This Millionaire Is Wrong: Inequality Isn't the Key to Economic Success

Posted by Tim Fernholz


Take it from multimillionaire Edward Conard: Income inequality is a good thing. We need to bail out the banks more in the future. Wealthy people are wealthy because they’ve done so much to benefit society at large. Living off investment income is a higher moral good than charity.

Conard, a banker who earned his fortune at the same company as Republican presidential candidate Mitt Romney, makes these statements in a new book, which he calls a rebuttal to Occupy Wall Street, the Obama administration, and anyone who questions the advantages of the super-wealthy in society.

His argument is fairly simple: For capitalism to provide us its advantages—cheap access to consumer goods, new inventions that would boggle our grandparents’ minds, entrepreneurial freedom, the opportunity to work in a variety of fields—we need investors to throw money at expensive projects to get them off the ground. This isn’t a particularly novel argument. Many people, including progressives, make it all the time.

Conard's problem, like many others on Wall Street who don’t understand the country’s frustration with their industry, is a warped worldview. He not only embraces a false view of his opponents—that the 99 Percenters would get rid of all the rewards of success—he turns himself into a straw man. He honestly argues that the financial schemes Wall Street investment banks used to prey on their clients are a public good and that powerful companies don’t influence government rules or engage in anti-competitive practices.

The good news is that you don’t have to pick sides in this fake fight: You don’t need to either hate the rich or believe that they are sole drivers of prosperity. A society that rewards success and provides investment capital to innovative companies doesn’t need to have high levels of inequality—we saw a model in the United States after World War II, when high growth, high taxes, innovation, and a more economically equitable society went hand in hand.

There’s little evidence that Conard’s prescription will make the economy grow faster, much less create opportunities for people to advance. We know this because the United States tried his tack at the beginning of the century under the Bush administration, with vastly lower taxes on the wealthy that were supposed to let them drive the economy. It wound up in a ditch.

The Occupy movement and even the Obama administration are trying to fix problems Conard doesn’t even acknowledge—that you can get rich without benefiting society and that a concentration of wealth can badly distort our politics—with largely anodyne proposals like stricter rules for banks or higher taxes on inherited wealth. These same policies can also staunch some of the problems that come with a shrinking middle class—a smaller market to support innovative products, a less-educated workforce, and increasing political instability.

The basic steps toward redressing inequality—like using public funds to support better education and a robust social safety net—don’t require seizing the means of production, eliminating rich people, or no longer funding innovation in the private sector. Conard would like you to think that modest steps to push the country toward a more equitable path would entail a radical revolution—to him, perhaps they do—but what’s scary is the suggestion that today’s inequality is anything but extreme.