Edward Conard

  • Aired:  06/07/12
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In his book, "Unintended Consequences," Edward Conard argues that rising income inequality in the United States isn't necessarily a bad thing. (6:49)

BY GUEST TONIGHT, MY GUEST TONIGHT HE WAS A PARTNER AT BAIN CAPITAL FROM 1993 TO 2007.

NIS NEW BOOK CALLED UNINTENDED CONSEQUENCES, WHY EVERYTHING YOU HAVE BEEN TOLD ABOUT THE ECONOMY IS

WRONGMENT PLEASE WELCOME TO THE SHOW EDWARD CONARD, SIR IT (APPLAUSE) TOO PREPARED AND THEN A

MISPRONOUNCED YOUR NAME,

IT'S CONARD.

UNINTENDED CONSEQUENCES.

>> YES.

>> Jon: YOU, THE BOOK ARGUES THAT INCOME INEQUALITY WHICH IN MY SUMMATION OUR COUNTRY

WE ARE APPROACHING, YOU KNOW,

COUNTRIES THAT HAVE LIKE KIDNAPPING-BASED ECONOMIES IN THAT SORT OF INCOME

INEQUALITIMENT BUT YOU ARGUE IT IS NOT NECESSARILY A BAD THING, THAT RISK IS NOT WHAT

BROUGHT DOWN OUR ECONOMY FROM THE BANKS.

AND I GUESS MY QUESTION TO YOU ABOUT THE PREMISE OF THE BOOK IS HUH?

WHAT-- EXPLAIN TO ME,

BECAUSE LISTEN, YOU HAVE THE EXPERIENCE IN THIS.

WHY IS WHAT I THINK ABOUT THE ECONOMY WRONG?

HELP ME HERE.

>> WELL, LET'S TALK ABOUT INCOME INEQUALITY TO START.

I THINK IF YOU THINK THE ECONOMY HASN'T CHANGED MUCH OVER THE LAST 40 YEARS YOU

LOOK AT INCOME INEQUALITY AND SAY IT'S RISING WHAT IS GOING ON.

ARE THEY MANIPULATING THE SYSTEM.

WHY ARE THE RIPPEST PEOPLE GETTING MORE MONEY.

BUT THINK ABOUT THE ECONOMY OF THE 1950s, MANUFACTURING CARS AND OTHER MASS MARKETING GOODS.

IT'S BIG COMPANIES.

GENERAL MOTORS, EXXON,

INDIVIDUALS DON'T MATTER MUCH IN THAT ECONOMY.

INDIVIDUAL TAX RATES DIDN'T MATTER MUCH IN THAT ECONOMY.

TODAY 13 PEOPLE CAN CREATE A BILLION DOLLARS IN VALUE IN TWO YEARS, IT IS A MUCH

RICHER SET OF INVESTMENT OPPORTUNITIES.

>> Jon: BUT ONE IS MORE SUSTAINABLE, IS IT NOT?

IN 509s AND 60s YOU SAY PEOPLE DIDN'T MATTER MUCH.

BUT THAT WAS THE RISE OF THE MIDDLE CLASS IN THIS COUNTRY.

>> I THINK WAS A MORE STABLE ECONOMY.

I WOULD AGREE WITH THAT BUT IT SLOWED TO A CRAWL.

WE TRANSITIONED TO A SERVICE ECONOMY, IT SLOWED TO A CRAWL.

GERMANY AND JAPAN ARE GROWING AT VERY SLOW GROWTH RATES.

>> Jon: SO WHY WOULD IT BE HELPFUL TO TRANSFER TO A BOOM AND BUST ECONOMY.

ISN'T THAT ALSO FRAUGHT WITH PERIL.

>> NOBODY WANTS TO TRANSITION TO A BOOM AND BUST BUT I THINK THAT WE'VE

BEEN GIVEN AN INCREDIBLE OPPORTUNITY THAT WITH THE COMMERCIALIZATION OF THE

INTERNET, WE'VE OPENED UP A WINDOW OF INVESTMENT OPPORTUNITIES.

IT TAKES ALOT OF RISK AND EQUITY TO UNDERWRITE THE RISK AND TALL TONT HARVEST THE OPPORTUNITIES.

BUT THE U.S. ALONE HAS CREATED GOOGLE, FACEBOOK,

INTEL, MICROSOFT, APPLE,

eBAY THE LIST GOES ON AND ON.

>> Jon: SO IS YOUR POSITION THAT THE RISK AND REWARD FOR THE INVESTOR CLASS IS NOT

GREAT ENOUGH.

>> WELL, IT'S PRETTY-- PRETTY NICE WAY BUT I WOULD SAY THIS, IF WE-- I

BELIEVE THAT WE HAVE MORE RISK-TAKING IT IN THE U.S.

THAT PRODUCES THE INNOVATION AND THE GROWTH RATE BECAUSE THE PAYOFFS ARE BETTER HERE.

NOW THE PAYOFFS ARE BETTER FOR LOTS OF REASONS.

OUR GUYS ARE WORKING AT GOOGLE AND FACEBOOK.

>> Jon: WHAT DOW MEAN BY RISK THENMENT BECAUSE I GUESS I MIGHT HAVE A

DIFFERENT VIEW HERE IT LOOKS TO ME LIKE THE INVESTOR CLASS IS CODDLED AND THE WORKING CLASS IS NOT

NECESSARILY PENALIZED BUT CERTAINLY IGNORED TO THE BENEFIT WITH THE IDEA THAT

THE INVESTOR CLASS IS GAIN'S WILL I GUESS THE TERM IS TRICKLE DOWN.

>> THAT WOULD BE MY THOUGHT ON IT.

>> TELL ME WHY THAT'S WRONG.

>> FIRST OF ALL I WOULD SAY THE TRICKLE DOWN IS SOMETHING YOU LEARNED IN THE

6th GRADE TO MAKE YOU A DEMOCRAT, RIGHT?

EVEN --

>> IT WAS SOMETHING REAGAN TAUGHT ME, WASN'T THAT HIS IDEA.

>> IN "THE NEW YORK TIMES" PIECE WHICH CALLED MY BOOK PERHAPS THE MOST HATED BOOK

OF THE YEAR, DEAN BAKER A LIBERAL ECONOMIST AGREED THAT THE RATIO IS FIVE TO

ONE IN FAVOR OF NONINVESTORS SO YOU CAN CALL THAT TRICKLE DOWN.

I ARGUED IF THE BOOK IT COULD BE AS HIGH AS 20 TO 1 BUT I USE THE NUMBER TO MAKE

THE CALCULATIONS THAT I MAKE IN THE BOOK BECAUSE THEY ARE VERY --

>> I ONLY MEAN IT IN THE CENTS IF CAPITAL GAINS ARE TAXED AT A LOWER RATE THAN INCOME GAINS.

>> YES, WE ARE.

BUT I WOULD SAY THIS, IF YOU MAKE A COMPARISON TO THE U.S. IN EUROPE AND JAPAN

WHAT YOU FIND IS THE MOST TALENTED PEOPLE IN THE U.S.

ARE EARNING AND PRODUCING WAY MORE THAN THEIR COUNTERPARTS IN EUROPE AND JAPAN.

AND AT THE VERY WORST, AND I THINK YOU REALLY HAVE TO LOOK AT THE DATA IN A SKEWED WAY.

AT THE WORSE THE MIDDLE CLASS IN THE U.S. IS ABOUT THE SAME AS EUROPE AND JAPAN.

IF YOU REALLY DIG INTO THE DATA WHICH I DO IN THE BOOK,

I THINK YOU MAKE THE ARGUMENT THAT THEY ARE SUBSTANTIALLY BETTER OFF IN EUROPE AND JAPAN.

>> BUT WE'RE NOT TALKING ABOUT EUROPE AND JAPAN.

WE'RE OBVIOUSLY TALKING ABOUT AMERICA.

AND IN AMERICA, THE MIDDLE CLASS HAS, THEIR INCOME HAS NOT GROWN TO THE SAME

PROPORTION AS THAT VERY RICH INVESTOR CLASS.

AND I THINK I TAKE ISSUE WITH THE IDEA THAT THEY ARE FACING RISK BECAUSE IT

STRIKES ME LIKE THE EXAMPLE OF LET'S SAY THE GUY AT LEHMAN, THE COMPANY WENT

BRUPTED AND HE WALKED AWAY WITH, AND I AM NOT OBVIOUSLY AN ECONOMIST, I THINK THE

WORD IS A [BLEEP] LOAD OF MONEY.

SO WHAT IS THE RISK THAT,

YOU WORK AT BAIN CAPITAL.

YOU GUYS HAVE DONE SOME NICE THINGS.

EVEN COMPANIES THAT YOU TOOK OVER THAT WENT BANKRUPT YOU STILL GOT PAID.

YOU STILL GOT YOUR SERVICE FEE.

YOU STILL GOT YOUR BID.

SO WHAT RISK ARE THESE BANKERS TAKING.

IT SEEMS TO ME THE REAL RIS SOMETHING THE GUY WHO WORKS IN A COAL MINE HIS WHOLE

LIFE SUFFERS FROM A DEBILITATING HEALTH DISEASE PUTS HIS HARD-EARNED MONEY INTO A PENSION FUND THAT

SOME GUY ON WALL STREET DECIDES TO GAMBLE WITH ON SECURITIZATION, LOSES IT, HE

GOES BUST AND THAT GUY WALKS AWAY WITH TENS OF MILLIONS OF DOLLARS.

SO HOW DOES THAT-- (CHEERS AND APPLAUSE)

>> Jon: HOW DOES THAT THAT-- APPROPRIATE?

>> I'M NOT QUITE CLEAR SURE WHERE TO START BECAUSE THERE'S A LOT OF QUESTIONS

EMBEDDED IN THAT QUESTION.

>> Jon: LET ME ASK YOU THIS.

IS IT ALL WRONG?

AM I COMPLETELY OFF THE MARK HERE?

>> I THINK THAT YOU HAVE SPUN IT IN A WAY THAT GLOSSES OVER VERY IMPORTANT ISSUES, YEAH.

>> THAT WILL BE HARD TO EXPLAIN IN-- .

>> Jon: OKAY, ALL RIGHT,

THAT'S FAIR.

LET'S DO THIS.

DO YOU HAVE SOME TIME.

>> SURE, I WILL STAY HERE ALL NIGHT.

>> Jon: BECAUSE I DON'T WANT TO DEMAGOGUE IT, AND THAT WAS SLIGHTLY DEMAGOGUE

ALTHOUGH I WILL SAY THIS, I DON'T THINK THAT IS SPIN.

I THINK THAT'S REAL.

>> I THINK IT'S VERY IMPORTANT.

YOU CAN HEAR THE AUDIENCE F YOU DON'T EXPLAIN THIS, YOU HAVEN'T EXPLAINED.

>> Jon: GO TO COMMERCIAL,

WE'LL COME BACK.

WE'LL EXPLAIN.

YOU CAN EXPLAIN THE WHOLE THING AND WE'LL BREAK DOWN WHAT ABOUT THAT IS MISREPRESENTED.

>> SURE.

>> Jon: AND THAT WILL GIVE YOU A CHANCE, ALL RIGHT.

UNINTENDED CONSEQUENCES, IS ON THE BOOK SHELVES NOW.

HE CAN GOING TO EXPLAIN.

>> BURN THIS BOOK.

>> Jon: NO, DON'T BURN THIS BOOK.

EDWARD CONARD, WE'LL BE RIGHT BACK

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