Very interesting article from Ben Stein (himself a pretty interesting right-wing polymath – and screen actor, to boot) in this week’s American Spectator. The moral justification of capitalism has always been its ability to generate wealth – a lot of it for a relatively small number of people, it’s true, but also jobs – and wealth – for the masses. However, the mass exodus of “proper†jobs from the West to the third world raises an enormous and persistent question over the future of our economic system. As Stein writes:
The most sought after jobs in the United States now are jobs in finance in which basically almost no money is raised for new steel mills or coal mines, but immense sums are raised to buy companies, recapitalize them — which means pay the new owners immense special dividends and other payments for going to the trouble of taking over the company. This process results in fantastically well-paid investment bankers and private equity “financial engineers” and has no measurably beneficial effect on the economy generally.
He continues:
An entire new class of financial entity has been created called “the hedge fund.” It is new not in the sense that there were not always funds that hedged by selling short or buying assets uncorrelated with other assets. The new part of this phenomenon is that it is based on a demonstrably false premise: that these entities can consistently outperform wide stock indexes. They have not and cannot, and yet their managers and employees for a time are paid stupendously well.
Stein makes some very telling points, all the more significant because he is not some hot-headed radical. What do hedge funds and private equity actually contribute to our economy? To the greater common-wealth? The honest answer has to be very little. We are in uncharted economic waters now, and I do fear that there will be a reckoning sooner than many suppose.
