Consider a head-to-head comparison. We know what John D. Rockefeller, the richest man in Gilded Age America, made in 1894, because in 1895 he had to pay income taxes. (The next year, the Supreme Court declared the income tax unconstitutional.) His return declared an income of $1.25 million, almost 7,000 times the average per capita income in the United States at the time.For reasons that will be clear below, I'll focus on the case of Ken Griffin, who earned $1.4 billion. This makes him (1.4/1.7)*(38000/7000) = 4.5 times as high-income relative to the typical person as J.D. Rockefeller according to Krugman's metric. Krugman's use of the term "mere piker" suggests that he thinks these hedge fund managers are even worse in some way than Rockefeller.
But that makes him a mere piker by modern standards. Last year, according to Institutional Investor’s Alpha magazine, James Simons, a hedge fund manager, took home $1.7 billion, more than 38,000 times the average income. Two other hedge fund managers also made more than $1 billion, and the top 25 combined made $14 billion.
How much is $14 billion? It’s more than it would cost to provide health care for a year to eight million children — the number of children in America who, unlike children in any other advanced country, don’t have health insurance.
The hedge fund billionaires are simply extreme examples of a much bigger phenomenon: every available measure of income concentration shows that we’ve gone back to levels of inequality not seen since the 1920s.
Let's continue the comparison. Consider that Rockefeller's Standard Oil had the advantage of being a near-monopoly. Griffin has no such luxury--he's in one of the most fiercely competitive industries you will ever find. He makes his money not by shrinking from competition but by surpassing it. According to some estimates, his firm, Citadel Investments, is responsible for over 3 percent of the average daily trading volume in New York, London, and Tokyo. It takes a very unusual person to build a business that can do that.
I know whereof I speak. I was an acquaintance of Ken's both in high school and in college. He attended a rival high school in the same county, and we competed in math tournaments. He and I entered Harvard the same year, both majored in Economics, and both graduated in three years. But let me not suggest to you that we were similar in too many ways. Most significantly, while I was busy with my studies and my interest in economics inside the classroom, Ken was pursuing his interests in economics outside the classroom. I didn't see him on campus more than a handful of times. This profile gives a good description of his background, how he got his start in finance, and his business strategy.
What emerges is someone who is intensely intelligent--in the sense of being able to integrate knowledge from disparate sources to solve a specific problem--and extremely independent-minded--it's his way or the highway, at least at Citadel. He builds the financial capacity to pick up the pieces where others fail--whether Amaranth or Enron--at a bargain price. He doesn't pull his punches--I don't think anyone who offers the "toxic convert" is shy about being a financial intermediary. He's also not trying to win the "Boss of the Year" award. But these are details. To sum him up in three words, he is successful because he is confident, contrarian, and accurate.
I spend a lot of time around college students. I spend a lot of my energy trying to get them to display those three characteristics. Krugman seems to think that one "Kenneth Griffin" is overvalued at 4.5 "John D. Rockefellers." On the contrary, I think it's a buy.