Income and Wealth Inequality: The Good, The Bad, and The Ugly,  Part Three: The Ugly by Peter Burrows 5/14/16 elburropete@gmail.com  silvercityburro.com

It’s ironic that Bernie Sanders, who calls himself a socialist, rails incessantly against income inequality.  Ironic because income inequality in socialist countries is gargantuan, far, far more than in free enterprise countries.

Bernie has been bitching about the wealthiest family in America, the Waltons, who are the children of Sam Walton, founder of Walmart. Hey, Bernie: Sam Walton built the world’s largest retail chain by offering the best prices, by helping all his shoppers live better, especially the poorest, whom you claim to care about.  Not a nickel of the Walton’s money was stolen from anybody.

Contrast that with the wealthiest family in Cuba, the Castros.  Some years ago, Fortune Magazine estimated Fidel’s worth at $900 million, but I personally don’t give their estimate much credence. It was mostly guess-work.  What isn’t guess-work are documents leaked from London-based HSBC’s Swiss branch in February 2015 that revealed 29 Cubans with 70 accounts worth $83.8 million, with the largest account being $48.5 million.(1)

None of the clients were Castros, but it strains credulity to think Fidel and Raoul and all their children don’t also have many millions stashed away.  And  remember, this is from only ONE bank.  In fact, it has been alleged that the Castros have their own bank for their accounts. (2)

Of course, Bernie will say that’s a bad example as Cuba is a socialist dictatorship and Bernie is a democratic socialist, an elected socialist, like Hugo Chavez in Venezuela. Ooops! Bad example.

The Castros are poor cousins compared to socialists who have better stuff to steal than sugar, such as the afore mentioned Hugo Chavez, the late socialist leader of oil-endowed Venezuela. (I first wrote “oil-rich” Venezuela, but having oil doesn’t make a nation rich if socialists are in charge.)  Chavez died in 2013, but not before running the nation into the ground in his 14 years in charge.

Things are no better under his successor, fellow-socialist Nickolas Maduro. Today, Venezuela rations toilet paper, food, electricity, and just about everything.  People are hunting stray dogs and cats, not to adopt, but TO EAT.(3)

However, there are a few Venezuelans who don’t have to stand in line for anything or worry about eating their pets. One of them is Hugo Chavez’s daughter, Maria, who reportedly has $4.2 billion in American and Andorran banks. (4) Gosh, I wonder how she got all that money. Probably wrote some books like J.K. Rowling’s Harry Potter series, which were made into movies and made Ms. Rowling a billionaire.  Of course. Maria must have done something like that.

Chavez had two other daughters, and the three of them were estimated to have cost Venezuela $3.6 million a day. (5) That‘s $3.6 million A DAY. Over 14 years, that’s a lot of money.

The source of all this stolen money is the Venezuelan oil company, PDVSA, owned and operated by the Venezuelan government.  (American-based Citgo is a wholly owned subsidiary.) PDVSA had peak profits of $15.9 billion in 2013 when oil prices averaged about $95 per barrel.  How much was skimmed from PDVSA’s profits over the years is something we may never know, but the leaked HSBC documents revealed 1,138 Venezuelan accounts with $14.8 billion in deposits. (6) This in ONE bank.

Alejandro Andrade, Chavez’s former body guard who became Venezuela’s treasury minister from 2007 to 2010, had three HSBC accounts with $698 million in deposits.   Andrade is now living in Florida, and is reputedly a horse aficionado. (7) Probably works in some stable somewhere, shoveling stuff out.  Right.

The HSBC documents also showed some $270 million in the accounts of citizens of Zimbabwe, where at last count, 98% of the economy was run by the government.  Remember, this is just one bank. Estimates of the total amount deposited in Swiss banks by Zimbabweans is $4.5 billion. (8)

Sure is easy to get rich in socialist countries, as long as you’re not one of the socialist masses.  You have to be one of those Hugo Chavez/Bernie Sanders types who come to power wailing and moaning about how the little guy is being screwed by an evil private enterprise system that has bought the government, hates poor people, exploits workers and eats babies.  Out with those guys and in with the  “good” guys, the Hugos, the Bernies, the Maos, the Kim Jong Uns who will then proceed to enrich themselves in the economic justice con game.

Mao, too?  Yes, indeed. While his people starved, Mao had gourmet food flown in from around the country; while families of three generations communed in one room, Mao had over 50 estates, some of which included entire mountains and lakes for his exclusive use.  (9)

Mao’s example is carried on today by China’s satellite, North Korea, where Supreme Leader Kim Jong-Un spends a fortune on luxury goods while his people suffer widespread hunger and malnutrition, according to a UN report released in 2014. (10)

Sadly, once in power, all these “economic justice” types quickly become the new fat cats.  Read George Orwell  classic “Animal Farm.”  In fact, if all this blather about “inequality” puts people who want to “fix” inequality in power, it guarantees the sort of inequality we see in places like Venezuela. The power to “correct”  subjective inequalities is too much power, which will be abused. Always.

Gosh, you say, that sort of thing can‘t happen here.  Oh?  Have you ever heard of Franklin Raines?   He was President of Federal National Mortgage Corporation, a.k.a. Fannie Mae, from 1998 to 2004.  Fannie Mae was/is a government sponsored enterprise, a GSE, under the control of The Department of Housing and Urban Development.  It was also a publicly owned company with stock trading on the New York Stock Exchange.

Raines resigned in the wake of an accounting scandal that involved overstating the earnings of Fannie Mae for years.  Those overstated earnings, to the tune of $6.3 billion, made Fannie Mae’s stock a Wall Street darling which resulted in BIG profits for Raines’s stock options:   “– of the more than $90 million in executive compensation received by Raines from 1998 through 2003, over $52 million  was directly tied to achieving earnings-per-share targets  through phony accounting.” (11)

Remember: FRANKLIN RAINES WAS ESSENTIALLY A GOVERNMENT EMPLOYEE.

A few years after Raines left, Fannie Mae spiraled into bankruptcy and helped take the entire nation down with it.  I think the government should have gone after Raines’s huge compensation in a “clawback” like they did with those innocents who profited from Bernie Madoff’s Ponzi scheme, but they didn’t.  Makes one wonder if there is a double standard in the Justice Department like there is in the mainstream media. If Raines had been a big-shot Republican, you‘d have heard of him!

Which brings to mind a thought experiment:  Assume that instead of the Clinton Foundation, there was a Bush Foundation that had received hundreds of millions in contributions from around the world, had hired Bush cronies at BIG salaries, had a Bush kid running it and that Jeb Bush was the Republican presidential nominee who had made $21 million giving speeches in a recent 18 month period. Now assume the New York Times had endorsed Bush —WHOA! That’s an assumption too far when it‘s a Republican being ugly. (12)

(1) http://babalublog.com/2015/02/09/swiss-leaks-reveals-84-million-in-illegal-hsbc-bank-accounts-by-70-castroite-cubans/
(2) http://www.therealcuba.com/?page_id=74
(3) http://townhall.com/tipsheet/mattvespa/2016/05/09/venezuelans-are-now-hunting-cats-dogs-and-birds-for-food-because-socialism-cant-provide-n2160036
(4) http://www.dailymail.co.uk/news/article-3192933/Hugo-Chavez-s-ambassador-daughter-Venezuela-s-richest-woman-according-n
(5) ibid (4)
(6) https://panampost.com/pedro-garcia/2015/02/11/venezuela-outdoes-all-latam-nations-in-hsbc-tax-evasion-scheme/

(7) http://www.miamiherald.com/news/nation-world/world/americas/venezuela/article9601697.html
(8) http://www.voazimbabwe.com/a/zimbabwe-money-foreign-currency-offshore-accounts/2634022.html
(9) http://tucson.com/news/opinion/mao-preached-the-hard-life-but-lived-in-luxury/article_c2be87cd-fa70-517f-996b-c42c09fd2282.html
(10) http://www.huffingtonpost.com/2014/02/18/north-korea-luxury-goods_n_4808823.html
(11) Gretchen Morgenson And Joshua Rosner, Reckless Endangerment (Times Books, 2011)  p. 254.
(12) New York Times, 1/30/16: Hillary Clinton for the Democratic nomination – Voters have the chance to choose one of the most broadly and deeply qualified candidates in modern history –

Income and Wealth Inequality, The Good, The Bad, and The Ugly – Part Two: The Bad by Peter Burrows 5/4/16 elburropete@gmail.com – silvercityburro.com (Note: I somehow failed to enter this blog back in May of 2016. Retyped and posted 3/20/2020. Another mistake. Sigh.)

Bernie Sanders is on to something when he says the top one percent of American workers are screwing the rest of us royally, and it’s all because they enjoy special privileges and protections from the government.  The system is rigged, all right.   

Where Bernie is wrong is saying it’s only one percent. It’s closer to seven percent. Here’s how I figure it:  The number of state, local and federal civilian workers is about 17 million. (1) Add almost seven million retired government workers and the number is about 24 million, or seven percent of the total population of 324 million. (2) This is the REAL “one percent.”  

This privileged group of fat cats is under-worked, overpaid, impossible to fire, retired too early and retired too generously. Most are unionized, and most are Democrats. Some enjoy job security that is absolutely scandalous.(3)  They form the backbone of the Democrat Party, supplying money, volunteers and party officials. Attend a meeting of your local Democrat Party and there they are: Government workers, active and retired, federal, state and local.  Don’t forget: School teachers and college professors are BIG in this group.   

These people enjoy the REAL income inequality we should do something about, not the meritorious inequality that Bernie et al hyperventilate about. I suspect part of the “one percent” meme is a smoke screen to divert attention from the inequality government workers enjoy, at taxpayers’ expense. This pay inequality is for the most part undeserved and simply a function of politicians buying the votes of government employees.  

The clueless Republicans should make this inequality an issue, and they should also raise the moral issue that part of the public payrolls are essentially involuntary donations to the Democrat Party from taxpayers who aren’t Democrats. Union dues, after all, come out of the workers’ pay that first comes out of the taxpayers’ pockets. 

We’re not talking trivial stuff here.  At the federal level, a Cato Institute study last year put the average difference in pay AND benefits at an astounding $52,000 per year, which amounts to federal employees receiving 78% more than workers in comparable private jobs.  The author of the study summed it up pretty well: “The federal government has become an island of secure and high-paid employment, separated from the ocean of average Americans competing in the economy.” (4) 

At the state and local level, things are not much better. The Bureau of Labor Statistics puts the total cost of a state or local worker at 45% more than for an equivalent private sector worker. (5) In fact, the state and local government jobs are by far the bigger problem. While the number of civilian employees at the federal level has been surprisingly flat for the last twenty years or so at about 2.7 million, state and local government employment has gone from six million in the 1950’s to over 19 million today. (6) 

Let me be clear about a number of things. First, I don’t blame the workers. They are taking advantage of a good deal that they individually had little to do with. At a recent visit to my dermatologist, while he was carving and freezing spots on my haggard old visage, he was opining that he should have gone to work for the VA years ago and I was saying I should have gone to work for the IRS. Why, instead of sitting in his office, we’d probably both be sitting on deck chairs enjoying a Caribbean cruise and blah, blah, blah. Hindsight.  

Second, not all government workers are Democrats. I know two Republicans in good health who retired, in their 50’s, from good government jobs and both are very active in Republican politics.  Both should still be on the job, but that’s just my opinion, one they would both take issue with, to put it mildly.  

Third, some government workers are worth every penny they are paid. Cops come to mind, some teachers, plenty of health workers, and the occasional conscientious vin ordinaire bureaucrat. But the 634 school custodians, a.k.a. janitors, who made over $100,000 per year in New York City for the school year 2013-2014? (7) Not them.  Also, not Chicago school teachers, whose median salary is $71,017, of which only two percent goes toward their fat pensions. This is outrageous considering that almost 92 percent of the Chicago schools have over half their students NOT proficient in reading or math for their grade level. (8) 

The Republicans share the blame for this inequity in government pay. When in control in Washington, D.C., they’ve done nothing to rein in Federal worker compensation, and today there are 32 states with Republican governors and Rauner of Illinois is the only one I know of who’s tried to get a handle on state pensions – unsuccessfully, I might add.  

A good start would be to tie state and local retirement outlays to the age requirements in the Social Security system.  For example, a state worker spends thirty years on the job, is 52, fully vested and wants to retire. Well, congratulations and Bon Voyage! Oh, by the way, your retirement checks won’t start showing up in your mailbox until you are 62, or 67 or whatever the Social Security ages are for partial and full payment. It’s a thought. 

The huge problem of unfunded pension/benefit obligations is beginning to get noticed. At least a couple of states, New Jersey and Illinois, have obligations that are simply unsolvable short of bankruptcy, an escape hatch states are not legally able to pursue.  Cities have the bankruptcy option but will first raise taxes, as is happening in Chicago, and then turn to their state governments for bailouts, and then from there will join their state governments in the queue to get the Federal government to foot bail-outs. Bet on it.  

I can hear the arguments now: If they did it for General Motors, they can do it for Poughkeepsie (or wherever.) If this is allowed to happen, the unions representing state and local workers will have pulled off a major tax swindle: Negotiate state and local labor contracts that pay the moon and send the bill to Washington.  

To prevent this, the stated need the potion of bankruptcy law protection. Bankruptcy allows contracts to be rewritten or even annulled, including pension agreements.  The Federal law disallowing state bankruptcies should be changed, but I’m not sure it will ever happen.  Too many retirees will flock to D.C. to tell their tales of impending doom, many of them absolutely true.  

FI don’t know how this problem can be solved without a lot of pain. Perhaps some sort of grandfathering scheme for pensioners with reasonable benefits, some sort of claw-back for pensioners with unreasonable benefits, but SOMETHING has to be done.  

Allowing states to declare bankruptcy still wouldn’t do anything about the Federal workers and their fst pay and fatter retirement benefits. Maybe Bernie will start bitching about this inequality, the inequality that government can, and should, do something about. I’m not holding my breath.   

(1) http://blogs.wsj.com/economics/2014/11/07/the-federal-government-now-employs-the-fewest-people-since-1966/                                                                                                                  (2) I tried, hard, to get a number for all retired government workers, state, local and Federal. The best I could do is to use a number, seven million, implied in an article in the Wall Street Journal, 12/29/15, “States’ Pension Woes Split Democrats and Union Allies” by Timothy W. Martin and Kris Maher.                                                                                              (3) http://nypost.com/2016/01/17/city-pays-exiled-teachers-to-snooze-as-rubber-rooms-return/                                                                                                                                                  (4) http://freebeacon.com/issues/study-government-workers-make-78-percent-more-than-private-sector/                                                                                                                                      (5) http://www.breitbart.com/big-government/2014/03/13/government-workers-cost-45-more-than-private-sector/                                                                                                                    (6) ibid (1)                                                                                                                                              (7) “Most New York City Custodians Do Really, Really Well” by Matt Vespa, Townhall 9/21/15                                                                                                                                                    (8) http://townhall.com/columnists/timbenson/2016/01/13/thanks-to-teachers-union-chicago-public-schools-are-a-perpetualmotion-machine-of-mediocrity-n2103697                  (9) http://chicago.cbslocal.com/2016/02/01/pension-bill-on-hold-despite-rauner-cullerton-agreement/