Economy & Business

The Conservative Answer to Thomas Piketty That You’ve All Been Waiting For

(Portrait via Facebook)
Edward Conard’s new book is a rousing defense of conservative beliefs about how markets and incentives drive prosperity.

The Upside of Inequality: How Good Intentions Undermine the Middle Class, by Edward Conard (Portfolio, 320 pp.)

It’s been a rough few years for conservative economics.

In some arenas, such as federal policymaking, this is understandable, given who holds the White House. But the fact that we’re losing ground in the world of ideas, too, is less forgivable.

Consider the economics books and ideas that have broken through into the political debate in recent years. The biggest economics book of the last five to ten years, by French economist Thomas Piketty, bore the winking Marxist title of “Capital in the 21st Century.” Its content, arguing the capitalism is inherently flawed and proposing large wealth taxes essentially for the purpose of wealth destruction, fit the bill.

Two of the most prominent scholars of economic inequality, economists Emmanuel Saez and Peter Diamond, have gotten away with claiming that the American middle class today is no better off than it was 30 or 40 years ago. And they seem to have convinced the liberal wonkosphere that the optimal top income-tax rates are right around 80 percent.

Meanwhile, fueled by relatively recent studies finding that the minimum wage doesn’t reduce employment at all in the short run, liberals are lining up behind aggressive minimum-wage increases, insisting it should go to $12 or $15 an hour nationally.

How did we get here? It’s not because the liberals are right — in fact, Piketty’s book, Diamond’s and Saez’s work, and the “new minimum-wage research” all have well-established serious flaws. Rather, it might be that accomplished liberal economists seem to spend a lot more time than their conservative counterparts do publishing work relevant to the major debates of the day and following it up with polemical books and public advocacy. There simply is no comparing Paul Krugman’s prominence with, say, that of Greg Mankiw or Marty Feldstein. Maybe this has something to do with liberal media bias but, heck, Austan Goolsbee regularly appears on Hannity. When’s the last time you saw a Republican with an economics Ph.D. on there?

One way to measure this dearth of combativeness from top conservative economists is just by considering some of the biggest economics books of recent years. Thomas Piketty’s Capital in the 21st Century sparked a global and national conversation about the costs of inequality and the flaws of capitalism, on ground heavily slanted to the left; Nobel-prize winner Joseph Stiglitz’s The Price of Inequality piled on. The biggest books from conservative-leaning economists, meanwhile, are far less controversial works, such as Carmen Reinhart and Kenneth Rogoff’s This Time Is Different, Edward Glaeser’s Rise of the City, and Tyler Cowen’s Average Is Over. Great books, all, but only tangential, if that, to the big Right–Left debates of our day.

Which is why the time is ripe for a work such as Edward Conard’s The Upside of Inequality — a rousing, well-studied defense of conservative beliefs about how markets and incentives drive prosperity, what’s holding back our economy today, and how to get it roaring again.

Conard’s work revisits many of the same themes as his 2012 book, Unintended Consequences: Why Everything You’ve Been Told about the Economy Is Wrong. But in his new book, he turns his focus to the problem that ails us today: instead of the financial crisis and deep unemployment, the lackluster growth the U.S. has had since the Great Recession.

Liberals have a well-established, well-known (at least in some circles) explanation and set of solutions for the current situation. To put it simply: All the gains in the economy now are being captured by the 1 percent, and inequality is holding back the economy as a whole, so we need more redistribution. Meanwhile, the economy is stuck in a deep rut, called “secular stagnation,” where consumer demand is so weak that there aren’t any good investment opportunities for businesses, so we need big government investment to get things going again.

One by one, Conard dismantles these arguments, sometimes by disproving liberal economists’ work with well-respected work by other economists, sometimes with original arguments of his own.

More important, he proposes an interesting, worthwhile theory of his own about our current woes: The problem with the American economy right now, he says, is not that we don’t have enough good investment opportunities, but that we don’t have the right talent and the appetite for risk to take advantage of them.

The problem with the American economy right now is that we don’t have the right talent and the appetite for risk to take advantage of investment opportunities.

Those assets — “properly trained talent” and appetite for risk — are more important than ever, Conard argues, because we live in an innovation-driven economy that is ever more dependent on human talent rather than capital (Ford needed factories, Uber needs brains), and because investments come with bigger, but rarer, payoffs than in the past (which is partly what’s driving inequality).

So, for instance, we need more and more people with top-quality STEM training and know-how in business, accounting, and the law to help reduce the inherent risk of highly speculative innovation-driven investments and successfully commercialize them. Meanwhile, trade deficits and mass low-skilled immigration hobble our ability to compete: Trade deficits flood our economy with risk-averse savings rather than the equity we need to invest in innovation, while mass immigration brings unskilled workers who absorb already scarce resources.

Conard’s arguments on this score are well-done and original, and I wish the book was more focused on them. Much of the work is devoted to knocking down liberal claims about how the economy works, rather than explaining Conard’s own theories about what appetite for risk and “properly trained talent” looks like. Some of these passages are extremely good: His rejoinder to liberals who believe that marginal tax rates and incentives for success don’t matter, for instance, is blistering.

The quality is much more varied when Conard branches out into other areas, such as the welfare state and the limits of education. For instance, he questions how valuable charter schools can be when they show only marginal gains and perhaps work well only for uniquely motivated families and kids. Both arguments seem a little odd, because at other points in the book, he makes special note of how small differences can compound into huge gains and how properly training a small number of talented people can have big benefits for the entire economy. At one point, Conard lays out why he finds redistribution to the American poor a peculiar moral proposition given that they’re so much richer than the world’s truly poor, and you wonder what this has to do with how we’re going to build more Apples and Amazons.

It’s not just that the reader would benefit from more explanation of what Conard means by lack of properly trained talent and by insufficient appetite for risk — his argument would benefit, too. Take his assumption that the U.S. already gets innovation and growth pretty much right but that we just need to do even better. He rips to shreds claims that American middle-class incomes haven’t grown in the past several decades — one of the more insane claims that liberal economists have made, with only occasional rejoinders from the right. But he also argues that the U.S. has done better than other wealthy countries specifically because of our appetite for risk and aptitude for innovation; and here, his evidence is not dispositive. He points to little evidence besides the existence of Apple, Google, Facebook, et al. for the superiority of American innovation: These are solid examples, certainly, and innovation is not easy to measure, but more careful work would have helped. He repeatedly points out that the U.S. economy has grown much faster than other wealthy economies, which is true — until you factor in population growth, at which point we remain ahead of most rich countries, but not by much.

These are far from fatal flaws. Conard delivers an accessible yet learned rebuke to arguments we often hear from left-leaning economists and pundits, and he offers a fresh alternative story. It certainly stands to reason that we cannot afford to reduce the returns to risk when we have an economy in which the low-hanging fruit have been plucked — in which taking risk is therefore ever more important. (As it happens, framing his argument this way, rather than as a defense of inequality and a heroic 1 percent, sounds less provocative, but it might win more sympathy from readers who don’t already lean in Conard’s direction.)

We could use a lot more such original analysis of what’s holding back our economy, and why the regnant liberal solutions aren’t right for America, especially from free-market-friendly intellectuals with top credentials. Of course, trained academic economists (Conard, despite how much he engages with the academic literature, is not one) are supposed to focus on original research and meticulous argument, not polemics. I’m not calling on them to get involved in cheap political fights. But we do need aggressive, well-informed free-market arguments to counter what’s coming from the other side.

I can’t help but think that conservative economic causes could benefit from a few more top thinkers getting into the fray more often and more aggressively.

Think about it: The only thing worse than arguing with Paul Krugman is not having your own Paul Krugman to argue back.

Patrick Brennan was a senior communications official at the Department of Health and Human Services during the Trump administration and is former opinion editor of National Review Online.


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