The people at the New York Times Magazine must think that nobody has ever read Ayn Rand, or maybe even Adam Smith.
Their cover story on Sunday — misleadingly titled, “Are the Rich Worth a Damn?” — reports breathlessly that there is this fellow named Edward Conard who believes in free-market capitalism and is willing to fill a gap in the argument we’ve been having about growing income inequality. Until now there hasn’t been anyone, or at least anyone still alive, willing to say publicly that what the U.S. needs is more inequality, not less. (Conard has even written a book about “Why Everything You’ve Been Told About the Economy Is Wrong.”)
The argument is basically Smith’s, carried to extremes: The invisible hand of free-market capitalism turns individual greed into prosperity for all. But Conard also shares Rand’s special twist of portraying the successful businessman as a hero, the Alpha Male at his finest, and everybody else as mediocre deadbeats and leeches.
He says Warren Buffett should “quit taking a victory lap” for saying that the rich should pay more taxes, because “that money is for the middle class.” Conard means, believe it or not, that the middle class is better off paying more taxes so that people like Buffett can pay less and use their superior drive and brains to finance innovation that makes everybody richer.
Let’s accept the thesis that people have earned their wealth if their contribution to society outweighs the contribution to their own pocketbook. This still leaves you a long way from Conard’s belief that incomes should be more unequal, not less. There is a necessary distinction between riches gained through truly productive, socially beneficial activity, and riches from activities that just enrich the actor.
The New York Times story, by Adam Davidson, concedes that many large fortunes are nothing more than what economists call “monopoly rents” such as the value of broadcast licenses given away free by the government, or ownership of land (“they’re not making any more of it,” as they say) in places where rising population makes it more valuable.
Conard clearly believes that he is in the Alpha elite that should get more money, not less. He was a partner of Mitt Romney at Bain Capital until he retired a few years ago at age 51. This makes him a counterexample to his own theory. His rapid accumulation of huge wealth (estimated in the story to be “most likely in the hundreds of millions”) did not cause him to buckle down and work even harder. It caused him to retire and follow pursuits more satisfying to him than making more money.
The theory behind free-market capitalism is undeniably true and undeniably powerful in explaining the world around us. But it explains less and less as we move up the income scale. At the tippy-top, among the really rich, it makes no sense at all.
Why do people try to maximize their incomes? The poor person wants more money in order to eat. The middle class person wants a better house or a new washing machine. Even a rich person may want an even better house or a servant to wash the clothes. But what does a really, really rich person — worth, say, “most likely in the hundreds of millions” — want that money can buy? What motivates him or her to get up and go to work every morning?
It’s not hard to come up with a few obvious psychological factors (competition, egocentrism, lack of imagination … ), but the desire for even more money to spend can’t be one of them. The more someone has benefited from free-market economics, the less the theory behind free-market economics explains her actions or justifies his remuneration.
By Conard’s reasoning, the proper measure for reward of a billionaire isn’t the value of her contribution to society. It’s how much it would take to induce him — or someone like him — to make that contribution. Facebook’s imminent IPO could leave its founder, Mark Zuckerberg, with a fortune of more than $17 billion.
Let’s accept that the existence of Facebook contributes more than $17 billion to the good of society. (Conard offers Sergei Brin of Google to make this same argument.) It doesn’t follow, as Conard seems to think, that every dollar of Zuckerberg’s $17 billion is a bargain for society, or that we should want Zuckerberg to have more money, not less.
Would Zuckerberg not have created Facebook if he only expected to make, say, $12 billion? If Zuckerberg had never been born, would no one else have come up with the idea of Facebook? Even if someone else’s Facebook would be worth less than $17 billion, it would still be worth more than nothing. And it lowers the amount Zuckerberg needs or deserves, dollar-for- dollar.
There is no evidence that remuneration at the very top of society is calculated to extract the maximum amount of entrepreneurial energy and talent at the minimum price. In fact, quite the reverse: There’s every reason to think we overpay.
Let’s even imagine that all the paper shuffling and exotic transactions that go on in American finance are productive somehow. Does it follow that we need to pay Jamie Dimon, chief executive officer of JPMorgan Chase & Co., $23 million to do whatever it is that he does?
Maybe Dimon is uniquely talented and simply would not do it for less. But maybe he would settle for $10 million if pushed to the wall. Or perhaps someone just as good, or almost as good, would do the job for a lower price? This doesn’t mean that Dimon should be fired and replaced. But it does mean that he doesn’t need to be paid more, or even as much.
Conard’s argument justifying inequality is just a fleshed- out version of his former colleague Mitt Romney’s campaign stump speech about how he can save the country as a businessman. Romney might have preferred not to have his old buddy Conard spelling out the case for income inequality in quite so much brutal detail. I, on the other hand, think that the more of Romney’s friends there are publishing books and appearing in magazine articles trying to make the case for more inequality in the next few months, the better.
In fact, Romney himself should start arguing explicitly for greater inequality. It would be the result of his announced economic policies in any event. But I suppose that’s too much to hope for.