Saturday, April 10, 2010

Why Are 25 Hedge Fund Managers Worth 658,000 Teachers?

That is the question Les Leopold asks in this Huffington Post entry.

Here is his opening paragraph:
In 2009, the worst economic year for working people since the Great Depression, the top 25 hedge fund managers walked off with an average of $1 billion each. With the money those 25 people "earned," we could have hired 658,000 entry level teachers. (They make about $38,000 a year, including benefits.) Those educators could have brought along over 13 million young people, assuming a class size of 20. That's some value.


Leopold writes
The wealthy will have placed an estimated $2 trillion into hedge funds by the end of this year. (That's about $6,500 for every man, woman and child in the U.S.)


And there is more. . .

It is now tax time, so consider also this: income from hedge funds is not taxed as ordinary income, but as capital gains, 15%. As a teacher at the upper end of the pay scale,my incremental rate is 28%, or almost twice the rate of the income from surplus funds of the rich placed in hedge funds. And of course I pay 7.65% in payroll taxes, making my burden 35.65% compared to the 15% on the earnings from investments in hedge funds.


I think we face a crisis in this country. This year rather than hiring hundreds of thousands of new teachers to teach our young, the future of this nation, schools will be laying off tens of thousands of teachers, increasing class sizes, dropping electives, eliminating support services, perhaps canceling extra-curricular activities.

But in time of major financial crisis for the entire nation, the super rich continue to get rich, without necessarily contributing anything of value to the economy.

And you and I paid for it. Don't believe me? Let me quote Leopold again:
The $1 billion each those 25 hedge fund managers netted (for themselves) was impressive -- but doing it in the year 2009 was also slap in the face of struggling Americans. That's because hedge funds would have earned little or no money at all in 2009 had the government not bailed out the financial sector with trillions in loans, asset guarantees and other forms of financial assistance. It was, in effect, a generous gift from we the taxpayers. Much of that money was "earned" by betting that the government would not let the financial sector collapse. Smart bet.


I know of one manager who put tons of money into bank stocks when they were at their bottom, gambling that the government would not let them fail. The money he invested did not contribute to hiring more people at the banks. In fact, the money he invested did not go to the banks at all. It was our money, through the government, which recapitalized the banks (at the same time they still were restricting loans, and slashing lines of credit for companies and individual's credit cards).

Each hedge fund manager was, according to Leopold, worth 26,320 beginning teachers.

I make more than a beginning teacher. As a public employee, what I am paid by Prince George's County Public Schools is a matter of public record. My base pay is 83,000 and I get 7,000 for being National Board Certified. If I take that 90K and divide it into the 1 billion averaged by each of the 25 hedge fund managers, I am worth 1/11,111 of a hedge fund manager. Restated as a decimal, as a highly regarded teacher who each year is responsible for the learning of around 180 young people, I am worth 0.00009 of a hedge fund manager.

Now, I am not asking to be paid billions, or even millions. But quite frankly, I think I am actually contributing more to the future of this country than is the average hedge fund manager, unless the only value that matters is wealth, in which case, why bother to have skilled, experienced teachers like me at all, since most of students will never enter the rarified air of the very wealthy?

I can look back a few years at the fascination of Lifestyles of the Rich and Famous. I see our glorification of wealth and of power.

Yes, we will occasionally recognize those who do good works. We smile and say how nice it is that there are people like that, then as a society we move on - will Tiger win this year's Masters? How much is Bill Gates actually worth?

Bill Gates. It is honorable that he is trying to use his wealth to make the world a better place. But why should his billions give him a more influential voice on education than the skilled professionals who have been trying to make a difference for years? Yet it does. Gates and Eli Broad have been driving the educational agenda using their wealth. Similarly, the US Department of Education is now using funds through Race to the Top to drive educational policy without those policies being any more vetted and discussed than have been the initiatives funded by Gates and Broad.

I began this diary with a question: Why are 25 Hedge Fund Managers Worth 658,000 Teachers? My answer is simple - they are not. But so long as we measure primarily by money, our values will continue to be distorted, we will devote resources that could be used to improve the lives of millions for the further enrichment of the already wealthy.

Don't worry. I'm not so motivated by money that I will quit teaching and enter the world of hedge fund management. I would rather see the light go on behind the eyes of a struggling adolescent than be able to add a string of zeroes behind my currently very limited net worth.

The average teacher does more good than does the average hedge fund manager. Too bad our society does not see things that way.

Peace.

4 comments:

The Reflective Educator said...

Excellent post. If dollars are to be seen as an indication of the value of a good or service provides to the welfare of society, then it's clear where our values are.

Nathan Wear said...

What could that money have done for children? The payoff would have been priceless.

Colin said...

Sadly our society undervalues all workers (not just teachers) compared to capitalists. We live in a plutocracy (government by and for the rich) and we always have.

pagidips said...

You do realize that the effective tax rate for a hedge fund manager is not 15%. It is the highest tax rate. Based on where they live, they will pay approximately 35% (exclusive of payroll tax). Then they will pay the highest bracket for state income taxes. In california that would be about 11%. In New York 9%.

So effective tax rate is 46-44% WITHOUT payroll taxes.

If anyone (you or a hedge fund manager owns an investment longer than 12 months - which many hedge fund managers do not), then and only then will the tax rate be consider a long term capital gain - which is taxed at 15%.