'Unintended Consequences' by Edward Conrad: already 'the most hated book of the year'?(Read article summary)
'Unintended Consequences' by former Bain Capital managing director Edward Conard argues that economic inequality is a good thing rather than a problem.
Itâs not due to hit bookstores for another month, but âUnintended Consequencesâ is already being called âthe most hated book of the year,â âa balm for the 1 percent,â and âdefense of the richâ 2.0.
Perhaps thatâs because in âUnintended Consequences: Why Everything Youâve Been Told About the Economy is Wrong,â former Bain Capital managing director (and former colleague of and major donor to presumptive GOP nominee Mitt Romneyâs campaign) Edward Conard argues that economic inequality isnât a problem â and in fact, the US could use more of it to spur risk-taking, innovation, and growth.
âUnintended Consequencesâ âaggressively argues that the enormous and growing income inequality in the United States is not a sign that the system is rigged,â writes Adam Davidson, founder of NPRâs Planet Money podcast, in a New York Times Magazine column thatâs been raising a firestorm. âOn 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.â
âThis,â writes Davidson, âcould be the most hated book of the year.â
(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 Conardâs argument is the proposition that we, the 99 percent, benefit proportionally from the vast wealth of others. âMost citizens are consumers, not investors,â he told the Times. âThey donât recognize the benefits to consumers that come from investment.â 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 âis invested in productive businesses that make life better for everyone,â 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 doesnât 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. (âIt was a simple, old-fashioned run on the banks, which, he says, were just doing their job,â 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 â not less â government support of banks, even advocating the creation of a new government program that guarantees to bail out banks if they face another run.
Thatâs where economists, who have been growing hoarse in voicing their opposition to âUnintended Consequences,â tend to part ways with Conard.
âUntil now, the official line has been that what we need are incentives â that jaawwb creeaytohrs (sic) wonât do their thing unless we dangle the carrot of immense wealth in front of them," writes economist and NYT columnist Paul Krugman. âBut now weâre supposed to think that itâs not the prospect of future wealth, but wealth in being, thatâs what is really so wonderful.âÂ
âUndoubtedly some degree of income inequality is necessary and good to provide appropriate incentives, but at some point â and I believe weâve hit that point â 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,âÂ Robert Reich,Â former labor secretary under President Clinton and currently Chancellorâs 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 Romneyâs chief economic advisors -- had qualms about Conardâs as yet unreleased book.
That perhaps, is the point, suggests Conard in the NYT interview.
âPeople get very angry before they change their mind,â he said. âEconomics is counterintuitive. It just is.â
Husna Haq is a Monitor correspondent.