Tag Archives: inequality

Education, Income Inequality and the Great Divide

November 5, 2016 Mike

There’s a commonly held belief that having a greater level of education ensures a higher level of lifetime income. While this is generally true the picture is rather more complex. It’s painfully clear that income inequality is more acute now than it has ever been and the gap between white and black wage earners in the United States is wider than ever. But, perhaps surprisingly, the overall income gap is increasing between well-educated whites and blacks. Why is this the case? A detailed study by the Economic Policy Institute (EPI) reminds us that:

Income growth in recent decades has been limited, more or less, to the highest echelon of earners, a group that is overwhelmingly white. Out of every 1,000 households in the top 1 percent, only two are black, while about 910 are white. And so, as economic forces lifted the incomes of the 1 percent, the blacks on lower rungs of the economic ladder have been largely left behind.

So while black Americans with high school diplomas and college degrees may historically be doing better, the predominantly white top 1 percent continues to pull away.

From Washington Post:

We’ve known for a while that black Americans aren’t making economic progress. A recent report from the Economic Policy Institute, a left-leaning think tank, shows that the black-white wage gap is now the widest it has been since 1979. What’s more interesting, though, is how inequality has been increasing, and for whom.

It used to be that low-skilled black workers suffered the greatest disadvantage relative to their white counterparts. But there has been a strange reversal in the past 40 years. EPI finds that the black-white wage gap has become wider — and is widening faster — among those with more education.

This chart illustrates the history of the wage gap among men with less than 10 years of job experience. The early years are the most crucial in a person’s career, and also the most sensitive to fluctuations in the job market.

Read the entire article here.

Economics, Idea Soup

Scary Chart. Scary Times

June 24, 2016 Mike

A recent report by the US Federal Reserve examines the relative financial health of US households. It makes for very sober reading, highlighting the economic pain suffered by a large swathe of the population.

The report centers around one simple question put to households:

Can you come up with $400 in an emergency (say an unexpected medical bill) and pay for it either in cash or with a credit card whose bill you could pay off within a month?

The answer was jaw-dropping:

For people earning between $40,000 and $100,000 (i.e. not the very poorest), 44 percent said they could not come up with $400 in an emergency.

Even more astonishing, 27 percent of those making more than $100,000 also could not.

The report suggests that this is not poverty. So what on earth is going on?

One thing is clear, and it’s a disturbing message that we keep seeing in many of our neighborhoods and echoed in the media — the great middle-class is declining and income inequality continues to broaden. At the low-end of the economic spectrum, the number of households in or close to poverty is expanding — this, in the richest country in the history of the world. At the high-end, the 1 percent, and especially the richest 0.1 percent, hold an ever greater share of the income and wealth.

Image: Percent of respondents who would completely pay an emergency expense that costs $400 using cash or a credit card
that they pay off at the end of the month (by race/ethnicity and household income). Courtesy: Report on the Economic Well-Being
of U.S. Households in 2014, May 2015. Board of Governors of the Federal Reserve System.

Economics, Idea Soup, Political Discourse

Divergence

May 29, 2016 Mike

Columnist Thomas B. Edsall over at the NYT offers an incisive article on the diverging fortunes and misfortunes of Americans in the top and bottom fifths of the population as measured by income. We’ve all become accustomed to hearing about the concentration of wealth and power by the 0.1 percent and even the 1 percent. But the separation between the top 10-20 percent and bottom 10-20 percent is no less stark. This separation in income and wealth is now increasingly fracturing the United States along various fault lines: geography, educational attainment, health care access, race and class.

From NYT:

For years now, people have been talking about the insulated world of the top 1 percent of Americans, but the top 20 percent of the income distribution is also steadily separating itself — by geography and by education as well as by income.

This self-segregation of a privileged fifth of the population is changing the American social order and the American political system, creating a self-perpetuating class at the top, which is ever more difficult to break into.

The accompanying chart, taken from “The Continuing Increase in Income Segregation,” a March 2016 paper by Sean F. Reardon, a professor of education at Stanford, and Kendra Bischoff, a professor of sociology at Cornell, demonstrates the accelerating geographic isolation of the well-to-do — the upper middle and upper classes (a pattern of isolation that also applies to the poor, with devastating effect).

In hard numbers, the percentage of families with children living in very affluent neighborhoods more than doubled between 1970 and 2012, from 6.6 percent to 15.7 percent.

At the same time, the percentage of families with children living in traditional middle class neighborhoods with median incomes between 80 and 125 percent of the surrounding metropolitan area fell from 64.7 percent in 1970 to 40.5 percent.

Read the entire article here.

Image: Chart showing income and wealth inequality, 1913?2014, from “The Continuing Increase in Income Segregation”, March 2016. Courtesy: Sean F. Reardon and Kendra Bischoff.

Social Sciences

World Happiness Ranking

April 16, 2016 Mike

Yet again, nations covering the northern latitudes outrank all others on this year’s global happiness scale. Not surprisingly, Denmark topped the happiness list in 2015, having secured the top spot since 2012, except for 2014 when it was pipped by Switzerland. The top 5 for 2015 are: Denmark, Iceland, Norway, Finland, and Canada.

The report finds that the happiest nations tend to be those with lower income disparity and strong national health and social safety programs. Ironically, richer nations, including the United States, tend to rank lower due to rising inequalities in income, wealth and health.

That said, the United States moved to No. 13, up two places from No. 15 the previous year. This is rather perplexing considering all the anger that we’re hearing about during the relentless 2016 presidential election campaign.

At the bottom of the list of 157 nations is Burundi, recently torn by a violent political upheaval. The bottom five nations for 2015 are: Benin, Afghanistan, Togo, Syria and Burundi; all have recently suffered from war or disease or both.

The happiness score for each nation is based on multiple national surveys covering a number of criteria, which are aggregated into six key measures: GDP per capita, social support; healthy life expectancy; freedom to make life choices; generosity; and perceptions of corruption.

The World Happiness Report was prepared by the Sustainable Development Solutions Network, an international group of social scientists and public health experts under the auspices of the United Nations.

Monarchy: Bad. Corporations and Oligarchs: Good

December 5, 2015 Mike

The Founders of the United States had an inkling that federated democracy could not belong to all the people — hence they inserted the Electoral College. Yet they tried hard to design a system that improved upon the unjust, corruptness of hereditary power. But while they understood the dangers of autocratic British monarchy, they utterly failed to understand the role of corporations and vast sums of money in delivering much the same experience a couple of centuries later.

Ironically enough, all of Europe’s monarchies have given way to parliamentary democracies which are less likely to be ruled or controlled through financial puppeteering. In the United States, on the other hand, the once shining beacon of democracy is firmly in the grip of corporations, political action committees (PAC) and a handful of oligarchs awash in money, and lots of it. They control the discourse. They filter the news. They vet and anoint candidates; and destroy their foes. They shape and make policy. They lobby and “pay” lawmakers. They buy and aggregate votes. They now define and run the system.

But, of course, our corporations and billionaires are not hereditary aristocrats — they’re ordinary people with our interests at heart — according to the U.S. Supreme Court. So, all must be perfect and good, especially for those who subscribe to the constructionist view of the US Constitution.

From the Guardian:

To watch American politics today is to watch money speaking. The 2016 US elections will almost certainly be the most expensive in recent history, with total campaign expenditure exceeding the estimated $7bn (£4.6bn) splurged on the 2012 presidential and congressional contests. Donald Trump is at once the personification of this and the exception that proves the rule because – as he keeps trumpeting – at least it’s his own money. Everyone else depends on other people’s, most of it now channelled through outside groups such as “Super PACs” – political action committees – which are allowed to raise unlimited amounts from individuals and corporations.

The sums involved dwarf those in any other mature democracy. Already, during the first half of 2015, $400m has been raised, although the elections are not till next autumn. Spending on television advertising is currently projected to reach $4.4bn over the whole campaign. For comparison, all candidates and parties in Britain’s 2010 election spent less than £46m. In Canada’s recent general election the law allowed parties to lay out a maximum of about C$25m (£12.5m) for the first 37 days of an election campaign, plus an extra C$685,185 (to be precise) for each subsequent day.

Rejecting a challenge to such campaign finance regulation back in 2004, the Canadian supreme court argued that “individuals should have an equal opportunity to participate in the electoral process”, and that “wealth is the main obstacle to equal participation”. “Where those having access to the most resources monopolise the election discourse,” it explained, “their opponents will be deprived of a reasonable opportunity to speak and be heard.”

The US supreme court has taken a very different view. In its 2010 Citizens United judgment it said, in effect, that money has a right to speak. Specifically, it affirmed that a “prohibition on corporate independent expenditures is … a ban on speech”. As the legal scholar Robert Post writes, in a persuasive demolition of the court’s reasoning, “this passage flatly equates the first amendment rights of ordinary commercial corporations with those of natural persons”. (Or, as the former presidential candidate Mitt Romney put it in response to a heckler: “Corporations are people, my friend,”)

In a book entitled Citizens Divided, Post demonstrates how the Citizens United judgment misunderstands the spirit and deeper purpose of the first amendment: for people to be best equipped to govern themselves they need not just the freedom of political speech, but also the “representative integrity” of the electoral process.

Of course, an outsize role for money in US politics is nothing new. Henry George, one of the most popular political economists of his day, wrote in 1883 that “popular government must be a sham and a fraud” so long as “elections are to be gained by the use of money, and cannot be gained without it”. Whether today’s elections are so easily to be gained by the use of money is doubtful, when so much of it is sloshing about behind so many candidates, but does anyone doubt the “cannot be gained without it”?

Money may have been shaping US politics for some time, but what is new is the scale and unconstrained character of the spending, since the 2010 Citizens United decision and the Super PACs that it (and a subsequent case in a lower court) enabled. Figures from the Center for Responsive Politics show outside spending in presidential campaign years rising significantly in 2004 and 2008 but then nearly trebling in 2012 – and, current trends suggest, we ain’t seen nothing yet.

The American political historian Doris Kearns Godwin argues that the proliferation of Republican presidential candidates, so many that they won’t even fit on the stage for one television debate, is at least partly a result of the ease with which wealthy individuals and businesses can take a punt on their own man – or Carly Fiorina. A New York Times analysis found that around 130 families and their businesses accounted for more than half the money raised by Republican candidates and their Super PACs up to the middle of this year. (Things aren’t much better on the Democrat side.) And Godwin urges her fellow citizens to “fight for an amendment to undo Citizens United”.

The Harvard law professor and internet guru Larry Lessig has gone a step further, himself standing for president on the single issue of cleaning up US politics, with a draft citizen equality act covering voter registration, gerrymandering, changing the voting system and reforming campaign finance. That modest goal achieved, he will resign and hand over the reins to his vice-president. Earlier this year he said he would proceed if he managed to crowdfund more than $1m, which he has done. Not peanuts for you or me, but Jeb Bush’s Super PAC, Right to Rise, is planning to spend $37m on television ads before the end of February next year. So one of the problems of the campaign for campaign finance reform is … how to finance its campaign.

Read the entire story here.

Image courtesy of Google Search.

Idea Soup

The Greatest Fear

June 14, 2015 Mike

We are often told and then reminded that the rich are not that different from the poor. Though, the storytellers weaving these narratives are usually organs of the rich, of course.

While I’m lucky to have had the education and initiative to rise above the poverty that my parents endured — I would categorize myself as “in between” — I have to gulp incredulously at the utter insensitivity of some who seem to have it all, and yet want more.

One very rich gentleman reminds us that (some) rich people are indeed very different from the poor. Let’s look at Johann Rupert’s (owner of Cartier and other luxury brands) biggest fear, which would seem to be rather different from the more pressing fears of the poor, and for that matter, the remaining 99 percent (think: food, health care, shelter, transportation etc etc).

From the Independent:

The multi-billionaire owner of luxury jewellery company Cartier has revealed his greatest fear – robots replacing workers and the poor rising up to bring down the rich.

Speaking at the Financial Times Business of Luxury Summit in Monaco (obviously), the fashion tycoon told his fellow elite that he can’t sleep at the thought of the social upheaval he thinks is imminent.

According to Bloomberg, Johann Rupert told the conference to bear in mind that when the poor rise up, the middle classes won’t want to buy luxury goods for fear of exposing their wealth.

He said he had been reading about changes in labour technology, as well as recent Oxfam figures suggesting the top 1 per cent of the global population now owns more wealth than the other 99 per cent.

“How is society going to cope with structural unemployment and the envy, hatred and the social warfare?” he said. “We are destroying the middle classes at this stage and it will affect us. It’s unfair. So that’s what keeps me awake at night.”

Read the entire story here.

Environs

The Six Percent

May 5, 2015 Mike

According to the last US census, around 6 percent of the population — that’s 20 million people — live in trailer parks. This is a startling and significant number, and it continues to grow; economic inequality and financial hardship hits those on the lowest rungs of the socio-economic ladder the hardest. And, of course, this means that trailer park owners, typically people at the other end of the economic ladder, are salivating over increased share, higher rents, greater revenue and better profits.

From the Guardian:

The number one rule is stated twice, once in the classroom and once on the bus: “Don’t make fun of the residents.” Welcome to Mobile Home University, a three-day, $2,000 “boot camp” that teaches people from across the US how to make a fortune by buying up trailer parks.

Trailer parks are big and profitable business – particularly after hundreds of thousands of Americans who lost their homes in the financial crisis created a huge demand for affordable housing. According to US Census figures, more than 20 million people, or 6% of the population, live in trailer parks.

It is a market that has not been lost on some of the country’s richest and most high-profile investors. Sam Zell’s Equity LifeStyle Properties (ELS) is the largest mobile home park owner in America, with controlling interests in nearly 140,000 parks. In 2014, ELS made $777m in revenue, helping boost Zell’s near-$5bn fortune.

Warren Buffett, the nation’s second-richest man with a $72bn fortune, owns the biggest mobile home manufacturer in the US, Clayton Homes, and the two biggest mobile home lenders, 21st Mortgage Corporation and Vanderbilt Mortgage and Finance Company. Buffett’s trailer park investments will feature heavily at his annual meeting this weekend, which will be attended by more than 40,000 shareholders in Omaha.

Such success is prompting ordinary people with little or no experience to try to follow in their footsteps.

On a bright Saturday morning, under the Floridian sun, Frank Rolfe, the multimillionaire co-founder of Mobile Home University who is the nation’s 10th-biggest trailer park owner, conducts a tour of parks around Orlando, Florida. A busload of hopefuls, ranging in age from early 20s to late 70s, hangs on his every word.

As the tour approaches its first stop, Rolfe repeats a warning which earlier flashed on to a screen in a conference room of the Orlando airport Hyatt hotel: “When we are on the property, don’t make fun of the residents, or say things that can get us in trouble or offend anyone. I once had a bank come to a mobile home park and say in front of my manager, ‘Only a white trash idiot would live in a trailer.’”

Then comes a second, more unexpected warning: “Now, guys, I’ve got to tell you this park, I believe, is a sex-offender park. Everyone in here is a sex offender. I could be wrong, we’re going to find out, but I think that’s the deal on this one. So stay together as a herd.”

He’s not wrong. Signs at the entrance to Lake Shore Village, on the north-eastern outskirts of Orlando, warn: “Adults only. No Children.” The park is described on the owner’s business cards as “sex offender housing” and a “habitat for offenders”.

On the forecourt the owner, Lori Lee, tells Rolfe’s students she dedicated the park to sex offenders 20 years ago – and hasn’t looked back.

“We were a family park when we first started. [But] about 20 years ago, I couldn’t get on the property because a drug dealer had separated from his girlfriend in the park across the street … and there was a long line of cars because she was undercutting her boyfriend.”

Lee, 70, says she was advised that if she took in sex offenders the drug dealers would leave. “So, I started taking in sex offenders, and I have a very clean property. Sex offenders are watched by the news media, the TV, the sheriff’s department, probation, the department of corrections … so when they are in there, the drug dealers and the other people don’t like to be around.”

Sex offenders have been good for Lee financially, with park occupancy running at “1,000%”. She rents trailer pad spots for about $325 a month. The trailers are either owned by the tenant or rented from a third party. Many trailers are divided into three bedrooms, for which tenants are charged $500 a month per room.

Lee claims she was once offered $5m for Lake Shore Park, which is home to about 50 trailers.

“Last year I bought a park down the street, got rid of all the families, the drug dealers, the prostitutes, and brought in convicted felons. And then I bought the property across the way,” she says. “Once you’re into it and you’re making money it’s easy to say, ‘One more, one more’.”

She has her eyes on a fourth park, “but then I’m through. I’m 70 years old and I don’t want to own any more”.

Asked by an eager investor how regularly tenants leave her parks, Lee says: “When they die. [They] stay forever, they have no place to go.”

Lee’s strategy impresses Rolfe’s students.

“I thought it was a brilliant idea, brilliant,” says Mitch Huhem, who is looking to buy a trailer park with his wife, Deborah. “These people need a place to live, and they don’t want to mess around.

“They’ve got to live somewhere, so you combine them in a certain place. They don’t go out to hurt people. I think it’s a community service, because if not they will be in your neighbourhood. Now they’re all in one place, you can watch them all in one place. And they pay well and won’t mess things up. I mean, why would you not? I think it’s a brilliant idea.”

Rolfe, who with his business partner Dave Reynolds owns about 160 parks across the midwest, is unsure about taking in sex offenders. But he is certain Lee could make even more money if she raised the rent.

“She could definitely raise the rent,” he says, as the tour group gets back on the bus. “She’s got a definite niche, but she is definitely under the Orlando rent; she might be under by $100 a month, maybe.

“Raising the rent is typically part of the day one purchase, because often the ‘mom and pop’ [previous, family-run owner of a park] has not raised the rent in years so it’s far below market.

“[The rents] do not go down, that’s one thing that’s a safe bet in the trailer park world. Our rents do not go down.

“We traditionally raise our rents by an average of 10% a year or something like that, and it’s pretty much true for the industry. Our world record [rent increase] went from $125 to $275 in one month.”

Rolfe, who bought a pistol for personal security when he bought his first park, 20 years ago, says he sent a letter to every tenant at that park in Grapevine, Texas, telling them the rent was going to more than double but was still below the market rate of $325.

“If you don’t like this or you think you can do better, here’s a list of all the other parks in Grapevine and a list of the owners,” he said in the letter. “Go ahead, call them if you want to move. How many customers do you think we lost? Zero. Where were they going to go?”

Rolfe, who started Mobile Home University seven years ago and now runs boot camps every couple months in cities across the country, tells his students they can easily increase the rent even at parks that are already charging market rates, because there is so much demand for affordable housing and local authorities are very reluctant to grant permission for new parks.

He quotes US government statistics showing that in 2013, 39% of Americans earned less than $20,000 – less than the government’s poverty threshold incomeof $20,090 for a three-person household.

“That’s huge. No one believes that number – people say: ‘You’re crazy, this is America, everyone is rich.’ [Being on an income of $20,000 or less] means you have a budget of about $500 a month for your housing, but the average two-bedroom apartment is $1,109 a month. There’s not a lot you can do.”

Kenneth Staton, a 58-year-old, disabled tenant at a nearby (non-sex offender) trailer park, knows it.

“It’s a profitable investment, but raising the rent is what hurts because people like myself, we’re on a fixed income and we can only afford so much,” he says, on the dirt road outside his trailer. “I’m on disability, and I go around and collect aluminium cans to see myself through a little bit.”

Asked if he thinks he will see out his days in the trailer park, Staton says: “It kinda looks like it, unless I can find a house somewhere I can afford. I only get $830 a month; $500 goes for rent, about $95 goes for electric. It don’t leave much to live on. Luckily, I get food stamps.”

Read the entire article here.

Image courtesy of Google Search.

Idea Soup

The Rich and Powerful Live by Different Rules

April 28, 2015 Mike

Never has there been such a wonderful example of blatant utter hypocrisy. This time from the United States Department of Justice. It would be refreshing to convey to our leaders that not only do “Black Lives Matter”, “Less Privileged Lives Matter” as well.

Former director of the CIA no less, and ex-four star general David Petraeus copped a mere two years of probation and a $100,000 fine for leaking classified information to his biographer. Chelsea Manning, formerly Bradley Manning, intelligence analyst and ex-army private, was sentenced to 35 years in prison in 2013 for disclosing classified documents to WikiLeaks.

And, there are many other similar examples.

We wince when hearing of oligarchic corruption and favoritism in other nations, such as Russia and China. But, in this country it goes by the euphemism known as “justice” so it must be OK.

From arstechnica:

Yesterday [April 23, 2015], former CIA Director David Petraeus was handed two years of probation and a $100,000 fine after agreeing to a plea deal that ends in no jail time for leaking classified information to Paula Broadwell, his biographer and lover.

“I now look forward to moving on with the next phase of my life and continuing to serve our great nation as a private citizen,” Petraeus said outside the federal courthouse in Charlotte, North Carolina on Thursday.

Lower-level government leakers have not, however, been as likely to walk out of a courthouse applauding the US as Petraeus did. Trevor Timm, executive director of the Freedom of the Press Foundation, called the Petraeus plea deal a “gross hypocrisy.”

“At the same time as Petraeus got off virtually scot-free, the Justice Department has been bringing the hammer down upon other leakers who talk to journalists—sometimes for disclosing information much less sensitive than Petraeus did,” he said.

The Petraeus sentencing came days after the Justice Department demanded (PDF) up to a 24-year-term for Jeffrey Sterling, a former CIA agent who leaked information to a Pulitzer Prize-winning writer about a botched mission to sell nuclear plans to Iran in order to hinder its nuclear-weapons progress.

“A substantial sentence in this case would send an appropriate and much needed message to all persons entrusted with the handling of classified information, i.e., that intentional breaches of the laws governing the safeguarding of national defense information will be pursued aggressively, and those who violate the law in this manner will be tried, convicted, and punished accordingly,” the Justice Department argued in Sterling’s case this week.

The Daily Beast sums up the argument that the Petraeus deal involves a double standard by noting other recent penalties for lower-level leakers:

“Chelsea Manning, formerly Bradley Manning, was sentenced to 35 years in prison in 2013 for disclosing classified documents to WikiLeaks. Stephen Jin-Woo Kim, a former State Department contractor, entered a guilty plea last year to one felony count of disclosing classified information to a Fox News reporter in February 2014. He was sentenced to 13 months in prison. On Monday, prosecutors urged a judge to sentence Jeffrey Sterling, a former CIA officer, to at least 20 years in prison for leaking classified plans to sabotage Iran’s nuclear-weapons program to a New York Times reporter. Sterling will be sentenced next month. And former CIA officer John C. Kiriakou served 30 months in federal prison after he disclosed the name of a covert operative to a reporter. He was released in February and is finishing up three months of house arrest.”

The information Petraeus was accused of leaking, according to the original indictment, contained “classified information regarding the identities of covert officers, war strategy, intelligence capabilities and mechanisms, diplomatic discussions, quotes and deliberative discussions from high-level National Security Council meetings.” The leak also included “discussions with the president of the United States.”

The judge presiding over the case, US Magistrate Judge David Keesler, increased the government’s recommended fine of $40,000 to $100,000 because of Petraeus’ “grave but uncharacteristic error in judgement.”

Read the entire story here.

Images: Four-Star General David Petraeus; Private Chelsea Manning. Courtesy of Wikipedia.

Idea Soup

Are Most CEOs Talented or Lucky?

February 9, 2015 Mike

According to Harold G. Hamm, founder and CEO of Continental Resources, most CEOs are lucky not talented. You see, Hamm’s net worth has reached around $18 billion and in recent divorce filings he claims to only have been responsible for generating around 10 percent of this wealth since founding his company in 1988. Interestingly, even though he made most of the key company appointments and oversaw all the key business decisions, he seems to be rather reticent in claiming much of the company’s success as his own. Strange then that his company would compensate him to the tune of around $43 million during 2006-2013 for essentially being a lucky slacker!

This, of course, enables him to minimize the amount owed to his ex-wife. Thus, one has to surmise from these shenanigans that some CEOs are not only merely lucky, they’re also stupid.

On a broader note this does raise the question of why many CEOs are rewarded such extraordinary sums when it’s mostly luck guiding their company’s progress!

From NYT:

The divorce of the oil billionaire Harold G. Hamm from Sue Ann Arnall has gained attention largely for its outsize dollar amounts. Mr. Hamm, the chief executive and founder of Continental Resources, who was worth more than $18 billion at one point, wrote his ex-wife a check last month for $974,790,317.77 to settle their split. She’s appealing to get more; he’s appealing to pay less.

Yet beyond the staggering sums, the Hamm divorce raises a fundamental question about the wealth of executives and entrepreneurs: How much do they owe their fortunes to skill and hard work, and how much comes from happenstance and luck?

Mr. Hamm, seeking to exploit a wrinkle in divorce law, made the unusual argument that his wealth came largely from forces outside his control, like global oil prices, the expertise of his deputies and other people’s technology. During the nine-week divorce trial, his lawyers claimed that although Mr. Hamm had founded Continental Resources and led the company to become a multibillion-dollar energy giant, he was responsible for less than 10 percent of his personal and corporate success.

Some in the courtroom started calling it the “Jed Clampett defense,” after the lead character in “The Beverly Hillbillies” TV series who got rich after tapping a gusher in his swampland.

In a filing last month supporting his appeal, Mr. Hamm cites the recent drop in oil prices and subsequent 50 percent drop in Continental’s share price and his fortune as further proof that forces outside his control direct his company’s fortunes.

Lawyers for Ms. Arnall argue that Mr. Hamm is responsible for more than 90 percent of his fortune.

While rooted in a messy divorce, the dispute frames a philosophical and ethical debate over inequality and the obligations of the wealthy. If wealth comes mainly from luck or circumstance, many say the wealthy owe a greater debt to society in the form of taxes or charity. If wealth comes from skill and hard work, perhaps higher taxes would discourage that effort.

Sorting out what value is created by luck or skill is a tricky proposition in itself. The limited amount of academic research on the topic, which mainly looks at how executives can influence a company’s value, has often found that broader market forces often have a bigger impact on a company’s success than an executive’s actions.

“As we know from the research, the performance of a large firm is due primarily to things outside the control of the top executive,” said J. Scott Armstrong, a professor at the Wharton School at the University of Pennsylvania. “We call that luck. Executives freely admit this — when they encounter bad luck.”

A study conducted from 1992 to 2011 of how C.E.O. compensation changed in response to luck or events beyond the executives’ control showed that their pay was 25 percent higher when luck favored the C.E.O.

Some management experts say the role of luck is nearly impossible to measure because it depends on the particular industry. Oil, for instance, is especially sensitive to outside forces.

“Within any industry, a more talented management team is going to tend to do better,” said Steven Neil Kaplan of the University of Chicago Booth School of Business. “That is why investors and boards of directors look for the best talent to run their companies. That is why company stock prices often move a lot, in both directions, when a C.E.O. dies or a new C.E.O. is hired.”

The Hamm case hinged on a quirk in divorce law known as “active versus passive appreciation.” In Oklahoma, and many other states, if a spouse owns an asset before the marriage, the increase in the value of an asset during marriage is not subject to division if the increase was because of “passive” appreciation. Passive appreciation is when an asset grows on its own because of factors outside either spouse’s control, like land that appreciates without any improvements or passively held stocks. Any value that’s not deemed as “passive” is considered “active” — meaning it increased because of the efforts, skills or funding of a spouse and can therefore be subject to division in a divorce.

The issue has been at the center of some other big divorces. In the 2002 divorce of the Chicago taxi magnate David Markin and Susan Markin, filed in Palm Beach, Fla., Mr. Markin claimed he was “merely a passenger on this corporate ship traveling through the ocean,” according to the judge. But he ruled that Mr. Markin was more like “the captain of the ship. Certainly he benefited by sailing through some good weather. However, he picked the course and he picked the crew. In short, he was directly responsible for everything that happened.” Ms. Markin was awarded more than $30 million, along with other assets.

Mr. Hamm, now 69, also had favorable conditions after founding Continental Resources well before his marriage in 1988 to Sue Ann, then a lawyer at the company. By this fall, when the trial ended, Continental had a market capitalization of over $30 billion; Mr. Hamm’s stake of 68 percent and other wealth exceeded $18 billion.

Their divorce trial was closed to the public, and all but a few of the documents are under seal. Neither Mr. Hamm nor his lawyers or representatives would comment. Ms. Arnall and her spokesman also declined to comment.

According to people with knowledge of the case, however, Mr. Hamm’s chief strategy was to claim most of his wealth as passive appreciation, and therefore not subject to division. During his testimony, the typically commanding Mr. Hamm, who had been the face of the company for decades, said he couldn’t recall certain decisions, didn’t know much about the engineering aspects of oil drilling and didn’t attend critical meetings.

Mr. Hamm’s lawyers calculated that only 5 to 10 percent of his wealth came from his own effort, skill, management or investment. It’s unclear how they squared this argument with his compensation, which totaled $42.7 million from 2006 to 2013, according to Equilar, an executive compensation data company.

Ms. Arnall called more than 80 witnesses — from Continental executives to leading economists like Glenn Hubbard and Kenneth Button — to show how much better Continental had done than its peers and that Mr. Hamm made most or all of the key decisions about the company’s strategy, finances and operations. They estimated that Mr. Hamm was responsible for $14 billion to $17 billion of his $18 billion fortune.

Read the entire article here.

Idea Soup

The Myth of Social Mobility

November 15, 2012 Mike

There is a commonly held myth in the United States that anyone can make it; that is, even if you’re at the bottom of the income distribution curve you have the opportunity to climb up to a wealthier future. Independent research over the last couple of decades debunks this myth and paints a rather different and more disturbing reality. For instance, it shows how Americans are now less socially mobile — in the upward sense — than citizens of Canada and most countries in Europe.

[div class=attrib]From the Economist:[end-div]

THE HAMPTONS, A string of small towns on the south shore of Long Island, have long been a playground for America’s affluent. Nowadays the merely rich are being crimped by the ultra-wealthy. In August it can cost $400,000 to rent a fancy house there. The din of helicopters and private jets is omnipresent. The “Quiet Skies Coalition”, formed by a group of angry residents, protests against the noise, particularly of one billionaire’s military-size Chinook. “You can’t even play tennis,” moans an old-timer who stays near the East Hampton airport. “It’s like the third world war with GIV and GV jets.”

Thirty years ago, Loudoun County, just outside Washington, DC, in Northern Virginia, was a rural backwater with a rich history. During the war of 1812 federal documents were kept safe there from the English. Today it is the wealthiest county in America. Rolling pastures have given way to technology firms, swathes of companies that thrive on government contracts and pristine neighbourhoods with large houses. The average household income, at over $130,000, is twice the national level. The county also marks the western tip of the biggest cluster of affluence in the country. Between Loudoun County and north-west Washington, DC, there are over 800,000 people in exclusive postcodes that are home to the best-educated and wealthiest 5% of the population, dubbed “superzips” by Charles Murray, a libertarian social scientist.

[div clas=attrib]Read the entire article following the jump.[end-div]