President Barack Obama in a speech on Tuesday complained that the nation’s top 25 hedge-fund managers earned more than did the nation’s kindergarten teachers combined. As a rhetorical device, that’s classic Obama: a claim that is factually shady to begin with and that, even if it weren’t, would tell us exactly nothing about anything.
Begin with the numbers: There are about 158,000 kindergarten teachers in the United States, and the average teacher salary is $53,480, giving the kindergarten teachers a collective income of about $8.5 billion for 2012. Why pick kindergarten teachers as your point of comparison? Because it produces the rhetorical effect you want; if you compared those hedge-fund guys with high-school teachers, you’d get a very different outcome, with the pinstripe types earning about 1 percent of what the high-school teachers take home. That, too, would be a meaningless comparison.
The typical teacher retires with a pension that would be worth upwards of half a million dollars if it were an annuity.
As the Washington Post figures it, the top 25 hedge-fund managers made about $11.5 billion in 2014, and we can assume that kindergarten teachers’ salaries did not change radically in two years, and my English-major math says that $11.5 billion is more than $8.5 billion. Fair enough, but salaries do not in fact tell us as much we might think about what teachers actually earn, because teachers’ unions and politicians have colluded for generations to move a great deal of teachers’ real compensation into non-wage income such as generous benefits and — most significant — pensions. The typical teacher retires with a pension that would be worth upwards of half a million dollars if it were an annuity — which is to say, teachers individually receive the equivalent of about ten years’ median household income in the form of largely untaxed pension benefits, with lifelong medical benefits that are extremely valuable, too.
Those pension funds represent one of the largest pools of financial assets in the country, which is why the teachers rely so heavily on — who would have thought? — hedge-fund managers to help them run their money. Which is to say, one of the ways that hedge-fund managers earn their incomes is by helping retired teachers earn theirs. If the question is whether hedge funds are worth the fees, the teachers seem to believe that the answer is: yes, emphatically. That’s not a universal opinion about public pensioners: CALPERS, the California public-employee behemoth, recently announced that it was getting out of the hedge-fund business, while CALSTRS, the teachers’ equivalent, is staying in it. If you want to know what people really think, watch what they do with their own money.
On the question of salaries: The Post wrongly characterizes those hedge-funder bosses’ payment as “salaries,” when they are not, for the most part, which is what this is really all about: The class warriors want to tax the percentages that investment managers earn on their clients’ returns as ordinary income instead of as capital gains, and long-term capital gains are taxed at a much lower rate. This would in reality have little effect on the tax rates of hedge-fund managers, because hedge funds tend to make short-term investments that do not benefit from preferential tax treatment. It would be a much bigger deal for private-equity investors, venture-capital groups, and the like. But President Obama can generally count on class-war Democrats not to know the difference between different kinds of financial firms or financial instruments. (Fun experiment: The next time you hear somebody with a placard screaming about the need to regulate derivatives, ask them to explain what a derivative is. It’s guaranteed entertainment.) As long as some high-earning person is made to suffer, they’re happy.
One suspects that the highest-paid 25 people in any field would have unusually high incomes — that’s pretty much the nature of being in the top 25, and it’s why that doesn’t really make a very good point of comparison. The top 25 people in entertainment make tons of money. Even the top 25 people in “public service” do pretty well: Thousands of federal employees earn six-figure salaries in which the first figure is not a 1; city managers do all right, etc. There’s an inescapable question of priorities, too: In most states, the highest paid public employee is a football coach, as are the three highest-paid employees of the Department of Defense. The top 25 professional athletes probably make more money than all the nation’s heart-transplant surgeons combined, which tells us exactly nothing about how much Kobe Bryant or the head transplant surgeon at Johns Hopkins should make.
The average Wall Street worker bee doesn’t make a billion dollars a year, or even the $1.6 million a year that the Navy pays its football coach, but people in finance do pretty well, in general, which is, of course, why they must be punished.
Are kindergarten teachers underpaid? Not very likely, but let’s allow that it is possible. Are hedge-fund managers overpaid? There are more than a few knowledgeable people in the investment business who believe just that, that at the rarefied heights, the dynamic has more to do with celebrity than performance. Two interesting questions, to be sure, but there’s a third question that Barack Obama et al. refuse to consider: What does the one have to do with the other? The answer is, “Nothing at all,” but there’s no juice in that.
— Kevin D. Williamson is National Review’s roving correspondent.