The Alleged Guilty Conscience of Bond King Bill Gross

Michael Teague  |

Bill Gross, managing director and CIO of Pacific Investment Management Co. LLC (PIMCO), made headlines last week when he published his monthly “Investment Outlook” column for November on the fund’s website.

It is by no means unheard of for one of America’s wealthy elite to call for higher taxes for members of their own income bracket; indeed Warren Buffet does precisely this on what seems like a more or less regular basis. The rather snide tenor of some of the financial media’s reactions to Gross’s “Scrooge McDucks” article, however, appears to suggest that the king of bonds has hit a nerve with his most recent missive.

Scrooge McDucks

Gross wastes no time in getting to the point: “I would ask the Scrooge McDucks of the world who so vehemently criticize what they consider to be counterproductive, even crippling taxation of the wealthy in the midst of historically high corporate profits and personal income, to consider this: Instead of approaching the tax reform argument from the standpoint of what an enormous percentage of the overall income taxes the top 1% pay, consider how much of the national income you’ve been privileged to make. In the United States, the share of total pre-tax income accruing to the top 1% has more than doubled from 10% in the 1970s to 20% today.”

The piece ends with three recommendations for how to go about dealing with the growing wealth-disparity in the US:

“1) Growth depends on investment and investment in part depends on an equitable rebalancing of personal income taxes, capital gains and carried interest.

2) The era of taxing “capital” at lower rates than “labor” should end.

3) Investors in the U.S. and elsewhere must look for investment in the real economy, not share buy-back maneuvers that artificially elevate stock prices.”

Oh, The Guilt

Now let’s take a look at some of the headlines of the various articles written in response to Gross’s “Scrooge McDucks” performance:

Ben Eisen of Market Watch’sfinancial news and analysis blog The Tellwasted no time with his own response titled “Bill Gross, feeling bad he’s so rich, says tax policy shouldn’t favor capital over labor.” Hibah Yousuf of CNN Moneyhad a piece bearing the headline “Bill Gross to 1%: We

must pay more in taxes,” a fairly bland title, unless one considers the subsequent byline “Bill Gross is feeling guilty about being among the wealthiest people in America. That's why he thinks that he and other filthy rich members of the 1% should pay more in taxes.”

Business Insider chimed in with its typical reflexive, click-hungry brand of sarcasm with “BOND BILLIONAIRE BILL GROSS: I Got Rich at the Expense of the Less Well-Off and Now I Feel Guilty”, and even the left-ish HuffPo couldn’t help but offer its own version of this, with “Billionaire Feels ‘Guilty’ About ‘Having Gotten Rich At The Expense’ Of All Of Us”

These headlines all refer to one particularly ironic and self-critical moment in Gross’s original article, in which he addresses the apparent contradiction between his own personal wealth and how it was obtained on the one hand, and the content of his criticisms of and prescriptions for the 1 percent on the other: “ Having gotten rich at the expense of labor, the guilt sets in and I begin to feel sorry for the less well-off, writing very public Investment Outlooks that “dis” the success that provided me the soapbox in the first place.”

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In reality, however, none of the articles appearing under the aforementioned headlines were anywhere near as critical as their titles would suggest. Indeed, most of them were simply devoted to summarizing various aspects of Gross’s argument in favor of progressive taxation, and were particularly attentive to a thinly-veiled criticism of Apple Inc. (AAPL) and investors like Carl Icahn, who lately have been pushing the company to use its cash pile to buy back large amounts of shares. Gross and Icahn exchanged barbs early last week over the whole affair.

“In cases like this, it’s always the class thing…”

While many of the responses to Gross have more or less focused on the finger-wagging at his income-bracket peers, few seem to have, at least knowingly, touched on the class analysis on which last week’s column relies. This is curious especially because the PIMCO co-founder makes this orientation clear in the very first paragraph, via the subject of how best to stimulate economic growth: “How to proceed depends as always on the view of the observer and whether the glasses are worn by capital, labor or government interests.”, a claim that is shortly thereafter followed up with the admission that the author’s “intellectual leanings” are “shifting to the plight of labor.”

There are many reasons that this is interesting language to hear from the mouth of one of the nation’s wealthier men. But perhaps less so as the language of class conflict has made a strange, somewhat surreptitious comeback with the advent of the “Occupy Wall Street” movement that so succinctly described growing wealth inequality in the US with the 99 percent-1 percent dichotomy. And while it has become a general rallying-cry for a number of groups, and is commonly heard in even the most mainstream reporting, the notion that the 99 percent would, generally speaking, correspond to “labor” while the 1 percent would denote “capital” seems to still be lost.

Perhaps it is a testament to the legacy of McCarthyism that journalists and commentators are still handling the basic vocabulary of class-analysis with such reluctance. Or, perhaps we have become so accustomed to measuring success solely in terms of capital-friendly metrics rather than labor-friendly ones. Either way, the blind-spot for labor is all the more curious given some of the events of 2013. For instance, mega discount retail-chain Wal-Mart (WMT) is one of the world’s largest employers, a company whose six heirs have a combined wealth equal to the bottom 40 percent of all Americans.

If you are toiling away in one of Wal-Mart’s many locations around the country, however, you can expect minimum wage, no benefits, reliance on government services to supplement the resulting paycheck, and even repercussions in the event that you become tempted to (gasp) organize your co-workers to demand better job conditions. Wal-Mart has been dealing with what is clearly a growing trend of labor strikes that have ticked up dramatically throughout the year. The same could be said for McDonald’s (MCD) along with a number of service companies among whose most salient features can be found unfathomable compensation at the executive level and subsistence wages at the bottom rungs.

Thus, it is not enough to dismiss or psychologize Bill Gross’s thesis about the responsibility of the upper castes towards society at large as a byproduct of rich man’s guilt. He clearly sees income inequality as a real problem with real-world consequences that extend beyond the tragedy of some people simply not being able to buy some stuff. Gross just feels that “Developed economies work best when inequality of incomes are at a minimum,” and sees progressive taxation as a good place to start if the problem of wealth disparity is to be addressed in any meaningful way.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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