Perhaps that’s because in “Unintended Consequences: Why Everything You’ve Been Told About the Economy is Wrong,” former Bain Capital managing director (and former colleague of and major donor to presumptive GOP nominee Mitt Romney’s campaign) Edward Conard argues that economic inequality isn’t a problem – and in fact, the US could use more of it to spur risk-taking, innovation, and growth.
“Unintended Consequences” “aggressively argues that the enormous and growing income inequality in the United States is not a sign that the system is rigged,” writes Adam Davidson, founder of NPR’s Planet Money podcast, in a New York Times Magazine column that’s been raising a firestorm. “On the contrary, Conard writes, it is a sign that our economy is working. And if we had a little more of it, then everyone, particularly the 99 percent, would be better off.”
“This,” writes Davidson, “could be the most hated book of the year.”
(In a blog posted Wednesday after the NYT piece was published, Conard said he felt misrepresented by the Times story, but acknowledged it was the price one pays to land the cover of the NYT Magazine.)
Crucial to Conard’s argument is the proposition that we, the 99 percent, benefit proportionally from the vast wealth of others. “Most citizens are consumers, not investors,” he told the Times. “They don’t recognize the benefits to consumers that come from investment.” In other words, the vast majority of Americans spend their money on survival and entertainment; the superrich spend only a fraction of their money on personal comforts, the rest “is invested in productive businesses that make life better for everyone,” as Davidson writes in the Times.
Case in point: computers. A few innovators and wealthy investors earned billions improving personal computing and giving rise to the IT industry. Their work, in turn, has helped billions work more effectively and efficiently, making life more productive and growing the economy.
More payoff, says Conard, motivates more people to take risks, a handful of which could have huge payoffs for society and the economy.
But Conard doesn’t stop there. He argues investment banks make the economy more efficient, too, and argues in his book that the financial crisis was not due to greedy bankers selling sketchy financial products. (“It was a simple, old-fashioned run on the banks, which, he says, were just doing their job,” Davidson writes in the Times piece.) Collateralized debt obligations, credit-default swaps, mortgage-backed securities, and other dubious financial products (now deemed toxic) were sound tools that served the needs of sophisticated investors, according to Conard.
He goes even further, arguing for more – not less – government support of banks, even advocating the creation of a new government program that guarantees to bail out banks if they face another run.
That’s where economists, who have been growing hoarse in voicing their opposition to “Unintended Consequences,” tend to part ways with Conard.
“Until now, the official line has been that what we need are incentives — that jaawwb creeaytohrs (sic) won’t do their thing unless we dangle the carrot of immense wealth in front of them," writes economist and NYT columnist Paul Krugman. “But now we’re supposed to think that it’s not the prospect of future wealth, but wealth in being, that’s what is really so wonderful.”
“Undoubtedly some degree of income inequality is necessary and good to provide appropriate incentives, but at some point – and I believe we’ve hit that point – it harms an economy by robbing the vast middle class of the purchasing power it needs to keep an economy going, and it generates social and political upheaval,” Robert Reich, former labor secretary under President Clinton and currently Chancellor’s Professor of Public Policy at the University of California at Berkeley, told MSNBC.
Even less left-leaning, more pro-market economists like Glenn Hubbard -- a respected economist, dean of the Columbia School of Business, and one of Romney’s chief economic advisors -- had qualms about Conard’s as yet unreleased book.
That perhaps, is the point, suggests Conard in the NYT interview.
“People get very angry before they change their mind,” he said. “Economics is counterintuitive. It just is.”
Husna Haq is a Monitor correspondent.