August 21, 2012
In full-page ad in the New York Times on Monday, August 20, titled “Why This Fat Cat Likes Obama’s Tax Plan,” Norman Litz of La Jolla, California tells us that his income has averaged over eight figures annually for the past seven years. He warns that if Obama is re-elected, he expects his total tax bill, including California, to exceed 50 percent, in which case he will shutter his equity business, putting his dozen employees out of work and cutting in half his so-far unimplemented plan to provide $50 million to charity. Instead, he and his fiancée Rachael will indulge in a mutual passion — world travel.
I suppose private equity companies perform some useful services, but do these fully justify the huge profits they make, not to mention the human suffering that results from all the layoffs that inevitably seem to accompany the restructuring that always takes place when they take over a company?
In his sobering book, The Price of Inequality, Nobel laureate economist Joseph Stiglitz, former chief economist of the World Bank, and chairman of the Council of Economic advisors under Bill Clinton, ascribes the number one cause of the gross economic inequality in today’s America to what economists call “rent-seeking.” This is when, instead of creating new wealth via advanced technologies or greater efficiencies, a business or industry, or individual, seeks to gain a greater share of already existing wealth, thus contributing nothing to society. Often this involves manipulating the economic environment by buying political advantage and gaining special privileges such as government subsidies and favorable legislation.
Litz made his fortune as a private equity investor, and clearly believes he earned every million with his hard work and business genius. But I have some questions for him. How does all that hard work and genius justify an income hundreds of times greater that the equally hardworking farmer, factory worker, and schoolteacher who can’t afford a full-page ad in the Times to present their cases? As an equity investor, what actual useful service, what tangible product did you provide to improve our economy and contribute to society that compares with that provided by the great bulk of working men and women in this country? What did you invent? What did you build? How many lives did you make better?
Indeed, how many lost their jobs in the companies you restructured?
Norman, I hope you and Rachael get to take your long-awaited trip around the world. America will be better off in your absence.