Are the 1% really good for society?
It's hard to believe that anyone is willing to be this silly in front of a journalist with a tape recorder.
But Edward Conard, a retired executive from private equity firm Bain Capital, sure was.
His comments about the worth of the 1% appeared in a May 1 article in the New York Times Magazine in which he promoted his forthcoming book Unintended Consequences: Why Everything You've Been Told About the Economy is Wrong.
Conard, whose wealth is likely in the hundreds of millions, argues that America's tremendous income inequality is not a sign the system is rigged. Instead, it's a sign the economy is working, rewarding innovators who risk capital to improve life for the rest of us.
What's more, he believes even greater income inequality would make the system work better still, because it would persuade more people to take greater risks on the way to solving society's problems.
I call it balderdash. Here's why.
The idea that society benefits from investors and inventors isn't a new one. It's the reason that people pay a lower income tax rate on investment income -- 15% at most -- than they do on other earnings.
Dean Baker, an economist with the Center for Economic and Policy Research, says the value-to-payment ratio is about 5 to 1. For every dollar an investor earns, the public gets about $5 in value.
Conard thinks the ratio is more like 20 to 1. He thinks we should appreciate the ultrawealthy among us, because their wealth is just the outward sign of the benefits we're deriving from their contributions.
In other words, wealthy people have made their money the old-fashioned way, as the old tagline says. They earned it by taking great risks in order to do good for the rest of us.
Lots of wealthy people get that way by inheriting. They maintain and increase that wealth, in large part, by pursuing investment strategies that take moderate risks. They don't need to take huge risks with their money, because they've got so much to invest in the first place.
Some wealthy people are simply in the right place at the right time.
Think of models and actors who happen to be born with faces and bodies that society considers unusually lovely. Today's celebrated beauties would be nothing special in eras or places that emphasized other physical qualities.
Others are poorer because of how we set compensation. Societal worth is just one factor.
Is a skilled elementary-school teacher less valuable than a first-year stock trader? Not in my book.
Sometimes big money does follow good ideas and efforts that solve society's problems. Look at Thomas Edison and Henry Ford.
But many other people receive much more modest returns for innovations that transformed society.
Consider Eli Whitney, who invented the cotton gin but never grew wealthy. Ada Lovelace wrote the first computer program and never earned a cent from it, though she was wealthy by virtue of birth and marriage. Charles Norris, a pioneer of forensic toxicology, earned a pitifully small salary.
All these people improved society's lot, but the big check never arrived.
Let's not forget that wealthy people and institutions often gain by slanting playing fields in their own favor.
Conard's version of the financial crisis -- he calls it a simple consumer panic without bank misdeeds -- contradicts the many reports that banks pressured and manipulated lawmakers, regulators, credit-rating agencies and sometimes their own stockholders in order to make more money for themselves. That's not in society's best interests.
The work of those who invent and market junk food, tobacco and alcohol isn't in society's best interests, either. The person who creates the next Twinkie will still make out like a bandit.
People with great ideas, as well as the investors who help them develop and market those ideas, should make money from their efforts.
But there are no special principles at work -- apart from luck or greed, that is -- when an investor or inventor makes exponentially more money than other workers who also make important contributions, a list that includes (but isn't limited to) nurses, firefighters, teachers, airplane mechanics, forest managers, civil engineers, surgeons, automotive designers and publishers.
Come to think of it, there's not much money in publishing. Here's hoping Conard doesn't have too much riding on the brilliant ideas in his new book.