $248 million for furniture at the new Homeland Security headquarters.

• $600 million to buy hybrid vehicles for federal employees.

• $400 million for the Centers for Disease Control to screen and prevent STD's.

• $1.4 billion for rural waste disposal programs.

• $125 million for the Washington sewer system.

• $150 million for Smithsonian museum facilities.

• $1 billion for the 2010 Census, which has a projected cost overrun of $3 billion.

• $75 million for "smoking cessation activities."

• $200 million for public computer centers at community colleges.

• $75 million for salaries of employees at the FBI.

• $25 million for tribal alcohol and substance abuse reduction.

• $500 million for flood reduction projects on the Mississippi River.

• $10 million to inspect canals in urban areas.

• $6 billion to turn federal buildings into "green" buildings.

• $500 million for state and local fire stations.

• $650 million for wildland fire management on forest service lands.

• $1.2 billion for "youth activities," including youth summer job programs.

• $88 million for renovating the headquarters of the Public Health Service.

• $412 million for CDC buildings and property.

• $500 million for building and repairing National Institutes of Health facilities in Bethesda, Maryland.

• $160 million for "paid volunteers" at the Corporation for National and Community Service.

• $5.5 million for "energy efficiency initiatives" at the Department of Veterans Affairs National Cemetery Administration.

• $850 million for Amtrak.

• $100 million for reducing the hazard of lead-based paint.

• $75 million to construct a "security training" facility for State Department Security officers when they can be trained at existing facilities of other agencies.

• $110 million to the Farm Service Agency to upgrade computer systems.

• $200 million in funding for the lease of alternative energy vehicles for use on military installations.

Now, one can bicker about whether any of these provisions will or won't create jobs.  It seems to me that $500 million (for example) to renovate police and fire stations would employ people to, you know, actually renovate them.

But the bigger thing to consider is this: when you tally up all the so-called "pork", it amounts to $18.7 billion — less than 2% of the entire stimulus package.  In other words, House Republicans rejected a bill that they 98% agreed with.  Delay on the bill, by the way, could end up costing a hell of a lot more than $18.7 billion.  But no matter, right?

Keep this in mind when you hear Republicans whine about a bill "full" of pork.  It's not, even by their own admissions.

State-by-state breakdown of per capita spending — state by state — from the $825 billion Economic Recovery and Reinvestment Act:

Compare that map to this one from the WSJ showing the change in unemployment over the past year.

What Republicans faced in 1932:

• a desperately unpopular GOP ex-president;

• a new, ambitious Democratic president whom large numbers of people believed could do no wrong;

• tired veterans of the past decade at the helm in both chambers;

• an economic meltdown for which they were blamed; and

• a depressing want of bodies.

How did they respond?  By challenging FDR's economic stimulus plan as "socialistic", which in 1932 was even more inflammatory than it is today:

"We are on our way to Moscow, " Representative Joseph W. Martin, an influential conservative, insisted after FDR's Agricultural Adjustment Act was delivered to Congress in the spring of 1933. "I have seen hitherto boasted State sovereignty offered up on the Moloch of centralized power," bayed another Republican. "I have seen a dictatorship spring up which must have made the noses of Herr Hitler, Stalin, Mussolini, and Mustapha Kemal of Turkey turn green with envy. Independence in private business is a thing of the past, and individual liberty is only a memory."

Did the rhetoric work?

It did not.  The GOP lost big (again) in the mid-term elections of 1934.

Obama's stimulus package is not perfect, and it's anybody's guess as to whether/how well it will work.  But the current GOP tactic of uniformally opposing it and standing strong in favor of tax cuts (a strategy which didn't prevent this mess in the first place) strikes me as 1932 Redux.

The GOP seems to be on its way to uniting behind a clear strategy.  But is it a winning one?  The lesson of 1932 would suggest not.  As Steve Benen notes:

There are coherent arguments against the stimulus plan, even from a conservative perspective, but actual GOP policy makers apparently aren't familiar with them. Their arguments about the CBO are wrong. Their arguments about tax credits are wrong. Their arguments about aid to states are wrong. Their arguments about the stimulative benefits of tax cuts are wrong. Their arguments about corporate tax rates are wrong. Their arguments about housing are wrong. Even their arguments about allocation are wrong.

And oddly, the GOP now finds itself in the position of hoping the Obama plan fails.  It's a terribly risky strategy.  What if it doesn't?  Obama will be forever known as the next Roosevelt.

I never understood the phenomenon of Samuel Joseph Wurzelbacher aka "Joe The Plumber".  I don't understand why he was touted by McCain and Palin as the typical American, as if that was supposed to impress the typical American (who need only look in a mirror to see a "typical American").  And clearly, Joe the Plumber didn't impress the typical American.

Nor do I understand why, after the election, the right-wing Pajamas Media decided to make Joe a "war correspondent", sending him on a junket to Israel so that he could stand in front of cameras and tell the mainstream media that he is not the story.  No, he's not.  So why was he sent?

And now, the GOP — still lovingly clutching their mascot — has invited Joe to Capital Hill so that he can weigh in on the stimulus package.

Um….. Why?