In his Bloomberg review of my book and blog post, Tyler Cowen recognizes one of the key insights in my new book The Upside of Inequality: How Good Intentions Undermine the Middle Class. He writes: Conard’s central idea is that risk-bearing equity capital is the truly scarce asset in most economic situations, and economic analysis should adapt accordingly. He is very creative in seeing some of the implications of this view.” Cowen concludes, “I…found it very stimulating to ponder. It puts many of the pieces together in a new and different way.”
Based on Tyler’s review, however, you would think the book is centered on tax cuts for the wealthy, but that’s simply not the case. I do argue that higher payoffs for risk-taking motivate increased risk-taking, and that this creates a positive feedback loop that gradually builds institutional capabilities, which accelerate growth and increase the expected payoff for risk-taking—more valuable on-the job-training at companies, like Google; synergistic communities of experts, like Silicon Valley; venture capital in the pockets of successful insiders; and ultimately a more motivated and better-trained pool of talented risk-takers. Hence, the growing difference between America and Europe. But I recommend lower business taxes, especially for international competitors, offset by higher personal capital gains taxes rather than assuming, as Cowen claims, that the rich will simply take the necessary risks.
What I like most about Cowen’s review is that he recognizes I am putting forward a thesis—that the economy’s capacity and willingness to bear risk constrains growth—which upends economics. Tyler notes that “for Conard, ‘weak demand is not a cause in and of itself. It is a symptom of a shortage of equity willing and able to bear risk’.” He acknowledges that my view “puts many of the pieces together in a new and different way.” And he suggests that “economic analysis should adapt accordingly.”