Dean Baker
Truthout, May 14, 2018

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The Republicans in Congress are again pushing the idea that we have to make people work for benefits like food stamps and Medicaid. Since most people who get these benefits are already working, caring for young children or ill family members, or are themselves disabled, this seems like needless harassment of lower-income families. But, the Republican Party specializes in needless harassment of people without power.

What if, instead of imposing work requirements on people who are struggling to get by on a $126 a month (the average food stamp benefit), we instead focused on whether the people at the top are working for their money.

Specifically, let's look at the private equity fund managers who often get hundreds of millions of dollars in fees from public pension funds for the promise to deliver higher-than-average returns, but end up costing them money. The investigative reporter David Sirota had a fascinating piece in Westword last week, showing that the State of Colorado's main public employee pension fund had paid out over a billion dollars in fees to outside investment managers between 2009 and 2016.

We might think such payments were reasonable if these managers were market whizzes who earned the state extraordinary returns on its pension fund. But it turns out they weren't. The returns on the state's pension funds lagged the major market indexes. This means that the state paid over $1 billion to these investment managers over an eight-year period to lose the state money.

If you're wondering who got this money, think of the rich people who run private equity companies. Think of people like Mitt Romney, the former Republican presidential candidate who was a partner at Bain Capital. Or, think of Steve Schwarzman, the CEO of Blackstone, who is getting buildings all over the country named after him because of his generous donations. When you get so much money handed to you by the taxpayers, you can afford to be very generous with it.

Since the Republicans think it is essential that food stamp recipients are working to earn their $126 a month benefit, how about we require the same from the people who get millions or tens of millions in investment fees from the government? We know that the private equity folks will tell us that they were working very hard, but how hard could they have been working if they actually lost the state money with their investments?

Suppose we said that if a state pension fund's investments in private equity or other assets failed to meet the performance of the relevant comparison index, the managers had to work to pay off the fees the state paid them. We should be able to get lots of time out of these people.

The billion dollars that Colorado paid to its outside investment managers comes to 7,937,000 months of food stamp benefits. If we required them to work for the federal minimum wage, it would give us almost 138 million hours of work from these people.

It's not just public pension funds that feel the need to hand millions of dollars to very rich people to lose them money. The New York Times ran a piece last month reporting on how the investment returns for the endowments at Harvard and other leading private universities trailed the returns from simple index funds over the prior 10 years. Here also, outside managers were paid millions of dollars to lose the school's money.

It is striking that we have so many people in this country that can be furious at the idea of someone getting $126 a month without working for it, but are apparently fine with rich people pocketing millions, or even tens of millions, for nothing. And, just to be clear, this appraisal of "nothing" is not my personal assessment of the value of the work of the private equity and hedge fund managers; it is the market's assessment.

Their job was to produce returns for pension funds or university endowments. If they failed to beat low-cost index funds, the value of their work was zero.

So the rule in the US in the second decade of the 21st century is that if you get $126 a month in food stamps, you better be able to prove you're doing something the government considers as valid work. But if you're an investment manager getting millions or tens of millions from the government or a university, it's OK if you don't do anything productive for your money. Welcome to the swamplands.