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The Donald’s Dangerous Populism

September 21, 2015

By Richard Epstein

Make no mistake about it: The dominant theme of the current presidential campaign—on both sides of the aisle—is economic populism. Bernie Sanders and Hillary Clinton have both articulated misguided populist positions meant to appeal to the middle class—as has the bellicose Donald Trump, who is currently the GOP frontrunner. In recent weeks, Trump has turned his energy and attention to attacking our financial elites. Thus last month he said on CBS’s Face the Nation: “I have hedge fund guys that are making a lot of money that aren’t paying anything. They're paying nothing and it’s ridiculous. I want to save the middle class. The hedge fund guys didn't build this country. These are guys that shift paper around and they get lucky.”

It is dangerous to take a demagogue seriously. But Trump’s remarks, given his popularity, deserve some parsing. He addresses the status of the financial services industry writ large while also tacitly attacking the so-called carried interest rule, under which those “hedge fund guys” get to receive favorable capital gains treatment for a large portion of their total compensation.

On the first point, Trump denounces hedge fund tycoons for getting huge chunks of money by doing very little, if anything, at all. To him, being lucky explains their success. As the old Gershwin song puts it: “It’s nice work if you can get it.” But it is less clear, as the song claims, that “you can get it if you try.” High compensation for hedge fund financiers is nothing new. So the obvious question is, why do people pay them the big bucks if they are doing virtually nothing? In a market economy, you are supposed to get back value for value given, but in Trump’s world, the hedge fund players have bamboozled the rest of us by commanding huge sums of money just for shifting paper around. It is as if the entire world has meekly agreed to subsidize a self-contained trading system with no extrinsic value, without ever catching on to the scam.

Read the full article at the Hoover Institution: The Donald’s Dangerous Populism

Issue Categories : Finance & Banking, Taxes