Tags: Krugman | hedge | fund | wealthy

Krugman: Hedge Fund Manager Earnings Dispel Myths About the Wealthy

By    |   Friday, 09 May 2014 12:28 PM

The highest-paid hedge fund managers made a combined $21.2 billion in 2013, according to a survey by Alpha magazine.

That dispels arguments about the wealthy being productive or creating jobs, writes economist Paul Krugman for The New York Times.

These guys are just financial speculators, not innovators or job creators, Krugman quips.
In fact, hedge funds are a bad deal for everyone (except hedge fund managers), he argues. Their huge fees don't justify their returns and they're a source of economic instability.

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"Apologists for soaring inequality almost always try to disguise the gigantic incomes of the truly rich by hiding them in a crowd of the merely affluent," he writes.

They deny rising inequality by citing rising incomes for college graduates or perhaps the top 5 percent income earners

Their defenders say the wealthy work hard and deserve to keep their money. But other people work hard, including teachers, Krugman counters. The 25 hedge fund managers made more than twice as much as all kindergarten teachers in America combined, he notes.

The financial industry caused the financial crisis and ensuing recession. We dodged total catastrophe by bailing out banks, but millions of jobs have yet to return, Krugman explains.

"Given that history, do you really want to claim that America’s top earners — who are mainly either financial managers or executives at big corporations — are economic heroes?"

Although the hedge fund managers did not inherit their wealth, much of their income comes from returns on their accumulated wealth, not from investing other people's money. In other words, Krugman asserts, they're getting richer because they're already rich.

Left alone, that trend will continue and inherited wealth will eventually become the largest source of wealth, he warns, saying the wealth share of America’s top 0.1 percent has already returned to Gilded Age levels.

Higher taxes on huge incomes and fortunes are designed to contain inequality. But some argue that higher taxes on the wealthy is destructive because it discourages job growth and immoral because the rich have a right to keep what they year.

Think about the hedge fund managers the next time you hear those arguments, Krugman advises, and "ask yourself if it would really be a terrible thing if they paid more in taxes."

French economist Thomas Piketty predicts a world where the rich keep getting richer "by basically doing nothing" by simply by investing the wealth, notes The Huffington Post. "For many hedge-fund managers, that future is now."

Much of their large incomes are taxed at just a 15 percent capital gains rate, The Post adds.

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The highest-paid hedge fund managers made a combined $21.2 billion in 2013, according to a survey by Alpha magazine.
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2014-28-09
Friday, 09 May 2014 12:28 PM
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