Submitted by Mitchell, Jun 14, 2007 00:28

The Sun is right to scoff at the Times's economic naivete. However, it is important to observe that the inequity associated with private equity funds is that their profits are not the result of private enterprise and free markets. They are the result of the government's control of the money supply. The Fed has expanded the money supply, and the banking system has lent much of the new money to private equity interests, in part through foreign lenders. This is not private enterprise. It is subsidization of the wealthy through Keynesian policy.

The Sun's position is part-true. It is right that the narcotic effect of monetary expansion leads to the specious cure of taxation and regulation that opportunists like Robert Rubin and Warren Buffett advocate. However, the concerns underlying the impetus for the taxation and regulation, that it is wrong for government to subsidize hedge funds and private equity funds, are legitimate.

The solution should be to tell Rubin that Citigroup has been feeding at the public trough for too long. Banks should not be permitted to expand the money supply through the reserve ratio, and the Fed should not be permitted discretion in printing ever more money. If these policies were implemented, the hedge fund and private equity operators' profits would diminish or disappear, and Citigroup would be a lot less profitable too. The problem, of course, is that Rubin's salary would end up being a lot lower because Citigroup would be making a lot less money, as would Berkshire Hathaway and, for that matter, Bloomberg Information Systems.

So in the end, Rubin's call for taxation of hedge funds is not quite as stupid as the Sun intimates. The real problem is inflation, from which Rubin, Buffett, Soros, Bloomberg and other left-wing billionaires benefit, but limiting inflation would also limit Citigroup's profits, hence Rubin's salary.

Rubin and his liberal billionaire friends would rather do harm to the free market system, tax hedge fund managers, small business people and upper-middle income Americans than see their ability to make billions encumbered.

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