“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, again.
CBS News, a lap dog for and in lock step with the Obama administration, asks, “Which group provides more value to America?” The reader, of course, is supposed to answer that question in favor of kindergarten teachers. Gawker.com goes much farther, calling hedge fund managers the biggest gangsters of all. It asserts, “It is capitalism at its most pure.”
But Obama, CBS News, and Gawker have it wrong. We DO NOT have capitalism today. And their policy is the same old cliché: soak the rich.
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. In The Communist Manifesto, Karl Marx states, “5. Centralization of credit in the hands of the State, by means of a central bank…”
Our founding fathers and every president until Woodrow Wilson fought against a central banking system. And we had free market capitalism back then. And we rose from a third world county to the richest, most powerful nation on earth under free market capitalism.
Every major country in the world now 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, centrally planned bull market in bonds. Bond speculators and hedge fund managers have pulled down trillions gaming the centrally planned system.
By a variety of mechanisms, the rising price of bonds bleeds into other markets and causes stocks and real estate to rise to a distorted price. 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.
More taxes will not help anyone, and earning money is not a lottery. The reality is that all capital markets are massively distorted. Getting rich isn’t blind luck. But sometimes in a massively distorted centrally planned market, it’s not properly earned either.
Rather than arguing about whether hedge fund managers or teachers should make more, we should condemn this unfair socialist system. I am 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. And government has no right to set someone’s salary. And if they do, it will only further distort the market.
Don’t hate the player, hate the game.