'Unintended Consequences' by Edward Conrad: already 'the most hated book of the year'?
It鈥檚 not due to hit bookstores for another month, but 鈥淯nintended Consequences鈥� is already being called 鈥�,鈥� 鈥�,鈥� and 鈥溾�� 2.0.
Perhaps that鈥檚 because in 鈥淯nintended Consequences: Why Everything You鈥檝e Been Told About the Economy is Wrong,鈥� former Bain Capital managing director (and former colleague of and major donor to presumptive GOP nominee Mitt Romney鈥檚 campaign) Edward Conard argues that economic inequality isn鈥檛 a problem 鈥� and in fact, the US could use more of it to spur risk-taking, innovation, and growth.
鈥淯nintended Consequences鈥� 鈥渁ggressively argues that the enormous and growing income inequality in the United States is not a sign that the system is rigged,鈥� writes Adam Davidson, founder of NPR鈥檚 Planet Money podcast, in a column that鈥檚 been raising a firestorm. 鈥淥n 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.鈥�
鈥淭his,鈥� writes Davidson, 鈥渃ould be the most hated book of the year.鈥�
(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鈥檚 argument is the proposition that we, the 99 percent, benefit proportionally from the vast wealth of others. 鈥淢ost citizens are consumers, not investors,鈥� he told the Times. 鈥淭hey don鈥檛 recognize the benefits to consumers that come from investment.鈥� 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 鈥渋s invested in productive businesses that make life better for everyone,鈥� 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鈥檛 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. (鈥淚t was a simple, old-fashioned run on the banks, which, he says, were just doing their job,鈥� 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 鈥� not less 鈥� 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鈥檚 where economists, who have been growing hoarse in voicing their opposition to 鈥淯nintended Consequences,鈥� tend to part ways with Conard.
鈥淯ntil now, the official line has been that what we need are incentives 鈥� that jaawwb creeaytohrs (sic) won鈥檛 do their thing unless we dangle the carrot of immense wealth in front of them," writes economist and NYT columnist . 鈥淏ut now we鈥檙e supposed to think that it鈥檚 not the prospect of future wealth, but wealth in being, that鈥檚 what is really so wonderful.鈥澛�
鈥淯ndoubtedly some degree of income inequality is necessary and good to provide appropriate incentives, but at some point 鈥� and I believe we鈥檝e hit that point 鈥� 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,鈥澛�Robert Reich,聽former labor secretary under President Clinton and currently Chancellor鈥檚 Professor of Public Policy at the University of California at Berkeley, told .
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鈥檚 chief economic advisors -- had qualms about Conard鈥檚 as yet unreleased book.
That perhaps, is the point, suggests Conard in the NYT interview.
鈥淧eople get very angry before they change their mind,鈥� he said. 鈥淓conomics is counterintuitive. It just is.鈥�
Husna Haq is a Monitor correspondent.
