Now, more than 20 years after NAFTA and 14 years after China joined the World Trade Organization, there is no real question among economists that expanding trade has been good for the world and has helped reduce poverty. It has also unquestionably been good for U.S. corporations as they grow their global reach. But there is equally no doubt that trade liberalization has hurt low-skill manufacturing workers and aggravated income inequality, which is now at its worst since the 1920s.
U.S. income inequality, on rise for decades, is now highest since 1928
ECONOMIC inequality in the United States is at its highest level since the 1930s, yet most Americans remain relatively unconcerned with the issue. Why?
The rich get government handouts just like the poor. Here are 10 of them.
A floating tax shelter photographed in its natural habitat. Flickr user “OVER 1 MILLION VIEWS”, CC.
2. The yacht tax deduction.
If you’ve got a boat and you’re paying interest on it, that interest is tax-deductible – provided your boat is really, really big. If it has sleeping quarters, a kitchen and a toilet – e.g., it is a yacht – then it can be considered a second home and any interest you pay on it is deductible. But if you just have a garden-variety fishing boat or canoe, sorry – no deduction for you.
Beyond that, if you have a yacht you can loan it out to a charter business for part of the year, and keep it for personal use the rest of the time. This allows you to deduct the purchase price, insurance, maintenance and slip fees too.
Except for rich, Americans’ incomes fell last year
Washington (AFP) – Most Americans’ incomes continued to fall last year, but the richest 20 percent saw theirs rise, a new Labor Department report showed Thursday
In fresh data that adds fire to a growing debate over income inequality, the department said that Americans on average saw income decline for the second straight year in the 12 months to June 2014.
The average pre-tax income fell 0.9 percent from the same period a year earlier, to $64,432.
But broken down into quintiles, those in the top 20 percent of incomes saw their money stream grow by 0.9 percent to $166,048 on average.
Every other group lost ground, with the bottom 20 percent losing the most: their average income dropped 3.5 percent to $9,818.
Those losses came despite an economy that was picking up pace and generating well over 200,000 jobs a month last year.
While the majority of incomes fell, consumer spending, which accounts for about two-thirds of US economic activity, rose 1.0 percent on average.
The largest increase was an 11.3 percent rise in healthcare spending, which has climbed every year since 1996, to an average of $3,919.
Housing expenditures rose 2.0 percent to $17,377.
The new data added further evidence of the widening disparity between the rich and the rest of Americans, an issue that is stirring growing concerns as the economy strains to recover from the Great Recession caused in part by Wall Street excesses.
Federal Reserve Chair Janet Yellen repeatedly has raised the issue.
On Thursday, at a Fed conference on economic and social mobility in Washington, Yellen emphasized that “roughly 80 percent of Americans across the ideological spectrum see inequality as a moderately big or very big problem,” according to her prepared remarks.
Traders work on the floor of the New York Stock Exchange on March 12, 2015 in New York City. Credit Spencer Platt/Getty Images
Wall Street bonuses are galling, a point that was driven home again this week with the release of the annual report on bonuses by the New York State comptroller.
Any pretense that Wall Street bonuses reflect performance — as that word is commonly understood — was shattered by the financial crisis and its aftermath. “Performance” implies something positive, but performance on Wall Street in the mid-2000s meant inflating a bubble which burst, wiping out jobs, income, wealth and opportunity across the nation.
About the only thing it didn’t wipe out were Wall Street bonuses. In records going back to 1986, the biggest total ever set aside for bonuses on Wall Street was $34.3 billion, in 2006, the last year of bubble-era profits. In 2007, despite huge losses, the bonus pool was $33 billion. In 2008, despite bigger-than-huge losses and bailouts galore, it was $17.6 billion. The next year, it had rebounded to $22.5 billion. It has been pretty much uphill since then. In 2014, it was $28.5 billion or $172,860 on average for Wall Street employees.
There are several ways to put those figures into perspective, all of which indicate that the bonuses are excessive. The Washington Post pointed out that Wall Street’s profits in 2014 were the ninth largest in the past 20 years, while the bonus pool and the average bonus were the third highest over the same period. Profits down, bonuses up. Go figure.
The comptroller, Thomas DiNapoli, pointed out that the average annual salary plus bonus on Wall Street, at nearly $356,000 in 2013, was five times as high as that for workers in the rest of the city’s private sector. The bonuses alone were more than three times the median household income in the United States of about $52,000 in 2013. Are those salaries and bonuses warranted by the value that Wall Street adds to the portfolios of investors, to the economy, to the public? It’s hard to think so. The comptroller’s report came out shortly after a White House report estimated that the financial services industry drains $17 billion a year from retirement accounts by steering savers into high-cost products and strategies rather than comparable lower-cost ones. Retirement accounts are only one of the many pools of money that big banks have their toes in. Overall, study after study has found that the growth of finance in recent decades has had adverse effects on economic growth, middle-class wage growth and broad prosperity in general.
If policy were focused on rebalancing the economy, Wall Streeters would still be well off. But many others could be better off, too. This chart, from a new report by the Institute for Policy Studies, a progressive think tank, shows that Wall Street’s latest bonus pool would be enough to give 2.9 million restaurant and bar servers, who make about $10 an hour on average, a raise to $15 an hour, and still have some $10 billion left over. Ditto 1.5 million home care aides or 2.2 million food prep and service workers.
Institute for Policy Studies analysis of New York State Comptroller and BLS Data, via Flickr.
But what about New York and New York City? Wouldn’t reining in finance be killing the goose? Mr. DiNapoli stressed how important Wall Street is to the economy of the state and city. But he also stressed that the goal should be a financial sector with sustainable profits rather than short-term, high-risk, high-reward profits.
That’s fine as far as it goes. But New York also must broaden its tax base and diversify its economy. New York politicians should be on the forefront of demanding higher taxes on private equity partners, who currently pay tax at about the lowest rate in the tax code on much of their income. They also should be doing their utmost to promote and develop New York as a high-tech center, as well as to capitalize on New York’s advantages in other fields, including media, advertising, entertainment, health care and tourism.
As things stand now, New York is still overly reliant on an overgrown financial sector. That’s not good for New York, or the broader economy.
For Top 25 Hedge Fund Managers, a Difficult 2014 Still Paid Well
By ALEXANDRA STEVENSON MAY 5, 2015
Kenneth Griffin, founder and C.E.O. of Citadel, took home $1.3 billion in 2014, topping the list. Credit Lucy Nicholson/Reuters
For investors in hedge funds, like big pension funds, 2014 was not a lucrative year. But for those who managed their money, the pay was spectacular.
The top 25 hedge fund managers reaped $11.62 billion in compensation in 2014, according to an annual ranking published on Tuesday by Institutional Investor’s Alpha magazine.
That collective payday came even as hedge funds, once high-octane money makers, returned on average low-single digits. In comparison, the benchmark Standard & Poor’s 500-stock index posted a gain of 13.68 percent last year when reinvested dividends were included.
Still, the men (no woman has ever made the cut) at the top of the hedge fund universe now run firms that are bigger than they have ever been. Their influence is growing beyond the industry and even beyond Wall Street. They lobby in Washington, donate to political campaigns nationwide, and can pick their advisers from a pool of former central bankers.
Topping the list is Kenneth C. Griffin, who started by trading convertible bonds out of his dormitory at Harvard. He took home $1.3 billion last year. James H. Simons, a former National Security Agency code breaker who makes billions of dollars every year from his hedge fund, Renaissance Technologies, earned $1.2 billion. And Raymond Dalio, who runs the world’s biggest hedge fund, Bridgewater Associates, with more than $170 billion in assets under management, reaped $1.1 billion.
In close fourth was William A. Ackman, who is known for making large and concentrated bets, and for being outspoken about them. Mr. Ackman earned $950 million in 2014.
The pay estimates are based on the value of each manager’s stake in his firm and the fees charged. Investors in hedge funds generally pay an annual management fee of 2 percent of the total assets under management and 20 percent of any profits.
For the average person, these sums are extraordinary. But the overall pay for top earners was down by hundreds of millions of dollars in 2014. These managers made just over half of the $21.15 billion earned by the top 25 in 2013.
Still, what makes such nine- and 10-figure paychecks remarkable for 2014 is that many of the top earners had mediocre performances at best. Only half of the top 10 earners recorded returns that exceeded that of the S.&.P 500.
For investors, 2014 was the sixth consecutive year that hedge funds have fallen short of stock market performance, returning only 3 percent on average, according to a composite index of 2,200 portfolios collected by HFR, a firm that tracks the industry. Hedge funds are lightly regulated private pools of capital open to institutional investors like pension funds, university endowments and wealthy investors.
Such large investors continue to shovel money into the $2.9 trillion hedge fund industry, desperate to make returns in an environment of near-zero interest rates. So far this year, $95 billion of new capital has flowed in.
In terms of performance, Mr. Ackman’s Pershing Square Capital and Mr. Griffin’s Citadel were standouts. Pershing Square’s two funds gained 36 percent and 40 percent, the best returns in the 2014 ranking. Citadel posted returns of 18 percent to investors in its flagship Kensington and Wellington funds. Both Mr. Ackman and Mr. Griffin declined to comment for this article.
At Renaissance, the best-performing equities fund was up 14.5 percent, and its institutional futures fund gained 7.4 percent. Mr. Simons’s wealth, however, is tied up in the firm’s secretive Medallion fund, which manages only employees’ money and has earned average annual returns of more than 30 percent over two decades.
Elsewhere, returns were more modest.
Mr. Dalio’s Bridgewater started the year strong, with well-placed bets on interest rates in Europe and the United States, but momentum slowed in the second half of the year. He made 3.6 percent and 8.7 percent in his two main Pure Alpha funds. Mr. Dalio’s spokesman declined to comment.
Some notable managers were missing from the Alpha list entirely. The billionaire financier John A. Paulson did not make the cut because his Paulson & Company hedge fund lost money in 2014. Mr. Paulson, an inveterate art collector whose office is lined with Alexander Calder watercolors, was the second-highest earner in 2013, reaping $2.3 billion. He declined to comment.
And some of the most prominent names on past Alpha lists are no longer counted, having converted their hedge funds into family offices, managing chiefly their own money. Among them are George Soros, Steven A. Cohen, Carl C. Icahn and Stanley Druckenmiller.
Computer scientists whose firms use quantitative strategies were among the top earners last year. Mr. Simons employs astronomers and physicists and uses computer programs to scan reams of data in search of patterns to make investments, for example.
David E. Shaw, whose $36 billion D. E. Shaw firm hires data scientists to build algorithms for trading, made $530 million in 2014. Mr. Shaw, who has a computer science Ph.D. from Stanford, is no longer involved with the daily management of D. E. Shaw’s investments. A spokesman for D. E. Shaw declined to comment.
In a year when managers complained about unnavigable markets, with the leading central banks keeping interest rates low, hedge funds that employed a variety of strategies fared better.
Israel A. Englander took home $900 million after his firm, Millennium, made returns of 12 percent in 2014. Based in New York, Millennium uses a platform model to invest with 170 individual managers who each use their own trading strategies. Mr. Englander does not charge a management fee. Instead, investors share the costs of running the firm.
The highest-earning managers have also emerged as leading political donors. For example, Mr. Griffin, whose $26 billion firm, Citadel, is based in Chicago, was the single largest backer for Rahm Emanuel’s successful second-term mayoral campaign, donating more than $1 million. (Last month, Citadel hired Ben S. Bernanke, the former Federal Reserve chairman, as a senior adviser.)
Mr. Simons, who stepped down from day-to-day management of his $25 billion firm, Renaissance, in 2010, has been a significant political supporter of the Democrats, donating $8.3 million in 2014 alone. A spokesman for Mr. Simons declined to comment.
Activist investors, once the scourge of corporate America because of their strategy of buying up large stakes in companies and then throwing their weight around with management, came out on top, too.
Larry Robbins, an activist investor who prefers to be called a “suggestivist,” made $570 million in 2014. He made a fortune for himself and his investors in 2013 after winning a proxy contest against Health Management Associates. Mr. Robbins has also made a windfall betting on health care stocks like Humana, Thermo Fischer Scientific, HCA Holdings and VCA. A spokesman declined to comment.
One group of hedge fund managers known as the Tiger Cubs also made the top of list. Protégés of Julian H. Robertson, they are named after his firm, Tiger Management.
One of them was O. Andreas Halvorsen, the founder of Viking Global Investors, who earned $450 million last year. A former Norwegian Navy SEAL, Mr. Halvorsen is fiercely competitive; he came in eighth for his division several years ago in an Ironman race that included swimming, running and cycling.
Chase Coleman made $425 million last year. His firm, Tiger Global Management, reported steady returns for investors. The Tiger Global fund reported gains of 16.9 percent and Tiger Global Long Opportunities of 15.5 percent. The firm also makes venture capital investments in start-ups. A spokeswoman for Mr. Coleman declined to comment.
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