Boeing 737 MAXs parked at Moses Lake
It’s time for another depressing story about Boeing, and by extension, a lot of other American institutions that are being wrecked by the capitalist mindset. The situation at Boeing has been going downhill for years.
But Swampy [the nickname for John Barnett, a whistleblower] was mired in an institution that was in a perpetual state of unlearning all the lessons it had absorbed over a 90-year ascent to the pinnacle of global manufacturing. Like most neoliberal institutions, Boeing had come under the spell of a seductive new theory of “knowledge” that essentially reduced the whole concept to a combination of intellectual property, trade secrets, and data, discarding “thought” and “understanding” and “complex reasoning” possessed by a skilled and experienced workforce as essentially not worth the increased health care costs. CEO Jim McNerney, who joined Boeing in 2005, had last helmed 3M, where management as he saw it had “overvalued experience and undervalued leadership” before he purged the veterans into early retirement.
I’m seeing the same thing in the university system: we’ve got MBAs telling us that the universities should discard “thought” and “understanding” and “complex reasoning” and become vocational schools that churn out degrees. The scary twist is that now the same incompetents who got us in this mess are not blaming their own stupid goal-directed approach — the new scapegoat is “DEI,” which is actually beneficial and enables the kind of new perspective that might help us out.
But Boeing is screwed. It’s run by idiots who tout “leadership” but don’t know how to do the job of an aircraft manufacturer. How can you overvalue experience?
“Prince Jim”—as some long-timers used to call him—repeatedly invoked a slur for longtime engineers and skilled machinists in the obligatory vanity “leadership” book he co-wrote. Those who cared too much about the integrity of the planes and not enough about the stock price were “phenomenally talented assholes,” and he encouraged his deputies to ostracize them into leaving the company. He initially refused to let nearly any of these talented assholes work on the 787 Dreamliner, instead outsourcing the vast majority of the development and engineering design of the brand-new, revolutionary wide-body jet to suppliers, many of which lacked engineering departments. The plan would save money while busting unions, a win-win, he promised investors. Instead, McNerney’s plan burned some $50 billion in excess of its budget and went three and a half years behind schedule.
The focus on stock price, as if it’s a meaningful metric of the value of a company (a metric further eroded by stock buybacks) has not been a win-win. It’s been a disaster. They are currently losing tens of millions of dollars on each 787 they build, and their reputation is so bad they’re unsellable.
There’s a terrifying visual representation of this: the satellite view of the Moses Lake Municipal Airport in an arid stretch of Washington east of Seattle, or the Southern California Logistics Airport in Victorville, California, where hundreds of Boeing 737 MAXes sit in abandoned parking lots waiting for someone to fix them so they can finally be delivered. Meanwhile, pieces are flying off the Boeing planes actually in use at an alarming rate, criminal investigations are under way, and another in a long line of stock-conscious CEOs is stepping down. Boeing’s largest union, the Machinists, is trying to snag a board seat because, in the words of its local president, “we have to save this company from itself.”
The company is doomed, because the moneyed assholes have a deathgrip on “leadership.”
SPEEA [Society of Professional Engineering Employees in Aerospace ] has demanded, understandably, that the board choose an aerospace engineer as its next CEO. But there are few signs that will happen: None of the names floated thus far for the spot have been aerospace engineers, and the shoo-in for the position, GE’s Larry Culp, is not an engineer at all.
You might be wondering what kinds of penalties Jim McNerney suffered as a consequence of his catastrophic performance. Why, none at all, of course.
In 2007, as CEO of Boeing, W. James McNerney Jr. made $12,904,478 in total compensation, which included a base salary of $1,800,077, a cash bonus of $4,266,500, options granted of $5,871,650, and Other $966,251.
In 2008, his total compensation increased to $14,765,410, which included a base salary of $1,915,288, a cash bonus of $6,089,625, and options granted of $5,914,440.
In 2009, his total compensation decreased to $13,705,435, which included a base salary of $1,930,000, a cash bonus of $4,500,300, stock options granted of $3,136,251, stock granted of $3,136,242, and other compensation totaling $1,002,642.
In 2013, McNerney made $23.2 million in total compensation, which included a $1.9 million salary, $3.7 million stock award, $3.7 million stock option grant, and an annual incentive bonus of $12.8 million.
In 2014, as Chairman and CEO of Boeing, McNerney made $29 million in total compensation. Of the total: $2,004,231 was received as a salary; $14,400,000 was received as an annual bonus and a three-year performance bonus; $6,272,517 was awarded as stock (none was received in stock options); and other compensation totaling $760,000.
Meanwhile, John Barnett, the whistleblower and competent engineer, is dead. Something is wrong here.
Or just certificates. The community college at which I worked several years ago even switched to eight-week terms—two per semester—right after I left, so as to maximize student throughput. As though more pieces of paper accorded to more students more quickly is just per se capital-“G” Good.
So, in the 5 years listed, this one guy earned upwards of $100 million. 5 years.
5….years.
When is it enough? What the fuck does someone even hope to do with that much money other than brag about it at the country club. It’s just obscene.
I make a decent salary. Way more than I need to live. But, I’m also putting close to half of it in 401k and savings in the hope that I can live a decent life in retirement and not end up a pauper.
Then there’s this asshole…
Funny how assholes reflexively call the good guys/gals assholes. It always projection.
So….the guy earning billions is the good guy and I’m the asshole?
Boeing has become an object lesson in bad business
At least until we start digging into Grace Ocean Private Ltd…
Those MBAs aren’t all that bright or educated themselves.
They don’t seem to have ever heard of the simple economic principle of…supply and demand.
College enrollments have been declining for a long time, since 2011.
One of the main reasons for the decline in college students is cost.
The cost of a 4 year degree has risen much faster than just about everything else and given rise to the phenomenon of gigantic student loans that people spend decades or in some cases their whole life paying off.
What the universities are doing is pricing themselves out of their markets.
What the universities should be doing is figuring out ways to make a college degree more affordable for more students. An educated upwardly mobile population also has its own benefits for our society. Those MBAs could even factor that into their calculations.
General Electric company is another American powerhouse that crashed and burned.
They made my kitchen stove among other things, and Boeing jet engines.
drksky@4- My comment was directed at Jim McNerney.
The company, like so many others, was taken over by professional executives who only know how to exec. Not how to execute, just exec.
There is a really stupid meme going around about what should REALLY be taught in high school. It’s a bunch of anti-intellectual, pedestrian BS like “car maintenance,” “tax forms,” “home repair,” “survival skills,” and so forth. Car maintenance is my favorite. Lift the hood of my Acura and there’s a big, plastic cover that says “Don’t touch anything!”
In reality, learning how to learn, being able to read and write, and to improvise enabled me to have a career in a field that didn’t exist when I was in high school. Same for my kids. Both my daughters have careers doing things that didn’t exist when they were in college. I wouldn’t be able to begin describing what my granddaughter will be doing in 2063. (Other than treading water in the Houston Inland Sea.)
Someone needs to make a list of great companies destroyed by Harvard MBA’s.
Back in the early ’80s I read an op-ed piece that asked “Does anyone really believe the recent explosion of MBAs has made American business any better?”
There is a really stupid meme going around about what should REALLY be taught in high school…
Anti-intellectualism has always been a problem in America, but Republicans have been taking it to very destructive extremes since 1981, and especially since 1993. In addition to doing everything they can to defund, discredit and disdain public education at all levels, they’re also rolling back child-labor laws in many states, and explicitly promising kids that full-time jobs would be more fun than boring strict old school.
There is a straightforward solution to this. It wouldn’t be easy to implement, but in order to change behavior you need to change incentives.
Step 1: Tax all profits from sales of stock as twice income. That is, if a person gains $100,000 from selling a stock, that income is considered as $200,000 for tax purposes. This wouldn’t hurt the small investor much, if at all, because an additional $3,000 on their income will probably not change their tax bracket. But it would make the large investors scream. And stabilize the stock market (after a crash of course).
Step 2: Tax all profits from dividend income at half income. That is, if a person gets a $5,000 dividend, only $2,500 of it counts as taxable income. Sure this will help the CEOs, but the only way income in generated is through company profits. Company profits come from making products/service which people want to buy, or at least are not subject to lawsuits. This will incentivize boards of directors to focus on the companies they run rather than the stock of the company. It will also mean that a small investor will be able to supplement their income through dividends, which means they have more money to spend and helps keep the economy going.
Just doing these two things will break the cycle of destruction of companies by boards more interested in watching the stock market then the companies they nominally lead.
Another step which would help, but isn’t technically necessary, would be to bring back the 90% marginal tax bracket. Tie it to the median income, and tax any income of excess of (Median Income) * 100, at 90%. Right now that means a person could earn $3,758,500/year and only be taxed at around 35% (roughly), but every dollar earned above that level will be taxed at 90%. So if the wealthy want to keep more money, they have to work to raise the median income. That would be a raising tide which raises all boats, as the republican boobs like to say.
Along with the whistleblower, also dead are around 300 people who were on Boeing’s cheap, stupidly-made planes. Thanks, Jim! He’s almost directly responsible for their deaths.
Also, medicine has gone down the same path, and is being destroyed by MBAs who don’t give a damn about, and have no knowledge of, how to treat patients.
I retired because MBAs took over the running of the engineering firm I worked for, and introduced the “Agile” work methodology. Like a cross between a happy clappy revivalist meeting and Red Guards self- criticism sessions. I’m glad I left- 6 months later they outsourced all the work to India. A previous job I left because they moved the department 80 miles away and told us move there or take redundancy. I left, as did many other experienced engineers. The reason they moved was because they got the office cheap. The decision was made by a CEO whose previous experience was managing hotels. As far as MBAs are concerned, engineers are just bums on seats and completely interchangeable.
jackprocket @ #15
If I understand the history of “Agile” correctly, that’s ironic given that “Agile” methods were inventions of engineers in resistance to the conventional engineering project management style entrenched in business management.
@15 jacksprocket
At least one (I think more) of the original signers of the Agile Manifesto have abandoned it because of what it has become. Which is exactly how my company uses it. Some expensive management consultant sold our clueless upper management on the promise that Agile would solve all their software problems. Yeah, right.
One unintended consequence of Agile has been job security for me. I work in the hardware design group. We don’t use the low-level software group except in dire emergencies. They are good guys. I’ve worked with some of them for more than 20 years. But, under Agile, they can’t wipe their ass unless some one of their managers writes a “story”, or an “epic”, or whatever. And lays out a bunch of milestones for a project that is not well defined. So milestones at that point are meaningless. You have to explore before you can even start. You poke the hardware to make sure it responds the way you expect. Then, based on experience, you come up with a programming interface that makes sense for how the HW will be used. So I do all the low-level software for my designs, along with DVT code.
The company is a foreign multinational. They sell military equipment to various foreign governments. As bribes, they outsource manufacturing, and some software to the customer countries. Of course, every year or two I have to suffer through anti-bribery/corruption training. I couldn’t do any of the things described if I wanted to. Upper management however…
It has occurred to me that the Roman Empire was run on a profit-maximising paradigm.
And Thomas Piketty has already noted the role banks played in the destruction of the ancient world.
So the forests were cut down without replanting. Small coastal towns were abandoned, as they could not accomodate the big ships bribging in stuff from the provinces. Small farmers could not compete with the giant slave-operated plantations. As mentioned before, innovation stagnated (except for very big, slave-opersated public works) – the new big iron-age plows were invenred by the German “barbarians”.
And if you look at a timeline of philodophical works, everything suddenly stops when the Romans had completed the conquest of the hellenistic world. The philosophical works written after this moment are almost entirely mysticist or religious tracts.
Bad business and neoliberalism-
After I re-discovered the band Ladytron
I found the perfect anthem for the ideology dominating the last 40 years. Destroy Everything You Touch
Dang! I did not secure the link.
Makes me wonder how many of the rank-and-file people at Boeing receive yearly cash incentives/bonuses that are a multiple of their base income?
flex @13
I profoundly disagree with your step 2. One of the main reasons we have shit flowing into our rivers on a regular basis in the UK, is that the water companies proritised large dividends to their shareholders over maintaining their water treatment works, or even building new capacity when whole new estates of houses were built. Those very shareholders are now pressurising the companies to resist the instructions of the regulator to clean up their acts
garnetstar @ 14,
You beat me to it. The hospital near our home was bought by a corporation several years ago. The care and services there got worse, not better. Over several years, that corporation grew and now controls the huge doctors’ group here, after crowding out most of the independent doctors in the area. Patients here have to wait 6 months just to see a primary care doctor, and often even longer to see a specialist.
They also control many ancillary services, such as PT, labs, radiology, rehabilitation centers, etc. I have to insist that my referrals be addressed to my independent PT or Quest Labs, etc. The corporation’s versions overcharge so much, I wind up with a large copay. By going to outside businesses, I have no copay.
Recently, this monstrous corporation opened a huge mental health facility, which I find ominous.
They already own the local Medicare Advantage scam and the local hospice, so they are literally trying to control the lives of the population of this community from cradle to grave.
Those of us who see through the scam and have insurance that will allow it are going to the next county or even up to San Francisco for more responsive and compassionate care. I have several specialists at UCSF. It’s worth the 100 mile drive!
My husband is lucky. He’s a veteran, so he can take advantage of the very responsive care that is offered to him.
We happen to have a very good Veteran’s clinic nearby and the best VA hospital we’ve ever seen in Palo Alto. They share specialists with Stanford, which is next door to them.
Corporate greed has ruined what is supposed to be the most compassionate profession.
Master of Bussiness Assholism is a scourge on society. I too have worked for a company that no longer exists. A reputation built over three-quarters of a century was destroyed in two decades by American MBAs.
Yeah, but, Charly, How are those MBAs doing now? Admitting any mistakes? Living off of plenty of profits that they got while destroying your company? Profiting even more somewhere else?
Obviously, I totally agree with you. It’s another one of oh so many things that just make no societal or moral sense when you look at it from a perspective other than sociopathic. Guns, reproductive rights, climate change, democracy itself. When it comes to anything against personal profit motive for some of the already far-too-rich and powerful, the winner is almost always not the side of decency.
AstroLad @17:
This is really old news. Back in 1995, a former colleague on the ISO C standards committee, Peter Seebach, wrote a paper called The Hacker FAQ (back before “hacker” came to mean “someone who breaks into computers”) that contains a statement that I’ve never forgotten:
I’m old enough to remember when “structured programming” escaped from academe. Since then, I’ve seen numerous examples of methodologies that will solve all our problems, “extreme programming” being particularly egregious; and they always come and go. As expected, XKCD nails it:
As opposed to the phenomenally sociopathic and greedy asshole who organised their constructive dismissal.
May a Boeing 737 Max (uncrewed, of course) plummet onto his head. I look forward* to learning how many stacks of millions of one-dollar bills it takes to sufficiently reduce the impact to a survivable level.
*Then we’ll know just how hard to hit the next one.
And it’s Jim Paxton to the rescue… of the asshole white, “Republican” (or worse) assholes!
The REAL problem is… DIVERSITY and WOKENESS!!!!
Stupidity and pettiness are evolving into the lethally virulent forms of Stalin’s Russia – and maybe the Cultural Revolution in China. They are unlikely to reach such levels in the US only because the entire place will collapse,
JP is an example, like Justice Thomas, that simply being only a petty, self-serving, craven and toadying asshole is all the truly evil fraction of humanity require.
https://apnews.com/article/spirit-aerosystems-texas-attorney-general-boeing-314e0fa3124f867793bcfbd63fd5c4e6
<a hrhttps://www.cnn.com/2024/02/19/business/china-comac-c919-international-debut-intl-hnk/index.html”> Beijing’s C919 airliner, a potential rival to Western-made Boeing and Airbus planes, made its first foray outside Chinese territory on Sunday by staging a flyby at the Singapore Airshow.
Russia has two new equivalents either certified or just about there.
Given Boeing’s recent record and the US Gov’t’s hostility t everything Chinese from TicTox to electric cars, I wonder how much market share of new plane sales Boeing will have in 5 years?
<snicker>
This is why we should jail executives for corporate manslaughter. Fines are just the cost of doing “disruptive” business, but wave a stint in a minimum security jail and suddenly they’re sweating and nervously bending over backwards to comply with safety standards.
I saw that happen in my first job after leaving school. I worked in the company’s quality control and research labs. The production quality lab had just got a new manager with a freshly minted PhD but limited practical experience. The company had a policy of once they employed someone it was very hard to climb the corporate ladder so the passed over a guy who had helped run the lab for nearly 30 years. Unlike the new supervisor he had an intimate knowledge of the production process. The acid test came when the new guy decide to change the process in a way that would “save” production costs. You guessed it, it went horribly wrong and within 2 days of switching over they were losing an entire days production. It took a simple observation from me which the old guy followed through on to solve the problem while the new manager was still in denial. The problem, the new manager hadn’t thought the full process through and the result was significant contamination of raw materials. The one nice thing about it was the new manager learned to respect the old guys knowledge and I earned more than my normal salary in weekly overtime for over a month. The company even laid on a taxi for me to get me to and from work and save a couple of hours on trains and buses. I’ve seen it so many times. Corporate DNA is often overlooked and undervalued when people are brought in from outside.
Thirty years at the corporate oar, the biggest lie Management told was “Lessons Learned.” Nonsense. Never a lesson was learned. After a series of accidents that cost many lives the Company proclaimed, “Safety over Profitability.” Nope, didn’t happen. Managers were never held accountable. Sure, line workers got sent home or docked pay or fired, but never a manager. Managers were never evaluated for their safety programs, but always evaluated for their profitability. And so it goes.
Management decided our clinical lab was not under-staffed, it was ‘over-utilized’.
You get Giedi Prime even without the Harkonnen.
magistramarla @ 23
“Those of us who see through the scam and have insurance that will allow it are going to the next county or even up to San Francisco for more responsive and compassionate care. I have several specialists at UCSF. It’s worth the 100 mile drive!”
I imagine what this means for people who hardly can afford a car, or a long bus drive, and it is not pretty.
The ultimate dystopia for health care will be when you must travel to another nation to find a non-corrupt health system (yes, I understand US health insurance will not cover that). And most people in USA don’t live next to the Canadian border.
birgerjohansson @35,
Yup. That’s why my daughter moved her family to Seattle. If things get too bad in the US, they will be headed to Canada.
My husband is about to retire from serving this country for 43 years – as an active duty military officer, as a Reserve officer, and as a civilian employee. Our insurance is the same one that the congresscritters have, combined with TRICARE from the military and MEDICARE. Most of our streams of income in retirement will depend upon having a working government.
We’re in great shape if Biden is elected. If Trump steals it, we may be destitute.
flex @13,
Another option would be to tax stock sales based on how long you have owned that stock. Something like 30 years would have a pretty low tax rate, 30 days would have a very high tax rate. This would give companies an incentive to try to be the sort of company that is seriously expected to still be a viable company decades into the future.
Boeing started going downhill when the newly-merged-with McDonnell-Douglas people started getting promotions because they had better management-speak — especially management-speak-oriented-toward-corporate-boardroom. This was predictable: Boeing bought McD-D because McD-D ran itself into the ground with bad engineering decisions on the F-15, DC-10, and KC-10, and even more bad decisions involved in having no further products in the pipeline. So, instead, McD-D management in the late 1980s decided that easing out the high-priced engineering talent they did have would make them look good by cutting costs…
Boeing aircraft, of late, have been dangerous due to poor quality control, accelerated timelines, and foolish use-cases drafted by the customers (primarily the airlines). McD-D’s were bad coming off the bloody drafting table (and even worse on quality control, accelerated timelines, and foolish use-cases). So what could possibly go wrong merging them?
@22, Jazzlet,
I hear what you are say, and I agree that changing the tax rate on dividends to make them more attractive would create an incentive to pay good dividends at the expense of the company. Yet, I believe this would be less destructive than manipulating stock values. For a couple of reasons. First, because this should be less remunerative to the shareholders than manipulating stock values. Creating greater profits by neglecting maintenance or externalities can only add profit incrementally, manipulating stock can multiply prices. Second, because the shares and thus dividends should be spread over a wider number of people, some of whom are looking for the higher dividend, but many of the small shareholders would notice only a small difference in their dividends between maintaining the company and forgoing maintenance. In the case you mention, a utility which forgoes maintenance and dumps effluent into the rivers might have a difference in a dividend of $12/share by doing so, but by performing the maintenance and cleaning the river might only have a dividend of $10/share. For many shareholders they would be willing to sacrifice the $2/share to keep things running properly and cleanly. Of course there are a couple caveats to that; first, the small shareholders would have to know what’s going on and be organized. Second, the greedy large shareholders are going to yell about it regardless.
So I still think my #2 would be an improvement over the present state. If for no other reason than it forces boards to look at profits more than share price. Just taxing the share price at double would disincline the board to manipulate stock, but would not incentivize them to invest in the company.
Further, I have two additional comments about the situation you describe. First, externalities like pollution are a problem with all human activities, profit-motivated or not. Sure, profit-motivated activities are more likely to try to ignore externalities and avoid cleaning up pollution, because any action which costs the performers of that activity money means reduced profit. To force human activities to keep the externalities at a level which causes no (or little) harm requires a strong sense of responsibility to the environment among it’s citizens and a government which will enforce the desires of the citizens. I say human activities, because we once had a private citizen in our township who decided they didn’t like the swamp on the property they had purchased. So, contrary to state law, they started filling in that wetland. They were caught because dozens of double-trailer dirt-moving trucks were driving down the road and going down his driveway. They were very upset when they were notified that they couldn’t do that without a permit, and that they had to both pay to remove the dirt they had filled the wetland in with but also a very hefty, court-ordered, fine. It’s not just businesses which degrade the environment.
My second point, which is only tangential to our discussion, is that I personally feel that certain goods/services should be publicly owned (i.e. by the government) or highly regulated. Highly regulated not just in operation and maintenance, but also for prices offered. Things which, for practical reasons, can only be one provider per citizen, like electricity, water, sewer, and waste collection, should be government owned, operated, and not run for a profit. Those those goods/services where people have greater choice, like shelter (houses/apartments) and food should be tightly regulated, but could be provided by companies. I won’t go into greater detail, and the devil with this particular viewpoint is in the details, but I suspect you have the general idea.
@37, profpedant,
We already have a system which taxes stock gains (capital gains generally) in two tiers. Stocks held less than a year are taxed at a higher value than stocks held longer than a year.
But I understand what you are saying, that’s probably not long enough to change the incentives. It’s pretty easy to hang on to a stock for a year to get the (slightly) lower tax rate. I have similar problems with the current allowable depreciation schedules under GAAP. Equipment which is designed to last 10 years shouldn’t be depreciated in 5. That’s a way to cheat on paying taxes and it encourages wasteful spending on unnecessary equipment.
I don’t think your idea is a poor one, I’d like to see it tried and see what happens.
What I expect would happen is that the inflection point would be identified fairly quickly. That is, the point where the taxes on profits from selling stock would be the same as the taxes on other sources of income. There would be a lot of pressure to put that inflection point at around the 10 year mark, that being about as long as any CEO stays in that position in a company. That might be long enough to encourage steady growth rather than destroying the company to elevate the stock price.
Sure, reform the tax system, limit stock options, add caps to pay, that will probably all be necessary in the short term.
In the medium term, most if not all companies should be transformed in worked-owned cooperatives.
In the long term, society needs to get rid of any position of power entirely: the problem is that people who care only about money and power will always have an advantage over those who care about anything else, which is why assholes are always over-represented at the top.
These people also have both the incentive and the means to erode whatever checks and balances you put in place, which is how the US got with such stupid tax rates to begin with.
You will have to fight for 20 years to get these reforms in, and they will last maybe another 20 years before they are eroded back to what they are now.
We need to start thinking about the longer term, perhaps not for ourselves, but for the next generations.
@ ^ F.O. Tobin tax maybe? :
https://en.wikipedia.org/wiki/Tobin_tax
@F.O. What is probably most important would be teaching history of economics and how the tax structure was used in the past to generate economic growth, address externalities, and raise the standard of living for all citizens. For the ideas I’m suggesting are not new, there is historical precedents for all of them, and thus the results of all of them can be known.
The clearest example is the 90% tax bracket. Put in place as the USA was ramping up spending toward WWII, a 90% tax bracket was initially set at income >$400,000. This fluctuated over the next 40 years, but remained in the 70% to 90% range and around the $400,000 mark. The result of this tax bracket was to encourage people who could command this level of income to refuse it, choosing to cap their income at around that level. The money had to go somewhere, so companies started giving more perks to their officers, perks were not counted as income at the time. But there was a limit to that. So companies invested in activities with what we would now call a lower ROI. That is, divisions without a product goal in mind but just to invent things, divisions devoted to research and development. With all the money flowing around which they didn’t want to give to the government, the corporate boards were more likely to grant union requests for wage increases, which made unions more attractive and worker representation grew. With corporate boards choosing to limit their income, inequality dropped, the standard of living for most people increased. The USA saw the greatest economic expansion in history, which slowed down as soon as the 90% tax bracket was removed. Further, those at the bottom of the scale had enough surplus time/resources to start thinking they should be better represented in the rest of society. The civil rights movement didn’t start in the 1950’s, but it gained a lot of steam when African Americans started getting discretionary income to support it.
The 90% tax bracket was given a big hit by Nixon, who dropped it quite a bit. Then Reagan came in and eliminated it altogether. And we can see a very clear picture of inequality starting to rise soon after that happened. We also started to see a lot of the modern union busting, cost cutting, closing of low-ROI divisions, profits over quality or growth, a reduction in savings, and a lot of propaganda saying that we all could be millionaires if only we let people who are already wealthy get richer. Don’t even get me started on the economic destruction caused by “angel” investors.
Are there are other things which occurred in society which contributed to the things I’ve mentioned above? Certainly. But the older I get the more I understand how much of the world we live in is controlled by cash flow. What energized the Civil Rights movement in the 1950s? The ability of African Americans to hire lawyers, fight in courts for justice, to bring national attention to lynching’s, to pay bail when they were arrested, to sue states, or take time off work in order to march, to strike, etc. These required enough investment by people, both personal time and the ability to contribute their discretionary income to the cause. This would not have been nearly as effective, and may not have even been possible, without money flowing to the African American population. Freedom is having discretionary income, income which is greater than your needs. The wealthy have figured out that if people have just enough income to meet their needs, they won’t have the means to organize and work to change the system, but there also won’t be enough of them dissatisfied enough to overthrow it. They promote the idea that if a person works a little harder they will move them into a better class of living, but as soon as they get to that class they find another step waiting for them. A debt-driven consumer economy does precisely that. Bread and circuses.
We should see if we can trick Elon Musk into building the B Ark full of MBAs to go to Mars.
@#13, flex:
A counterproposal: flat-out execute anybody with more than $10 million in assets, including management of self-named “charitable” foundations, amount to be linked to minimum wage. Once there’s no reason to get rich, there will be no reason to tank a company for short-term financial goals.
Historically, part of the problem with the “Beatles bracket” system of extremely high annualized tax rates on extremely high incomes is that it creates Reagans. Once upon a time, Reagan was a Democrat. Admittedly, a 1950s Democrat… but then his annual earnings in one year (I seem to recall 1957?) pushed him into that top bracket, and because his annual earnings were based mostly on “his own efforts” that offended him. (And exceeded his intellectual capacity at even his best, which wasn’t very good and started serious deterioration to the point of being memorialized by Doonesbury many years before the medical diagnosis was acknowledged.)
This is a huge problem in particular in the arts: Income tends to come in unpredictable lump sums after intense periods of activity on single projects. Consider the instance of a film director, or writer, or musician, who works on a project for several years with “little” current income during those years, then receives a large lump-sum at a late stage. These are precisely the people who will “do a Reagan” and shift from their liberal youth, when they were uncomfortable, to a more-conservative middle- and later years resentment of the studio/publishing/label executives. That is, resentment of a population of almost entirely parasites…
My point is that the calendar is as much of a barrier as anything else, amplified whenever the “duration of effort” is truly distinct from “duration of payment.” And the people most harmed by the calendar are precisely those with the platforms to loudly object — and without the knowledge and sophistication to deal with the it’s-an-imperfect-world problem when it impacts them so directly. Not very many of them have ever immersed themselves in non-civilization to internalize the “taxes are the price I pay for civilization” premise, either. Of course, getting away from a lock-step calendar-based income tax system will just lead to other loopholes and other resentments…
@27 Jaws,
While there are probably only a small percentage of people who’s income fluctuates like that, it is a valid concern. And I admit I had not considered that aspect before.
However, I don’t think it is insolvable. Two ideas come to mind immediately, and no doubt others are possible.
First, allow people to place excess money in a tax-free trust and allow them to draw it down every year for up to, say, five years. At that time any remaining money is released and any income which remains in that year in the 90% bracket is taxed at 90%. It basically supplies a 5-year smoothing function to the income, but still prevents large accumulations of money year after year. Money drawn out for other purposes, like to buy stock or put into a Roth IRA, would be considered income in the year it was drawn out. No transferring from one tax-free account to another.
Second, allow people to claim refunds on taxes paid on previous years which were paid in the 90% tax bracket. For example, let us say Actor A. A. makes a blockbuster movie and gets $50,000,000 in one year, but next year takes the year off and has no income. In the first year they have to pay, say ($50,000,000 – $4,000,000)*.9 = $41,400,000 in taxes, leaving them an income on the first year of $8,600,000 which is far more than the average worker would see in a lifetime. But on the second year, making no money, they can claim a rebate of up to $4,000,000 to account for the money they paid in taxes the previous year. With this type of system you don’t need to have an end date because if in later years they make a bundle again it just adds to the pile available for possible rebates. Let the rebate be as high as the bottom of the 90% bracket, but ensure that the rebates cannot be part of an estate.
As for the Reagan scenario, if the person knows that they enter the 90% bracket when they are earning more than 100 times the median wage, that gives them some understanding of what the median wage is. It makes it easier to tell them that the fellow down the street is doing far worse than they are.
Finally, tying a top marginal rate to the median wage gives the high income people an incentive to maintain or even increase the median wage. Every dollar they can get the median wage to rise, they can keep another $100 out of the 90% tax bracket.
flex: which books would you suggest for this history of economics and tax policy you’d like us to learn? I ask because my mom was an economist, and dealt with that and adjacent issues while working for the Fed, CBO and Senate and House Budget Committees; and I’m trying to organize her writings into some sort of coherent presentation of her and her colleagues’ accumulated wisdom/experience. Your mention of economics and tax education got me thinking some history would be a good thing to build it all on (whatever the AF I actually end up building). Anyway, suggestions would be appreciated.
@Raging Bee, #49,
Where to start…, regardless of where I start I know my opinions and beliefs can be dismissed as contra-factual, because economists and other historians have provided different explanations of the events. Notwithstanding the alternative explanations I’ve read, I maintain that my interpretation of events is more accurate. Which immediately makes my interpretation suspect as I am not an authority on history or economics. In fact, I am an engineer, which is a a profession well known for their belief that they know everything and can solve everything. Just like the professions of doctors, lawyers, and priests.
So let me begin by saying that 25 years ago I started down this journey by reading in one of Rex Stout’s Nero Wolfe novels that Wolfe wouldn’t be interested in taking a case because he was already in the 90% tax bracket and wouldn’t want to work to keep only 10% of what he was paid. That intrigued me. The concept that there was a 90% tax bracket within living memory was new to me. So I looked up tax brackets, and yes, that was not a creation of fiction, it was a real, and it existed for almost 40 years from the New Deal until Nixon.
This got me to thinking, what was the response of the business community to a 90% tax bracket starting at ~$400,000? Well, the records are spotty from the 1950’s but you can find some records of CEO salaries, from SEC filings and the annual corporate reports. You can dig up the salaries for CEOs for International Business Machines, American Telephone and Telegraph, Ford, American Motors, etc., and you find that their salaries approach, but generally do not cross into the 90% tax bracket. I didn’t find this information from any single book, but from searching for historical data available on the web.
The next steps are speculative, but I think they can be supported. From those same SEC filings and annual reports you can get an idea of how much money is spent on R&D or employee salaries. From the 1920’s compared to the 1950’s a much larger sum of money was spent on employee salaries and/or R&D. While some companies in the 1920’s were investing in R&D, a lot more money was put into R&D in the 1950’s. As far as workers go, a lot of demands which were not even on the table in the 1920’s were approved in the 1950’s. Why would that happen? There are a number of possible reasons. Maybe employers were more sympatric to the problems of the laborers they hired. I’ve actually seen this suggested as a reason in some articles I’ve read from the time, the idea that WWII made men more aware of their commonality and therefor more willing to accede to the demands of the workers. Bosh. Altruism only goes so far. Primate behavior studies strongly indicate that people form in-groups and out-groups, and management vs. workers is always a conflict between two groups. Even if a manager is benevolent toward their employees, they don’t count themselves as one of them, or see their troubles in the same light. The entire history of the labor movement shows that.
On the other hand, if the corporate board doesn’t want to give themselves so much money as to put themselves into the 90% tax bracket, and they have all this cash floating around, what do they do with it? Give it to who ever asks, as long as it’s not the government. This fills two very human needs. First, don’t bow down to authority. Second, get praise from people seen as subordinate.
I admit, this is speculation. I have never found notes from corporate boards which say that they will volunteer to cap their pay at ~$400,000 and instead put that money into employee salary or research and development. But it is clear from the SEC filing and the annual reports that CEO salaries stayed below the 90% tax bracket and a lot more money went into things like R&D and a lot of union demands were met with little resistance. Again, is no there a single book detailing this. It took digging into the SEC filing and annual reports.
Now there is a little more data on what happened when the 90% tax bracket went away. In fact, Piketty’s recent book, “Capital” talks a lot about how since the mid-1970’s there has been a growing inequality. He discusses at length the period between the 1930s and the 1970s which saw a reduction in inequality, and suggested that this period was an anomaly compared to general historical trends of increasing inequality until revolution/revolt which restores some level of equality in the distribution of wealth. I will admit, that when reading Piketty’s book, with the knowledge of how the 90% tax bracket influenced behavior (through the SEC filings and annual reports), I connected the dots and came to the conclusion that the anomaly Piketty identified was probably due to an anomalous, progressive tax system. After reading Piketty’s, “Capital”, it was suggested that I read Graber’s, “Debt: The First 5000 Years” which also helped convince me that the anomalous 90% tax bracket had a greater impact on US economy than many thought.
So; if you are interesting in a reading list which brought me to the conclusions I hold, I would suggest:
All the works by Robert M. Sapolsky, which will give a basic understanding primate behavior. Personally, I think baboon behavior is more akin to human behavior than other primates, although I know a lot of progressives would like to claim that bonobo behavior is closer to human behavior (I suspect that’s really just wishful thinking).
For a better understanding of human behavior I would recommend Jean Piaget’s work. For this topic I would recommend “A Child’s Conception of Physical Causality”. As much as I enjoy all of Piaget’s work, some of it does stretch my incredulity a bit. I don’t think Piaget’s work, “The Moral Judgment of a Child”, sufficiently discounts the impact of religious teachings compared to the conclusions it suggests.
I’d suggest that Richards J. Heuer, Jr. book on the “Psychology of Intelligence Analysis” is probably the best book I know of for understanding the phenomenon of group-think and how to avoid it. I mention this because the conventional wisdom of the huge economic expansion after WWII was pent-up demand. I admit the price-controls which needed to be implemented in the late 1940s could have been required from pent-up demand, but by the 1950’s what was driving demand was greater income rather than lack of necessities. Heuer’s book helped me see that trends which violate a typical business cycle could well be independent, not related, as many economists seem to think.
As far as economic books which helped me reach my conclusions;
Book 5 of Adam Smith’s, “The Wealth of Nations”. Humorous side note; I’ve taken post-graduate courses in economic theory as part of my MBA. I was an unusual MBA student in that I had almost 15 years of experience in both the military and corporate world before pursuing an MBA. Outside of classes I used to hang out with my econ professors to discuss economic theories. At one point I asked them if they had read “The Wealth of Nations” in it’s entirety. Both of them, both Ph.Ds.’, admitted that they hadn’t, they had only read the excerpts presented to them in the classes they had taken. Neither of them had read Book 5, which discusses what a monarch should do to increase the economy of his nation once the nation starts reaping the benefit of the Adam Smith’s theories. Spoiler Alert: Adam Smith says the monarch should spend the money on ensuring equal justice, building roads and other transportation/communication infrastructure, and improving the education of the citizens. To me, Book 5 is far more important than the extensive discussion of how a pin is manufactured.
Thorstein Veblen’s, “The Theory of the Leisure Class”. A short read, but crucial to understanding the differences between manager and laborer.
Henry George, “On Poverty and Progress”. A bit outdated, but written when the robber barons were taking advantage of the loose US laws on labor and exploitation. The most-read economist of his day. His day being around 1900.
Galbraith, “The Affluent Society”. Written during the time when the 90% tax bracket had been in place for about 20 years and workers were looking at maybe getting a 32 work-week, or even less. This is probably the book which led to George Jetson from that famous animated TV series, complaining about the 5 minutes he had to be at work to press a button. I suspect it also influenced Gene Rodenberry on his conception of the society which exists in the “Star Trek” series.
Then, on this topic, I would mention Piketty’s “Capital” and Graber’s “Debt: The first 5000 years”.
Beyond that, I would have to point you to dozens of SEC and annual report filings, a lot of fiction written in the 1920’s through 1970’s which reveal corporate culture unintentionally, see the works of John Brunner in particular, but also Upjohn Sinclair and John Dos Passos. For a good read, try the work of Shepherd Mead, I particularly recommend, “The Big Ball of Wax”.
Finally, there are literally dozens of websites which show that inequality in the US was getting lower between 1930 and 1980, then started to rise again. So far as I can tell, there is only one other factor in US which spanned the same time period, the 90% top marginal tax. So many other things occurred during that time span that it’s hard to draw the conclusion that there is some connection. There is certainly a correlation between a 90% tax bracket and the increase in middle-class size and wealth, whether there is a cause/effect relationship…, well, I think there is, but others may disagree.
What tips me to my conclusion it that the entire structure of a corporation is to concentrate money, and without any other influences, the money will always concentrate at the top. If the CEOs are not keeping the money because they would have to give 90% of it to the government, and they are not giving it to the government, where does it go? The only place it can go is back into the economy. Which helps everyone.
Again, my conclusions are not from any textbook, but a book could certainly be written. My conclusions can also be seen as a dilettante’s obsession, or even less flatteringly, as the view of an old man shouting at clouds. I am an old man, not as old as P.Z., but I entered the workforce in the 1980’s with a belief that hard work and diligence would lead to success. In many ways I have been successful, but I’m in my late 50’s with the same risks/concerns I had in my early 20’s. My father, on the other hand, retired in his 40’s with the satisfaction that things would generally be okay for the rest of his life. He honestly does not understand what succeeding generations are going through. My search for why wealth stopped flowing to the middle class and instead started flowing to the already wealthy led me to examining policy changes around the Reagan years when this change started to happen. There were a lot of policy changes which have occurred, but only one matched both the growth and the shrinkage of the middle class, and that was a limitation of money flowing to the already rich. There are many ways to curtail money flowing to the already rich, but putting a 90% tax bracket in place and letting them choose to limit their income probably results in the most stable means of change for society. A revolution is called that because if comes around again, the rich may be different people but there are still rich. But a society which limits the rewards to the wealthy is probably stable enough to invest in it’s future.
I know this is a long comment, and may not really answer your question. But it’s the best I have. I’m sure your Mom’s notes are fascinating reading. If you ever get a chance, take a look at “The Secret Diary of Harold L. Ickes”. Ickes was Secretary of the Interior under F.D.R. and his diary is incredibly interesting. The book is about the day-by-day workings of a presidential administration. It would not surprise me if your mother’s writings would be as enjoyable a read. Good luck on your endeavor.
flex @48:
I’ve known people here in Canada that have used their RRSPs explicitly for that. It’s not uncommon for contractors or students on co-op university programs (where some years the student is working 4 months and in school 8 months and some years the student is working 8 months and in school 4 months). When you make extra money, put it into an RRSP which reduces your taxable income. Money taken out of the RRSP later counts as taxable income, but if your income in general is low enough that year you might still get it under the deductions and not actually pay tax on it.
I’m not sure how workable that is in the U.S., though; I’ve only had to deal with U.S. taxes once. (J-1 visa, earned enough that had to file a 1040NR and then claim the payment back as a credit on my Canadian taxes, meaning I got to deal with some of the messier parts of both country’s tax systems that year. The impression I got was that at the most basic level the U.S. tax forms looked simpler, but that’s because the standard Canadian tax form has everything that 95% of the population needs to file taxes, while the much shorter standard American tax form is pretty much guaranteed to require supplemental forms for anything remotely outside of pure wage-slave status.)