Hedge fund traders, Trump and resilience

Hedge fund traders are not topics of conversation at Meadowcreek. We don’t aspire to be hedge fund traders partly because then we’d have to live in big cities and we can’t stand cities.  Since we don’t have television or newspaper delivery, we also aren’t up on the latest news.  We never know about the latest celebrity break-up or wardrobe malfunction.

Worker-and-farm-kolkhoz-woman-artist-vera-mukhina-russianSo we missed the news that the CEOs of the 6 largest US banks collectively made $96.1 million in 2013, more than $86.3 million the year before and the most since the financial crisis they caused.  We also missed the news that a 31-year-old hedge fund trader in 2013 made $119 million, or more than all of the CEOs of the six largest firms combined.

We do know the hedge fund trader paid a lower percentage of his income on taxes (15%) than most of the rest of us.  Hedge fund and private equity managers salaries are taxed at the same rate as someone making $10,000 per year.  Other people making that kind of money pay 39.6% in federal taxes.

Due to the enormous power of the financial industry in Washington, their salaries are taxed as “capital gains.”  The justification for lower taxes on capital gains is to encourage people to invest capital for the long term. Capital investments help the economy, by funding new companies and projects. The capital that is invested, moreover, has already been “earned” (and, thereby, taxed). So there are reasonable arguments for having lower taxes on long-term capital gains than on ordinary income.

But the management and performance-based fees paid to hedge-fund and private equity managers are not capital gains. They’re ordinary income. Just because they don’t arrive in a monthly paycheck and are based on performance doesn’t change that.

So Donald Trump, is right on one thing: that loophole should go.  He’s seems to be the only politician willing to take on the financial services lobby.

Some who frequent Meadowcreek would go further and say hedge fund managers serve no useful purpose and should be regulated out of business.  Why are they wasting their lives shuffling money around when they could be doing something much more fulfilling.  Others make the same case for football players and coaches and even all actors and actresses.

Many of the those who make these arguments were not yet born when the Soviet Union collapsed.  They don’t realize that the Soviet Union once tried to eliminate such frivolous, unnecessary occupations. That society did last for 70 years, hardly proving its resilience and only lasting that long by severe repression of its citizens.

A basic quality of resilient systems is being locally self-organized.  The Soviet system was the ultimate top-down system.  Everything was decided in Moscow.  No ecologically resilient system works like that.  The rhizobia fixing nitrogen on legumes in a field don’t wait for instructions from the farmer, much less from USDA policy makers.  Oyster mushrooms do wait for a rain to flush and produce their delicious treats from the wood of dead trees.  But all ecologically resilient activity is locally self-organized according to the local climate.

Federal policy could change the “climate” for hedge fund managers, football players and other celebrities and regulate them out of business.  The result would probably be the same as in Soviet Russia.  People specializing in financial services, sports and entertainment were still in demand and still compensated more than ordinary workers.

Viewed from an ecological perspective, people in these professions have just organized or occupied a niche which enables them to make extract resources which they then return to the system by buying expensive apartments, clothes and art.  At the scale they operate, they are a locally self-organized system.  Whether they have enough of the other qualities of resilient systems is yet to be determined.  Nature will decide.  If they are resilient, they will survive.  If not, they will perish.

We’re betting their systems won’t last long, but we don’t concern ourselves with their salaries. “Judge not, lest ye be judged” seems like good advice here.  Don’t be jealous or advocate top-down changes to eliminate them.  Just take pleasure in your work to build up your own resilience.

Research on resilient systems, however, does indicate that a society structured to give out-sized rewards to worthless occupations will not survive.  Too many of its people will waste their talents and their lives and contribute nothing to the resilience of the society.  A society, or any system, which rewards those who contribute to its resilience will always win.

In the meantime, we have tomatoes and beans to pick here at Meadowcreek.  We’ll enjoy some for supper and put up the others to eat this winter.  It’s also time to cut some of those dead trees which have cured just enough to make great firewood.  Fall is coming quickly and we enjoy getting ready for winter.