In my review of Jerry Muller's book Capitalism and the Jews, I write about how the distinction between the Wall Street and Main Street economies is a dangerous one, and how the use of terms like bloodsucker and parasitical to describe the financial industry is rooted in Marxist-Leninism, Nazism, and anti-Semitism. There's a new example today of that kind of thinking, in a column in the Financial Times about the writer Malcolm Gladwell and John Paulson, the hedge fund manager who made billions betting against the shousing bubble and grew up attending the Whitestone Hebrew Centre in Queens:
Mr Paulson is not an entrepreneur: he is a Wall Street financier who takes short-term speculations, mainly, it seems, using derivatives – gambling with paper on paper.
Entrepreneurs, on the other hand, build real companies that employ people and generate value for an economy. They do not amass riches through the misery of others; they create wealth and jobs, and make the capitalist system work.
This is not simply a matter of semantics. It is a moral and philosophical issue. To me, Mr. Paulson and others like him are the opposite of heroic – they are in essence parasitical.
This is almost exactly the distinction that, as I wrote in the book review, quoting Mr. Muller, is made by the Nazi economic theorist Gottfried Feder, who, Mr. Muller writes, "distinguished between Aryan and Jewish forms of capitalism, the former industrial and creative, the latter financial and parasitic." Again, as Mr. Muller puts it, that view represents "a failure to recognize the role of knowledge and the evaluation of risk in economic life." Mr. Paulson didn't cause the housing bubble or the foreclosure crisis. In fact, if his insight that housing was overvalued had been more widely shared and acted upon, we might have had fewer foreclosures and less disruption. The "short-term" gamble that the FT author derides was a two-year bet that reportedly began in 2005, when Mr. Paulson began shorting mortgage-backed securities, but didn't pay off big time until 2007. Mr. Paulson isn't the only one who profited -- so did those who invested in his fund. And his big payday was the culmination of a 30-year journey: First in his class at NYU, then an M.B.A. at Harvard Business School, stints at Boston Consulting Group, Leon Levy's Odyssey Partners, Gruss Partners, and Bear Stearns, an investment in the Boston Beer Company (maker of Sam Adams), and, in 1994, opening his own hedge fund with $2 million of his own money, staffed by himself and an assistant. Now he has dozens of employees and billions under management. That's not short-term speculation, but a lifetime of hard work. He's certainly created wealth and jobs, and some of the denunciation of him as a parasite is surely related to jealousy of his success.