The Purpose of Spectacular Wealth, By A Spectacularly Wealthy Guy

Is the title of the article written by Adam Davidson, of NPR's Planet Money, that will appear in this weekend's New York Times Magazine.

In it, Davidson interviews Edward Conard, a former partner of Mitt Romney's at Bain Capital who is about to come out with a new book. The main thrust of his argument isn't surprising: the ultra-rich do the economy a service by investing their money and that's why they should be encouraged to get even richer, etc. Implicit in his discussion is the idea that the investor class is more important to the development of innovation and the economy in general than even the scientific, engineering, artistic classes.

Investing in business is necessary! Davidson quotes one economist who estimated that for every $1 earned by an investor "the public receives the equivalent of $5 value". Conard estimates this to be $20. But one can't help feeling a bit like there are some data missing. For instance, how much of that money goes back to the domestic economy, and what are the rates of compensation for other kinds of spending (i.e. consumer spending)? Congresspeople with strong military in their districts always fight cuts in the military budget by arguing, not untruly, that jobs will be lost. We will lose military jobs if the war budget is reduced, but spending on the military is a very inefficient method of growing the economy for the government (see Krugman post here). Almost all other kinds of government spending will generate more jobs. How robust, in terms of benefiting the public weal, is investment spending? I bring this up not to question the value of investment in business, but to raise questions about the wisdom of doing things like stripping away regulations on investment--which Conard encourages--so that investors can relentlessly pursue profit for its own sake while at the same time establishing a new government program to guarantee to bail out banks if they should fail again--which he also recommends.

Clearly there is a need for investment capital to help further progress, growth, research and development. However, it is disingenuous for Conard (as it is for Nathan Myhrvold,) to argue that the goal of investment is, necessarily, progress of the good of the U.S. national economy. It isn't. The goal of investment is profit. Often, perhaps usually, investment leads to innovation, but that is not its goal. There is no reason to believe that if an investment can recoup better returns through cheating and stealing that investors won't encourage that kind of behavior.

Conard reserves particular contempt for "art history majors," or hipsters having coffee at 2:30pm while not inventing the next Twitter. To Conard, this languishing, lounging intelligentsia is a drain on society because it isn't being as productive as it could be. And from his point of view, there must really be something upsettingly feeble about so many capable, college-educated people spending so much time doing not much more than refining their lifestyles. (Conard also fallaciously argues that part of the reason why "art history majors" aren't business majors is that the business majors don't get rich enough. If the ultra wealthy could be even more ultra-wealthy then all of those denizens of afternoon coffeeshops would be out there, somewhere, innovating.) On the issue of feebleness, however, I must say he has a point. People like Conard truly believe that people like "art history majors," or writers, or artists, or anybody who doesn't line up like metal filings toward Mammon are lazy, misguided, ignorant and naive. And to some extent they're right. Even those who are the actual laborers of the kind of monetizable innovation Conard adores--the software engineers and biochemists and electronic engineers--become means to an end. Indeed, one wonders if he would encourage them to get up from behind their workbenches and move to a Bloomberg terminal? Naturally, the answer is: of course not. It seems that if Conard were truly interested in policy changed that could encourage the U.S. economy as a while, he would advocate reductions on government costs/taxes for smaller and startup businesses, reform of the U.S. patent system, and expansion of funding (and perhaps reform) for education.

But really, the important thing isn't whether Conard's recommendations would, in fact, supercharge the U.S. economy, but that he is in the position to make them. It doesn't matter if he's right or not.