Tom Matlack makes the case for an upper limit on income.
Ray Dalio of Bridgewater Associates made $3.9 billion last year. He was one of three hedge fund managers who made a billion in 2011. I guess we should feel good about the fact that the year before, 2010, there were six with the top earner at $5.0 billion. But I for one feel sick to my stomach.
As an asset class Hedge Funds lost 5% in 2011 while collecting $14.4 billion in fees according to AR Magazine.
Is it just me but if you are going to get filthy rich off making money for other people aren’t you suppose to make money for other people?
Meanwhile the median household income in 2011 the median U.S. household income was $50,221. Mr. Dalio made 77,657 times the median.
The headlines tell us that the pension plans for working people that are the biggest investors in alternative assets like hedge funds failed to perform as well as those that stayed away from the riskier investments. The $51.4 billion Pennsylvania public schools pension system had almost half it’s assets in alternative investments, paid $500 million a year in fees, and has significantly underperformed the broader market and other pensions funds for years.
There is plenty of talk about the 1%, or even the .01%, of the wealthiest Americans and how 93% of the income increases have gone to the rich.
But no one seems to be connecting the dots.
To me there is a difference between Mark Zuckerberg, as much as I happen to dislike him, and Ray Dalio or James Simons, who pulled down $2.1 billion last year. I am okay with rewarding entrepreneurship, even for assholes like Steve Jobs was reported to be my many in his biography, with countless riches. If you build a company, specially a technology company, you are providing economic leadership. And we need that. A lot.
But if you take money–pension money for instance–and then make an unimaginably large fortune not through technological revolution or even selling a product but through massive fees, that is not capitalism. That is stealing.
Perhaps at one point in our history that kind of behavior might have been okay. We have had our share of fortunes built on bootlegging and shady deals. But with a national debt threatening to tip us over, an education system failing our young people, and economic inequity eating us alive we can’t allow the rich to get richer when their only talent is highway robbery.
I realize to break out of our denial as a people we will have to give up that part of the American Dream which we each hold somewhere deep in our hearts that we too can be a billionaire, even if the cards are stacked profoundly against us. It doesn’t matter that the chance of wining the $656 million lottery is less than going down in a plane. We stand in long lines to buy our shot.
We just can’t stand to believe that the dream of joining Mr. Dalio at his club is something fed to us to keep us from rioting, from demanding that our pension plans not make money managers fabulously rich for failing to perform, from asking the hard questions about what is really going on in this country.
I would like to believe that in a great nation like ours, a hundred times the median income would be enough for anyone to suffer through. That’s $5 million per year. Above that amount, you can choose to either be taxed at 100% or give your excess income to a charitable non-profit of your choice. And if you are an entrepreneur that’s the amount you can sell in any one year without be subject to the same treatment.
The arguments against such a system have always centered on Adam Smith and the free hand of capitalism. The reality is that beyond $5 million a year it really isn’t about the money anyways. It’s about some outdated version of machismo and an individualistic instead of communitarian view of the American Dream.
Bill Gates and then Warren Buffet didn’t decide to try their best to save the American education system and cure any number of lethal diseases in Africa because they gave up on capitalism. They just realized that the point really isn’t to amass a fortune unless you are prepared to use that wealth for some concrete good for those far less fortunate here and around the globe.
So what do you say Mr. Dalio? How about you keep $5 million and give away the other $3.885 billion? For all I know you are as frustrated with Washington as the rest of us. That’s okay. Keep it away from all that pork belly nonsense down there. Give it to school teachers, or a community college, or an inner-city training program, or a faith-based program to combat gang violence.
I don’t care. Just don’t buy a jet or a boat or stick it in some bank account where it only serves to memorialize what our system has done wrong.
Photo— Mykl Roventine/Flickr
If there’s a problem with incentivising someone to keep working once they reach an income cieling, here’s a suggestion: sliding tax rates. Rather than having fixed tax brackets your overall tax rate begins at 0% for minimum wage and exponentially approaches (but never reaches) 100%, or even 80% the further up you go. The idea of allowing millionaires to donate to a non-profit instead of paying tax is troublesome. It would be too easy only to donate to causes that only benefit them, or relatively frivolous uses of money. If there is to be an income cap the decision regarding… Read more »
“I would like to believe that in a great nation like ours, a hundred times the median income would be enough for anyone to suffer through.”
This kind of thinking will assure that “our” nation will not remain great for long. Also, America is not “our” nation. By the misfortune of fate, we were both born with the wrong gender. America’s only promise to either of us is unendurable loss.
The 5% loss is irrelevant without a comparison to the market in general. If the market lost 15%, the 5% loss looks good. And its hardly the hedge funds fault people keep dumping money in poor investments. Add that to all the comment about income caps. Why don’t we just cap the price of everything and pay everyone one set wage, it would work just as well. Economics involves so many moving parts and unforeseen consequences it is hard to adjust one thing and get your deired outcome without getting 5 or 15 bad outcomes. Easy topic to write and… Read more »
No shit Bryan. I agree. My answer may be totally wrong. But I do think the status quo is going to cause dire consequences if we don’t do anything.
Look, let’s start small. How about just fixing it so I dont have to spend practically an entire days wages on a tank of gas?
Or so that you don’t have to use an incredibly wasteful mode of transport just to get to work, but yeah, that would be a start.
That was supposed to be a replay to A.B.Dada.
Yeah, people use this argument a lot. They call it the “trickle down method”. And it doesn’t work. It’s basically saying “if we let these gods get fabulously rich, us mere insects will get the crumbs that inevitably result in the wake of his footsteps.” Which means yes, more homeless people might get paid, but then the vast majority will be poor in the long run. I personally like the OP’s idea. That is, impose some sort of usable income limit (for instance, make it so nobody can make more than the national president) and the extra income that would… Read more »
I don’t advocate trickle down, nor trickle up. I advocate healthy markets free of the burden of excessive regulation. Having a million a year may sound like a lot, but I personally have irrefutable evidence of my own clients (and some friends) who had to dip into their savings to the tune of tens of millions in the past 3 years to keep their employees working. Tens of millions. These aren’t super wealthy, either — they’re not billionaires by any means. I’ve dipped into my own pocket to the tune of 6 figures to keep a business afloat to weather… Read more »
A.B. totally agree. I have done and am doing the same thing using large amounts of my own capital to start businesses that employ large amounts of people in things as diverse as a large scale FB game in LA and micro lending in Mexico. That is all well and good. But it doesn’t mean that 0.01 should control the majority of the assets. That concentration of capital is a bad thing is my argument. It means that that average middle class person is losing out, stagnating, and unable to keep the economy growing.
Tom Matlock is thinking, I wonder what he plans to do with that. “Is it just me but if you are going to get filthy rich off making money for other people aren’t you suppose to make money for other people?” Do you really believe that both things are possible simultaneously? Who do you think you are “making money” from? Where does this/your money come from? “Meanwhile the median household income in 2011 the median U.S. household income was $50,221. Mr. Dalio made 77,657 times the median.” Again, WHERE DO YOU THINK this magical money is coming from? “But if… Read more »
Class envy is for suckers. If you put a cap on earnings, there is little to no motivation to be excellent at anything. Everything stagnates. There is no reason for companies to spend money devolving new, better products. Socialism is not a well thought out system. It’s emotional and childish and always fails.
B.S. is greatness purely economically motivated?
This is a terrible opinion piece. When I take my wealth and store it in the bank, the bank loans it out to others who need it for whatever purpose it is. When I take my wealth and buy jets with it, I create employment in the manufacture of all those parts, I create long term employment in hiring at airports and refueling stations. When I take my wealth and stick it in the mattress, I make YOUR MONEY WORTH MORE because I’m decreasing the amount of capital in immediate circulation. When I spend my wealth on $400 bottles of… Read more »
Really is that how it worked out in Rome?
I am all for the reuse of capital but any system where 0.01% of the people (that is 15,000 households in a nation of 100 million plus) own the lion’s share of the wealth will not work. It’s not democracy.
Yes, you could create economic activity by spending all of that money on luxury goods, or the government could create just as many jobs by building schools and hospitals.
Do you earn over 5 million? Do you really need to?
I think you might mean $3.9 billion rather than $3.9 million in the first line… kind of undermines your point.
Thanks. Bad typo. Fixed.
Honestly, $5 million a year is not that much. Especially if we’re talking about places like NYC, $5 million a year won’t get you very far. I’m incredibly progressive, but confiscating 100% of earnings above an arbitrary number seems absurd. It doesn’t solve the problem of massive wealth already collected in the hands of a few. It would be far better to have a system where there is a tax levied on actual fortunes, say 1 or 2% of a fortune over $10 million. Let people make as much money as they like, but do something about the accumulation of… Read more »
Fair point. Just trying to figure out how to try to make this fair but perhaps some balance of income and net worth would work better. I notice that the Democrats are pushing a Warren Buffet bill that would force anyone over $2 million of income to pay at least 30% (since most pay a lot less based on cap gains rate of 15% including Mitt Romney who paid on the order of 20% on income of $25 million last year).
I think I read this in a Paul Krugman blog post, but it said that there was a study done that found the maximum tax rate without being detrimental to the economy at the top income rate is about 70% Anything more than that and it reduces revenue. There is NO reason that someone who is making $3 billion a year should be paying a tax rate of ~10%. I also think hedge funds are some of the biggest scams ever. If you had a hedge fund that merely performed how the market performed, you would make a fortune as… Read more »