David Moore, in the Wall Street Journal last week, writes about walking down the street with his well-dressed friends, when a panhandler approached him. Moore gave him a dollar. Moore reports that the man shouted, “A dollar? You Wall Street fat cats! This is what the problem is with this country. Take your damn dollar.”
Moore, who is chairman and CEO of Moore Holdings, was startled and says that this was the class-warfare rhetoric of the left, stoked by the “president’s incendiary message” that “rich people must ‘pay their fair share.’ ”
A better explanation of the panhandler’s reaction may be found in an experiment called the Ultimate Game. It goes like this: “Imagine that somebody offers you $100. All you have to do is agree with some other anonymous person on how to share the sum. The rules are strict. The two of you are in separate rooms and cannot exchange information. A coin toss decides which of you will propose how to share the money. Suppose that you are the proposer. You can make a single offer of how to split the sum, and the other person—the responder—can say yes or no. The responder also knows the rules and the total amount of money at stake. If her answer is yes, the deal goes ahead. If her answer is no, neither of you gets anything. In both cases, the game is over and will not be repeated. What will you do?” http://www.ped.fas.harvard.edu/people/faculty/publications_nowak/SciAm02.pdf
This “game” has been played hundreds of times, in many different cultures. The results are consistent: About half the proposers offer to split the money evenly; less than 5 percent offer less than 20 percent; and more than half of those offered less than 20 percent reject the offer, thereby insuring that neither participant receives anything.
The game illustrates the built-in fairness detectors we are born with. This sense of fairness is so strong that half of those offered an amount too small would rather have nothing at all.
The Ultimate Game bubble up when the current economic downturn began. There was resentment that while the economy crashed, CEO’s and Wall Street brokers continued to reap huge benefits. The Tea Party is in part an expression of this in its right-wing populism. The left in its Occupy Wall Street protests now joins it.
While unemployment rates hover around 9 percent and the safety net is being shredded with every budget deal, corporate profits and CEO packages are soaring. Business profits were up 30 percent in the last quarter and CEOs in areas such as energy, finance and technology are taking home multi-million dollar paychecks.
At America’s top 200 companies, CEOs’ salaries rose 20 percent last year; the average increase for workers in the private sector rose by one-tenth that. The total compensation for the top 30 executives last year ranged from $84.5 million for Viacom’s Philippe Dauman to $16.8 million for James Cracchiolo at Ameriprise Financial.
NY Tiness, BU 1, April 10, 2011)
CEOs claim that they have right to their wealth because they have earned their compensation. But isn’t a more realistic picture given by Warren Buffet? He wrote: “A market economy creates some lopsided payoffs to participants. The right endowment of vocal chords, anatomical structure, physical strength, or mental powers can produce enormous piles of claim checks (stocks, bonds, and other forms of capital) on future national output. Proper selection of ancestors similarly can result in lifetime supplies of such tickets upon birth. If zero real investment returns diverted a bit greater portion of the national output from such stockholders to equally worthy and hardworking citizens lacking jackpot-producing talents, it would seem unlikely to pose such an insult to an equitable world as to risk Divine Intervention.”
Most sociologists agree with Buffet’s analysis. No one is self-made. Luck determines if you are born into circumstances that allow for wealth accumulation or whether circumstances conspire against you. Born in the right place, at the right time, to the right parents, with your anatomy and health intact, you are then in the position to apply your skills, and talents. Buffet wouldn’t be a billionaire if he had been born in the African desert to a nomad family.
If you recognize that the luck of the draw may have given you what you have (the Ultimate Game), what do you do with the $100?
Society has the right to insure that the gap between the wealthy and the rest of society doesn’t grow too large. The anger expressed at Wall Street is a shorthand way of expressing frustration with the situation. The Ultimate Game is a good way of understanding why the banners of discontent are waving.