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Are Hedge Funds Worth More Than Kindergartens?
by Keith Weiner
"The top 25 hedge fund managers made more than all the kindergarten teachers in the country," declared President Obama in a discussion of poverty at Georgetown University. Calling them “society’s lottery winners,” he proposed to hike their taxes.
Predictably, battle lines have been formed between two polarized sides. One side—let’s call them the Gauche for convenience’s sake—is unhappy with the pay disparity. CBS News, in an almost neutral tone, asks, “Which group provides more value to America?” The reader is supposed to somehow answer that question, presumably in favor of teachers. Gawker goes much farther, calling hedge fund managers the biggest gangsters of all. It asserts, “It is, as the myth goes, capitalism at its most pure…”
The other side—let’s call them the Adroit—defends hedge fund managers. PJ Media said, “That single comment [about winning the lottery] defines the president’s economic worldview. Success doesn’t come to those who act rationally in pursuit of their values. It doesn’t come from hard work performed intelligently.”
Both sides get it partly correct and partly in error. The Gauche correctly observe something monstrously unfair: ever-larger financial profits accruing to an ever-shrinking group. However, their basic assumption is false. We do not have capitalism today. And their policy is the same old cliché: soak the rich.
The Adroit are also correct about something. More taxes will not help anyone, and making money is not a lottery. However, in their desire to oppose the other team, they are missing the elephant in the room—rising assets, and falling yields. They too assume that we have capitalism. The reality is that all capital markets are massively distorted. Getting rich isn’t blind luck, but sometimes it’s not properly earned either.
Capitalism means free markets, the opposite of central planning. How could anyone look at our financial system and call it a free market? We have central planning of the most fundamental price in the economy: the rate of interest. Central banking is a key feature, not of capitalism, but of socialism. Indeed in The Communist Manifesto, Karl Marx states, “5. Centralization of credit in the hands of the State, by means of a national bank…”
Every major country in the world has a central bank. All are caught up in the same megatrend—falling interest rates. A lower rate means rising bond prices. For more than three decades, we have had a relentless, ferocious bull market in bonds. Bond speculators have pulled down trillions.
By a variety of mechanisms, the rising price of bonds bleeds into other markets and causes stocks and real estate to rise. For example, when the Fed buys bonds, then the sellers usually buy other assets.
The freefall in yields harms wage earners. How are you supposed to save for retirement with zero interest, and therefore no compounding? And it strangles pensioners, who can no longer live on the interest on their savings.
It is a fact that we have central planning today. While this harms people who are working or retired, it seems to help those who own assets—and their fund managers. A falling interest rate converts everyone’s wealth into their income, which is an unsustainable process.
Rather than arguing about whether hedge fund managers or teachers should make more, we should condemn this unfair system. We are against central banking and central planning, not those who make money. It’s impossible to tell what a fund manager should be paid, other than in a free market.
Don’t hate the player, hate the game.
This article is from Keith Weiner’s weekly column, called The Gold Standard, at the Swiss National Bank and Swiss Franc Blog SNBCHF.com.
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It's not a fair comparison. One side has to work daily in shark infested waters while the other side peddles stocks.
Amen. Of course, hedge fund managers probably don't send their children to public kindergarten schools. They probably hire tutors AND send their children to elite, small, ultra-expensive private schools, where the field-trips are to Paris and Rome.
What a bizarre comparison.
This is the economic idiocy of asking why diamonds are priced higher than water or bread. Because someone is willing to pay hedge fund managers that much to do whatever it is they do. I'm not willing to pay a kindergarten teacher 2 and 20 to manage my family's life savings. It's not winning a lottery. These people weren't pulled off the street and all of the sudden make millions of dollars annually.
AND that's not a justification for ripping ME off, which is Mahatma Obama is really trying to get at. He'll say tax the rich. And by rich, he means any family that makes $250k a year. Which is two middle level managers. The "rich" who won the lottery. Or more appropriately, two assistant directors to the superintendents of a large school district anywhere in the US.
The rich in America are mostly rich from inherited wealth. America has become like old Europe where a small set of rich families control most of the wealth. It used to be a land of opportunity but now it is just old Europe - the thing that it swore it would never become.
The hedge fund managers are simply mamaging the inherited wealth for these families and taking a good chunk of the profits.
That was a good article. Sums up a lot of the problems, to a root cause.
Failure is required. Without failure, a human will not learn. Failure is the "system's" way of identifying errors.
And all I see are mechanisms in place, everywhere, to shield dipshits from failure.
And, we are failing. Funny how that works?
Seriously.....what a stupid analogy......
Hate the player, otherwise the game has no motivation to change.
I don't believe in the existance of santa clause, the tooth fairy, unicorns and the free market. To say you should expect any of them to exist and to rely on any of them is a phase you should grow out of early in childhood.