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New York’s Novel Plan | A Carbon Problem for GM | Judging CEOs by Their Houses

by WS Editors

Apr 15, 2007 | Economy, Environment


Wonderful Town—It might seem odd for a billionaire to develop a radical plan to help the poor. But New York City mayor Michael Bloomberg, a possible independent presidential candidate for 2008, has done so in a typically unconventional manner. Stay in school, go to the dentist, take a higher education course or get job training and the Republican mayor will give you cold, hard cash, anywhere from $50 to $300 per goal and as much as $3,000 to $5,000 a year. “We’ll offer cash to families as a way of encouraging parents and young people to take positive actions,” Bloomberg announced in March.

“Simply throwing dollars at poverty does not make it go away,” he acknowledged, citing an often heard conservative refrain. But, Bloomberg added, his “conditional cash transfer program,” as he wonkishly calls it, is something new. “Shame on us if we’re not willing to try it,” he says. The privately funded, $50 million pilot program targeting 5,000 initial families, has never been attempted in the U.S., but a similar effort in Mexico (“Opportunidades“) improved school attendance and enrollment.

New York City’s problems, however, are hardly limited to the poor. As Manhattan becomes an island for the rich, more and more poor and middle-class families are being pushed beyond the outer boroughs. A study last year by the Brookings Institution found that the city had the smallest proportion of middle-income families of any U.S. metropolitan area. Housing prices have more than tripled in the last decade. The average sales price of a Manhattan apartment is an astounding $1.3 million. The Drum Major Institute, an anti-poverty think tank, recently held a conference around the question: “Is New York City still a middle-class town?” Former New York governor (and Queens native) Mario Cuomo gave the keynote address. “In Tuscaloosa, Alabama, for $50,000 you might live very well,” Cuomo said. “But fugetaboutit if you live in Manhattan!”

It’s Not Easy Being Green—It’s been a rough period for General Motors. The company lost $10 billion in 2005, cut 34,000 workers last year and says it will close 12 plants in the year ahead. Like its Detroit competitors, GM has long been behind the curve in becoming environmentally friendly, relying instead—and to its detriment—on sales of gas-guzzling trucks and SUVs. So we weren’t surprised to learn that GM is strenuously opposing President Bush’s plan to increase fuel-efficiency standards in cars and SUVs by 4 percent yearly through 2017. At the annual New York Auto Show, GM Vice Chairman Bob Lutz displayed the can’t-do attitude of the world’s top automaker by claiming that implementing Bush’s modest increases in fuel economy would cost consumers a whopping $5,000-$6,000 per vehicle.

GM has instead been trumpeting its embrace of “E85,” the 85 percent ethanol fuel blend. Lutz told the Detroit Free Press recently that lawmakers should require the industry to build 100 percent of new cars with E85 capability and to mandate one E85 pump in every gas station. But that’s a solution to a different problem. Powering cars with ethanol lowers gas mileage, and the process of producing ethanol consumes more energy than the ethanol can generate.

The company finds itself on the wrong side of swiftly changing political winds. The Supreme Court ruled in early April that carbon dioxide is a pollutant, and its emissions can be strongly regulated. Congressional Democrats want to go beyond the Bush’s Administration’s targets and none other than House Energy and Commerce Committee Chairman John Dingell (D-MI), who has long defended Detroit, now favors raising emissions standards.

Less Is More—Note to ambitious CEOs: buy a smaller mansion. A recent study by two professors of finance found that the larger a head honcho’s residence, the worse his or her company’s stock performs. “If [the CEO] buys a big mansion, sell the stock,” professor David Yermack of New York University told Business Week. Three years after Hilton Hotels’ Stephen Bollenbach purchased a 13,000-square-foot property in LA, his stock trailed the S&P 500 by 74 percent. After indulging in the purchase of a 24-acre estate in Bedford, New York, Forest Laboratories’ Howard Solomon’s stock lagged the S&P by nearly 25 percent. Yermark and his colleague, Crocker Liu of Arizona State University, surveyed 432 of the country’s richest CEOs at the end of 2004. Twelve percent of them lived in homes larger than 10,000 square feet or with 10 or more acres. The overall finding? The stock of big spenders was bested by that of their spartan competitors by an average of 7 percent. Curious coincidence or societal axiom? You be the judge.

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