2013 was a great year for high-tier hedge fund managers, even ones who pled guilty to securities fraud. The 25 highest paid hedge fund managers made over $21 billion in 2013, more than twice as much as all the kindergarten teachers in America combined. Whether those 25 men provided as great a benefit to our country as all the kindergarten teachers I will leave to you to divine, dear reader.
One of the those 25 was Steven Cohen of SAC Capital Advisors who made an estimated $2.5 billion in 2013. Sadly, that may be his last time on the list as after pleading guilty to securities fraud he can only manage his own immense fortune.
As the rich get richer the chair of President Obama’s Council of Economic Advisors, Jason Furman, has decided to take on Thomas Piketty’s work on inequality claiming the work is weak because it fails to account for unknowable changes in “inequality within labor income.” Oddly, Furman cites changes in public policy as something that could change the equation while not endorsing any public policies that would.
But Mr. Furman isn’t completely buying it. “This thesis is intriguing and an important source of concern,” he said, “although it is unclear how likely it is. Piketty’s prediction is that the capital share of income will rise, pushing in the direction of increased inequality. But this is only one of the determinants of inequality. While the trends may continue to shift in that direction, a more important factor to date has been the inequality within labor income, and while Piketty implicitly takes this to be fixed, there is no a priori basis to predict whether it will rise or fall in the future because it is a function of unpredictable technological developments, norms, institutions and public policies.”
Furman then goes on, strangely, to endorse raising the minimum wage to $10 an hour, trade deals like TPP, and greater access to preschool. In other words, an agenda that, if anything, will exacerbate inequality in income. “Free trade” is simply corporate exploitation and the results of the last decade for inequality speak for themselves. A small nudge in the minimum wage is not going to solve the yawning gap between the 1% and the 99%. Preschool is irrelevant to just about everything other than child safety and early development – which is a worthy goal but not going to do much about the wealth gap where hedge fund managers are paying a 15% tax rate thanks to the carried interest loophole (when they aren’t stashing their money offshore that is).
It is also worth noting that technology changes have not changed the basic dynamics of capitalism. Owners profit by reducing costs, such as paying their workers less. Hence in high tech Silicon Valley a conspiracy developed to suppress wages. Yes, even at the cutting edge of the economy there is a natural incentive to enrich oneself at the expense of one’s employees. This “inequality in labor income” will exist as long as capitalism does, it is a conflict written within the source code.
So if we follow President Obama’s chief economic adviser’s advice we are guaranteed to land in the Dickensian nightmare Piketty lays out.