With his bashing of private equity, Barack Obama has given Mitt Romney a huge opening. Edward Conard, Romney’s friend and former partner at Bain Capital, is eagerly seizing that opportunity with his manifesto for private investment, Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong. Conard is eloquent and passionate about the virtue of investment and even the merits of America’s trade deficit. He’s the ideal guy to challenge post-crash criticisms of America’s market economy, and to serve as a sort of shadow debating captain against the Democrats’ populist instincts.
Regrettably, Conard overplays his hand. As far off the rails as Obama can be in attacking Bain for chasing profits—which is merely capitalism at work—Conard goes him one better. You know the Democrats’ caricature of Republicans who only care about rich people? Well, meet Ed Conard.
The thesis of Unintended Consequences is that risky investment drives improved productivity, which in turn drives higher wages and living standards for the poor and the rich. This is standard trickle-down, and it’s not much in dispute. The trouble is where Conard goes with it. He chalks America’s superior performance up to the country’s being basically a capitalist nirvana. As he puts it—with characteristic humility—“U.S. innovators have produced Intel (INTC), Microsoft (MSFT), Google (GOOG), Facebook (FB), etc. The rest of the world has contributed next to nothing.”
Nonetheless, Conard thinks that the U.S. is short on capital. And if someone has to sacrifice in order to facilitate more investment, Conard, a card-carrying member of the 0.1 percent, is perfectly willing to nominate people who are less well off than he is.
In particular, Conard does not like that wealthy people have to pay taxes. As he tells it, any increase in marginal rates will discourage the rich from investing. And only the rich, he claims, do invest. (He conveniently omits the huge sums in pension funds.) He celebrates the inequality that produces big fortunes and sees in America’s skewed distribution evidence of the divine. “God”—Conard has learned, evidently on high authority—put the talented on earth “to take responsibility, lead, innovate, and take prudent risks.” While Conard presents the incentivizing power of lower tax rates as a proven and immutable fact, it is in fact highly contentious. In the 1990s, tax rates rose and so did growth. Conard does offer counter-arguments—but presented as the views of unnamed “proponents of income redistribution.” Conard uses this loaded phrase 18 times.
Conard plainly cares about investment. He also cares about yachts. Where some conservatives suggest taxing consumption rather than income, Conard rejoins: “A heavy tax on consumption will discourage increased investment by making it harder to display status.” And since, as he elsewhere argues, “the thirst for … impressive homes, sleek boats, and exotic vacations” is what largely motivates people, such trinkets of affluence must be protected.
He argues in effect that more private sector investment is always better. But government is about trade-offs. More resources invested in Silicon Valley means less for education or defense (or for food). Conard even disdains charity because it drains resources from the pool of capital; stocking the cellar with champagne is OK but not alms for the poor. His view of American progress is extremely blinkered. Surely free public schooling, the Homestead Act, and democracy—more than low capital-gains rates—enabled the U.S. to develop a productive middle class. Yet after lamenting that Hispanics “slip across the border” and send “their children” to “our schools,” he cautions: “We will not be as prosperous in the long run if we … provide the same benefits to all Americans regardless of their economic contribution.” This is, within limits, precisely how we did become prosperous.
Because Conard sees markets as perfect, he seeks to give them uninhibited control over society’s resources. He believes stimulus spending is ineffective because consumers will anticipate higher taxes later and refrain from spending. Conard thus imagines citizens to be the logical robots of economic theory. Similarly—and monstrously—he envisions a perfectly efficient housing market, and argues that middle-class Americans weren’t hurt by home foreclosures because “home owners with little of their equity at stake walked away from their homes to capture the value of lower rents.” This is the view of a theorist who stays indoors.
Try as he might to write empirically, Conard lets his bias show. The author singles out select stock market moves to prove the market rose in response to Republicans such as Reagan and fell due to Obama. He fails to mention that the market rose during each of Obama’s first three years. His partisanship leeches ultimately into something worse: bitterness that the world doesn’t seem eager for his pinched, miserly breed of capitalism. He blames America’s shortage of talent on “liberal-arts majors [who] choose selfish solipsism” and adds, as if it were a crime, “They study literature and art history rather than computer programming and engineering.” One wonders if Conard’s beef with poets is that they worship beauty more than capital.
Although Unintended Consequences reveals the author’s intelligence and skill at elucidating economics, its merits are overwhelmed by its elitism. One might have thought this was a volume to scare Obama. But it’s the Romney campaign that should hope it disappears.