David Frum asks Nick Hanauer, an early investor in Amazon as well as other successful tech enterprises, what he thinks of Ed Conard’s theory that the investors among the .01% are the indispensable risk-takers that fuel the American economy. As it turns out, not much:
Risk-taking? These guys aren’t risk-takers. Think of the founders of Google. They came from middle-class families and went to Stanford. Short of inheriting the crown of England, there’s nobody in this life less exposed to risk than a Stanford Ph.D. in computer science. They had a business idea. They didn’t put up their own money. They used other people’s money—venture capital. And the venture capital company wasn’t using its own money either. They were investing other people’s money too—and taking fees of 2% on principal and 20% of profits for their trouble.
Hanauer goes on to share who he thinks is really at-risk when it comes to start-ups of the kind that made him so wealthy; it’s probably not who you’d think.
What’s striking about the debate over Conard’s fairy tale capitalism — which is more or less the official doctrine of the Republican Party and is little removed from presumptive nominee Mitt Romney’s economic platform — is the way it shows the bankruptcy of what passes for intellectual debate in our politics. From what I’ve read of Conard’s theory, both in Adam Davidson’s New York Times Magazine piece and through the previews he has made available on his website, it’s self-evident crackpot nonsense, gussied up with copious econojargon and delivered with the unbending, serene confidence of the religious zealot. From the Davidson profile:
A central problem with the U.S. economy, he told me, is finding a way to get more people to look for solutions despite these terrible odds of success. Conard’s solution is simple. Society benefits if the successful risk takers get a lot of money. For proof, he looks to the market. At a nearby table we saw three young people with plaid shirts and floppy hair. For all we know, they may have been plotting the next generation’s Twitter, but Conard felt sure they were merely lounging on the sidelines. “What are they doing, sitting here, having a coffee at 2:30?” he asked. “I’m sure those guys are college-educated.” Conard, who occasionally flashed a mean streak during our talks, started calling the group “art-history majors,” his derisive term for pretty much anyone who was lucky enough to be born with the talent and opportunity to join the risk-taking, innovation-hunting mechanism but who chose instead a less competitive life. In Conard’s mind, this includes, surprisingly, people like lawyers, who opt for stable professions that don’t maximize their wealth-creating potential. He said the only way to persuade these “art-history majors” to join the fiercely competitive economic mechanism is to tempt them with extraordinary payoffs.
Yes — and it’s actually an act of mercy to burn a heretic at the stake; that way, they’ll have the opportunity to recant and save their souls from an eternity in Hellfire. It’s simple logic! Yves Smith rightly points out that a smooth, perfectly calibrated, and miraculously simple All Encompassing Worldview is not something worthy of reverence or at worst self-consciously measured criticism. On many other issues in our society, that kind of intellectual authoritarianism is rightly greeted with great skepticism. And history has provided more than a few examples of why that’s for the best:
Just because someone has an internally consistent world view does not make it accurate. Fans of slavery, alchemy, the Inquisition, trial by combat, and Ptolemaic astronomy all had logical looking arguments supporting their now discredited views. Conard at first seems to yet another evangelist of a hopelessly flawed and dangerous orthodoxy, and the more he speaks, the more he seems to be deeply imbalanced, so intensely invested in his distorted personal mythology that he is driven to make the world at large reflect it back. It would be far better for Davidson and the New York Times to treat people like Conard as epitomes of deep-seated cultural pathologies, rather than promote them.
Remember: Conard is ostensibly an aspiring public intellectual. His book is an economic Ten Commandments, a catalog of the supreme knowledge he’s delivered to us from the Mount Sinai of his enormous wealth. Yet if you’re not already an adherent to the church of the free market — and even if you are; Glenn Hubbard, an otherwise stalwart defender of high finance and the Republican dogma, criticizes Conard for ignoring the problem of rent-seeking — Conard’s philosophy is rather immediately recognizable as a distorted product of desperate rationalization and base self-interest. Why, then, is this economic creationism granted such unwarranted publicity and respect? I think Krugman’s got the answer:
Disputes in economics used to be bounded by a shared understanding of the evidence, creating a broad range of agreement about economic policy. To take the most prominent example, Milton Friedman may have opposed fiscal activism, but he very much supported monetary activism to fight deep economic slumps, to an extent that would have put him well to the left of center in many current debates.
Now, however, the Republican Party is dominated by doctrines formerly on the political fringe. Friedman called for monetary flexibility; today, much of the G.O.P. is fanatically devoted to the gold standard. N. Gregory Mankiw of Harvard University, a Romney economic adviser, once dismissed those claiming that tax cuts pay for themselves as “charlatans and cranks”; today, that notion is very close to being official Republican doctrine. …
And why is the G.O.P. so devoted to these doctrines regardless of facts and evidence? It surely has a lot to do with the fact that billionaires have always loved the doctrines in question, which offer a rationale for policies that serve their interests. Indeed, support from billionaires has always been the main thing keeping those charlatans and cranks in business.
It’s not exclusively “charlatans and cranks” profiting from telling money what it wants to hear; or, if you prefer, the charlatans and cranks have climbed their way up to vantages previously thought of as remote from the depredations and avarice of the outside world. Professor Conard: Coming soon to a business school near you.