Thanks to the fading of the budget deficit as the only thing “responsible” policy makers must talk about, issues of greater near-term concern to both the economy and most of the people in it are surfacing in the echo chamber of public debate.
Inequality has most notably surfaced of late, thanks in part to the President’s elevation of that theme. As I and others have written lately, this is a real advance, but it matters, of course, where you take it. To me, the two most fruitful avenues are its impact and what to do about it.
On impact, a primary concern is that at today’s excessive levels, the inequality of income and especially wealth begins to block opportunities for those on the wrong side of the divide. On what to do about it, I’m with Krugman re jobs and full employment. But Mark Schmitt makes a strong case for the targeting the outsized political influence of concentrated wealth. And it’s not like you have to choose one.
In fact, there’s another important part of this inequality debate that I haven’t heard enough about lately—an issue I wrote a lot about back during the Occupy Wall St. movement: accountability.
Here’s how I described the issue back then:
Protest movements are often born of two interacting injustices: the lack of opportunity and the lack of accountability by the persons perceived to be blocking that opportunity.
Given the facts of the income distribution, the trends in real middle-class incomes and poverty, the failure of policy to do much to change these trends, the government bailouts of the only class that’s benefitted from the recovery so far, the absence of clear punishment/accountability for the financial and political institutions that helped inflate the debt bubble that continues to squeeze economies across the globe, and the dysfunctionality of the current political system (they’re arguing more about whether they can keep the lights on than whether they can help solve the economic problems), the more interesting question is what took so long for such protests to show up?
This thought came back to me today upon reading this headline in the NYT:
Fined Billions, JPMorgan Chase Will Give Dimon a Raise
That’s Jamie Dimon, the CEO of JPMorgan. The piece points out that last year, after the bank suffered a multi-billion dollar loss from an out-of-control derivative trade (the infamous “London Whale” episode), Dimon’s compensation was cut in half to $11.5 million. This year, the board apparently agreed to replace some of the cut, despite large fines related to the bad trade, JPM’s role in the mortgage backed security crash, and turning “a blind eye to signs of fraud” around the Madoff scheme.
The debate pitted a vocal minority of directors who wanted to keep his compensation largely flat, citing the approximately $20 billion in penalties JPMorgan has paid in the last year to federal authorities, against directors who argued that Mr. Dimon should be rewarded for his stewardship of the bank during such a difficult period.
Regarding that stewardship point, it’s worth noting that the bank was, in fact, highly profitable last year, to the tune of $18 billion.
Those facts and numbers help explain why accountability—and lack thereof—is another important part of what I believe people think about and hear when the broad “inequality” issue is raised. But it goes beyond that. The financial sector, now highly profitable—JPM isn’t the only bank posting double-digit profits in the billions—helped mightily to inflate the housing bubble from which most American households are still recovering.
So, when policy makers are thinking about the policy set implied by the inequality debate, I’d strongly add accountability–and thus, government oversight–to the list. I don’t think we can count on corporate boards to do it for us.