Ladies and gents of the general election, meet former Bain Capital General Manager, current .01%-er and major Romney donor Edward Conard, who thinks that income inequality is a healthy sign of successful, risk-rewarding economy.
Conard helped build Bain Capital into the company-mulching juggernaut it is today, and retired four years ago at the tender age of 51 to work on his book, Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong, which he hopes will change the way the rest of us understand economics. Via the New York Times magazine, which has a profile of Conard out this Sunday:
Conard understands that many believe that the U.S. economy currently serves the rich at the expense of everyone else. He contends that this is largely because most Americans don’t know how the economy really works — that the superrich spend only a small portion of their wealth on personal comforts; most of their money is invested in productive businesses that make life better for everyone. "Most citizens are consumers, not investors," he told me during one of our long, occasionally contentious conversations. "They don’t recognize the benefits to consumers that come from investment."
Under Conrad's formulation, risk, in the form of innovation, rewards the risk-taker with riches, but creates an even greater benefit for society. He cites the IT industry as one example: a few people got obscenely wealthy, but the rest of us got Google. Deal! Conard posits a 5:1 ratio, in which every dollar earned by an innovator is worth $5 in benefits to society, a proportion that increases along with the necessity of the product: innovations in agriculture, which greatly reduce the cost of food, are worth $20 to us proles for every $1 they benefited the capitalist who made them. Under this worldview, income inequality is not the smoke of a rigged or malfunctioning economy, but simply the steam of an effective one.
Because risk and innovation play such an important role in his theory, Conard actually thinks that the 1% isn't being rewarded enough:
"It’s not like the current payoff is motivating everybody to take risks," he said. "We need twice as many people. When I look around, I see a world of unrealized opportunities for improvements, an abundance of talented people able to take the risks necessary to make improvements but a shortage of people and investors willing to take those risks. That doesn't indicate to me that risk takers, as a whole, are overpaid. Quite the opposite." The wealth concentrated at the top should be twice as large, he said. That way, the art-history majors would feel compelled to try to join them.
"Art-history majors," natch, is his term for those who opt out of the competitive battlefield of capitalism. Conard's so committed to this ontology that he even groups lawyers into the art-history category, as they've chosen a safe and scaffolded career rather than one of risk and improvisation.
If this all seems a little too streamlined, that's because it is. Calling capitalists "innovators" is a similar sleight-of-rhetoric to the noxious "job creators" tag. As Bain Capitol itself showed, making money need not be correlated to making jobs, and Conard has some real difficulty explaining how the complex financial derivative practices that led to the financial collapse count as innovations of the socially-beneficial variety. (He also has a neat little theory about how they didn't actually lead to the collapse; that was the fault of dumb plebeians making unjustified runs on the banks.)
More to the point, Conard doesn't seem to understand the negative consequences of income inequality, certainly not in any form beyond an abstract red line on a graph. Viewing the economy simply as risk and reward divides the population into rich and not-rich, rather than increasingly wealthy and vastly expanding poor. It collapses the lower and middle classes into a monolith of moral distinction; they're simply "not innovators," a label that occludes everything awful about poverty, from quality of life to its cyclical and self-reinforcing nature.
Conard's model also assumes lower prices are a financial salve in and of themselves. But simply because food is cheaper does not mean that someone living below the poverty line can afford enough of it, especially as median incomes decline along with prices. And Timothy Noah points out that while the prices of goods have declined in the past few decades, the prices of other, more important services, like higher education and health care, have gotten drastically more expensive.
How a shrinking middle class, having to work longer hours to keep itself healthy and increasingly unable to afford education, creates a greater amount of innovators is something Conard doesn't address. Not only do innovators suffer when an enervated society can't afford to purchase their products, but innovators themselves have to come from somewhere. The income inequality that Conard endorses as the reward for innovators is the very same process that prevents future innovators from coming up.
Conard waves many of these concerns away. He came from a solidly middle class family and built up a massive personal fortune, and suffers from the biographical delusions of many self-made men, roughly: I did it, therefore everybody else can, too. But Conard's risk-reward model prohibits just such widespread success. He makes a big point that nobody is offered any special favors by society, but he's arguing for exactly that unlevel playing field to be systematically upheld. Meanwhile, Conard retired just at the start of the financial collapse; it must be easy to downplay both the causes and effects of the disaster if you were wealthy enough to opt out before suffering any harm from it.
This sort of rigid, anedotal-based understanding of economic policy is exactly what's so wrong with contemporary discussions of the uneven distribution of wealth, in which capitalism and parity are always seen as mutually exclusive. Quoting Noah:
Like a lot of people who argue in favor of income inequality, Conard portrays his opponents as opposing capitalism itself, which—no argument here—depends on a certain amount of income inequality in order to function. You have to reward effort and skill. But the question (for those of us who support capitalism but decry income inequality) is not whether there should be any inequality, but rather how much inequality we need to tolerate, and most especially whether a long-term trend toward growing inequality is good for the economy or the health of society. We can argue about how much inequality is necessary, but almost no one thinks that ever-growing income inequality is a social or economic good. [Emphasis Noah's]
These questions are going to be hard to ignore once Conard's book makes some waves and his connections to Romney get more press. Conard thanks Romney in the acknowledgements of his book, and has contributed generously to his campaign, more than enough for guilt by association. And while Romney is getting better daily at massaging his views, Conard is vocal and blunt about his pro-1% ideology.
Worse, Conard's theory dovetails enough with what Romney has said about income inequality for a somewhat substantive connection between the two men. A debate moderator now has every right to ask Romney how much of Conard's theory of unmediated inequality he supports. While Romney has called criticisms of his wealth and his financial policies "envy" and "class warfare," that was during a GOP primary when he had the gospel of wealth behind him at every turn. In a campaign against a populist Obama, Romney's not going to be able to get away with such frivolous responses. He's now going to have to answer for the consequences of theories like Conard's: Does widespread and prolonged income inequality systemically disadvantage the vast majority of Americans? How much income inequality is too much? How would a society so vastly unequal continue to create innovators, instead of systematically preventing them? How much are we willing to put up with—worsening health rates, increasing crime, etc.—to maintain these levels of income inequality? At what point does a person's quality of life, above and beyond how many cheap goods they can afford, overrule the desired agility of a capitalist economy?
This is, for the record, why I've argued for Romney as such a valuable presidential candidate. America needs to have a discussion about exactly these questions. It wouldn't have happened with a Santorum or a [heh] Gingrich. But with friends like Romney's, out there so boldly advocating for what most people consider a social ill, we may finally get to have a substantive discussion on why so few in this country control so much of the wealth, a conversation that would seem to favor the expiration of the Bush tax cuts, the Buffet rule, stimulus over austerity, investment in education and public works projects, and so on. If Conard's endorsement of inequality finally impelled us to do something about ending it, that really would be an unintended consequence.
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