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Absurdity, if not piggishness, from the super-rich

COMMENTARY | May 15, 2012

Hank Banta offers an arithmetic lesson for Edward Conard, the former Bain executive who says the gigantic distortion in income in America is good and proper. Banta also urges the press to note the absurdity of the claim and, for once, use some intelligent judgment in writing instead of sticking to false ideas of 'balance.'

By Henry Banta

The latest blast of nonsense about the inequality issue provides a marvelous opportunity to watch how far the media will go to provide “balance” in discussing the issue. 

The current opportunity for hopelessly inappropriate “balance”is provided by Edward Conard, a former Bain Capital executive, who is promoting his book championing the increasing fortunes of the super rich. (Everything You’ve Been Told About the Economy Is Wrong).
His basic point is that the super rich got their wealth because they “earned” it. Classic economic theory asserts that free markets reward participants precisely in proportion to what they contribute. The rich are rewarded because they took risks, invested in productive businesses and the economic system properly rewarded them. And, miraculously, we are all better off and should show some gratitude. 
There is a factual defect in this argument. The gigantic distortion of income to the very top is not explained by reward for risk. Rather (as shown by Mishel and Sabadish,) it is a matter of wages going to corporate and financial executives. As a group these are better known for putting others at risk, not themselves. But for the moment set aside this factual issue. Further, set aside whether Mr. Conard’s simplistic economics really applies in this context and simply accept its premises and examine his use of it. When we take his argument on his own terms we find a remarkable inconsistency.
Mr. Conard takes the notion that free markets reward participants in proportion to their contribution and uses it to justify only the massive shift of income to the very rich. He ignores what happens if he applied his economic theory to everyone else in the economy. He simply doesn’t deal with the obvious corollary to his classic economics: If the rich got that way because they deserved it, then the middle class, with its stagnant income and declining share of the economic pie, also got just exactly what they deserved. This corollary is insanely obvious. To deny it is like claiming 2 + 2 = 4 and then denying that 4 - 2 = 2. 
In simple terms the logic of Mr. Conard’s economics requires us to conclude that virtually, if not all, of the economic gain of the last several decades is attributable to the heroic efforts of less than 1 percent of the population. And the efforts of the entire middle class – engineers, software designers, computer technicians, physicians, teachers, construction workers, auto workers, etc. – contributed next to nothing. A proposition that most would find patently absurd.
Indeed, as Paul Krugman recently pointed out, Conard’s thesis collapses in the face of history. In the 1950s and ‘60s the top 0.01 percent got only a fifth of the share it gets today. Yet this was the best period of economic and productivity growth of the past century. 
Between 1979 and 2007 almost 60 percent of the gains in income went the top 1 percent, and 36 percent went to the top 0.01 percent. Only 8.6 went to the bottom 90 percent. The very modest gain for the median worker of only 11 percent hardly reflects the over 80 percent gain in the economy’s productivity between 1973 and 2011. It is also notable that in 2011 corporate CEO compensation was 380 times the average workers pay. In 1980 it had been a modest 42 times. These are the kind of numbers that in the past we associated with third world countries that lacked the blessing of a market economy. Indeed the United States is now ranked on the basis of the Gini coefficient – a statistical measure of inequality – between Bulgaria and Guyana and in the same neighborhood as Iran and Uganda. The notion that a fair and efficient market got us to this position deserves some very critical examination.
To be fair, Mr. Conard does put some blame on the middle class for failing to produce enough risk-taking entrepreneurs. But while more middle class entrepreneurs might have added a few more to the ranks of the super rich, they could hardly have raised the fortunes of the entire middle class, much less have provided a reason for discounting the efforts of their remaining colleagues. 
Obviously one reason that Mr. Conard and his allies do not mention the corollary to their thesis is that it undercuts their defense of the super rich. But Mr. Conard (not to mention his fellow alumnus from Bain, Mitt Romney) have another reason for not talking about how his economics applies to the middle class: It would be political madness. 
If politicians started their discussion of inequality with the proposition that the middle class deserved only what they got they would never get to make their next point. One could only imagine what would happen if Mr. Romney told his Tea Party supporters that their modest economic gains of the last thirty years represented all that their collective efforts were worth. It’s a fair guess they’d take it badly.
What is really remarkable about this debate is that, while Mr. Conard and company have some real incentives for not discussing the logical implications of their economic theory, editors and reporters have no such excuses. Any failure to address the application of the theory to the middle class can only be explained by the pervasive attitude that virtually any factual claim, no matter how insane must, in the interest of equal-handedness, be treated as plausible as long as it is uttered by someone important.  
This is a good issue on which to draw the line. Enough of this myopic even-handedness. The next public figure who incants the they-got-it-because-they deserved-it formula and leaves out its logical implications should be treated as if he had claimed the moon was made of green cheese. And any journalist who repeats it without pointing out its absurd implications should be not only summarily drummed out of the profession but dismissed from the company of rational and responsible adults.

Posted by rosemerry
05/21/2012, 04:37 PM

I just saw on the site War in Context a video by Jamie Johnson of Johnson and Johnson, interviewing many of his contacts among the super rich, some telling us how estate taxes were robbery, all having financial advisers to help them keep and grow their "earned" incomes.
"The 1%" was well done, and bravely produced (against his father's protests!) by this young heir.

The flip side
Posted by Angela Quattrano
05/23/2012, 04:07 PM

The claim of the rich that they deserve everything they got should be examined on its own merit, because what they are saying is that their increased pay is from being millions of times more productive than the common people as a result of working harder and working longer hours than ordinary wage earners, which is so easy to disprove.

Nobody works longer or harder than a person working multiple part time minimum wage jobs with no benefits to survive.

Posted by Iza
05/23/2012, 05:43 PM

That last paragraph is spot on! You know, I respect the hell out of Jamie Johnson for his courage but in the end he will inherit that fortune and all his sins will be forgiven by the elite as he is swallowed whole. They all know they don't DESERVE what they have, they are greedy and selfish. No one with financial advisers to watch over their estate has any right to complain about taxes. You have enough money to wipe your ass with spun gold. I think it's only fair we tax you a few of those golden sheets so that other worthy human beings can eat. That is fair.

This theory really applies
Posted by Sko
05/23/2012, 06:38 PM

to the whole Republican party, doesn't it?
Even the poor ones who take money from the government, in the form of subsidies, health care, tax breaks or food stamps think they "deserve" it more than other people because they "worked for it".
It's all those other characters that are sucking at the teat of government.

Posted by Wintermute
05/23/2012, 09:33 PM

Bravo Sir! The more we speak up and debunk this mythology, the better! Our economic system has been made a Moloch by its priesthood, to which we must feed the poor, the elderly, the disabled, the immigrants, and now the middle class. Perhaps it is time to feed it the priests and smash the idol.

The 1% Are The Deciders
Posted by Paul Tarranto
05/24/2012, 06:08 AM

No one seems to mention that the top 1%, including and especially the executives and CEOs of companies, are the ones who decide where the pay goes. Is it a surprise that they give it to themselves instead of the workers? Their words about productivity and worth are a construct to hide the fact that they have all the money because they want it and have the power to take it.

Posted by OH
05/25/2012, 01:48 PM

The worthless rich call working Americans lazy, because we want health care, and they keep calling working Americans lazy, lazy lazy lazy, 24 hours a day they never stop, THEN they expect class reconcilliation.

Posted by Insider
05/25/2012, 05:02 PM

The problem with all these sorts of discussions is that they totally overlook just how capital-intensive today's world has become: all fronts of our high-tech society now require stunning amounts of capital to make progress. Thus, the returns have very much gone to the providers of capital, and those who are directing the investment of capital, as those people are moving some very large levers.

The middle class had stagnat wages because they didn't keep up with global competitive forces; their outdated skills were bested by upcoming global providers and so, yes, the benefit this class provided was greatly reduced. Unfortunately, the middle class was kept drunk on cheap credit and barely noticed their wage problem; between cheap credit and the general tech advances provided by technology progress (due to investment of capital), the middle class had life pretty good even as real wages were stagnant / declining.

Going forward, we will continue to need growing quantities of capital: Dreamliners, internet sites, the Big Box retailers in your town, electric car companies, even government need huge quantities of capital to make progress. So the way to fix this problem is not by taking from the rich, but rather by encouraging the middle class to grow their skills to match the demands of the modern world. (And that most definitely does not mean cheap student loans.)

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