The New Trickle-Down Economics?

Thursday, May 03, 2012

Over the past year, "We are the 99 percent" has become a near-ubiquitous expression of solidarity against income inequality. It's growing and many cite it as a fundamental problem with our economy. But not Edward Conard, the former managing director of Bain Capital.

In a new book called "Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong," Conard outlines why he believes those who occupy the wealthiest percentile in this country are also contributing the most to the economy.

After being highlighted in an article by Adam Davidson in the New York Times, his argument has become the topic of much conversation. We're taking a closer look at it with one of its supporters, Pippa Malmgren, president and founder of Principalis Asset Management.


Pippa Malmgren

Produced by:

Ben Gottlieb

Comments [8]

Eli Friedmann from astoria

the bull of wallstreet, surrounded by post hurricane darkness:

Nov. 05 2012 12:28 PM
SuzanneNYC from Tennessee

I found this interview extremely troubling. First, she kept side stepping the questions by replacing them with her own which of course she could respond to easily with her ready made talking points (and strawman arguments). Second, Headlee never challenged her assertions or her statistics (where is Paul Krugman when you need him?). Nor did Headlee hold her feet to the fire by pushing for a response to her tougher questions. Finally, this woman was so cheerfully heartless (as only an educated Brit can be) that it was just depressing to listen to her chirpy defense of policies that she admitted will keep the rich richer and the poor even poorer. Next time, set her up with a real debate -- Krugman would be good -- and see if she'll take the challenge.

May. 04 2012 02:46 AM
Jeremy from Manhattan

Ms. Malgren’s argument was deeply troubling, in large part because Celeste Headlee didn’t challenge her with (God forbid) actual facts. Ms. Malgren argues that only private enterprise creates multiplier effects in the economy and not government spending. This simply isn’t true. Any time the government contracts with private enterprise to, say, build a road or a bridge, a multiplier effect is created, helping to build and sustain the businesses of private contractors. One could easily argue that the so-called military industrial complex is one big multiplier effect created by the Federal defense budget. There are tons of economic studies documenting this. Strange that Ms. Malgren didn’t seem to be aware of them.

But that’s just the beginning of what was wrong with her argument. She trumpets the often stated argument that small to medium sized companies create most of the jobs in our economy. True, but only to a point. Small to medium sized companies are also more likely to fail (especially the entrepreneurial start ups she champions), which means the jobs they create disappear just as fast as they appeared. These companies also tend to pay less than larger organizations and offer few if any benefits to their employees. So, yes, small to medium sized companies and start-ups create jobs, but they’re not the quality jobs that our economy needs to sustain growth long term.

She argues that government programs to help the poor may do more harm than good. However, there’s no real data to support this claim at all. On the contrary, there are tons of studies conclusively showing that the so-called War On Poverty successfully lowered the poverty rate in America over the course of two decades. Poverty rates then stagnated when Republicans began to disassemble safety net programs and welfare, and have grown in recent years during this latest recession. She argued that only wages from a private industry job could effectively combat poverty. Really? I guess she’s never heard of the “working poor,” Americans who have private sector jobs that pay so poorly that they still fall below the Federal poverty rate.

She also argued that increasing wages among the so-called 99% would fuel inflation. However, she didn’t admit that 50 years ago when income distribution in our economy was much more equitable our economy was relatively stable. Plus there are tons of other modern economies that have more equitable income distributions that don’t experience rampant inflation. This is a spurious argument on her part.

It would be nice to have a more balanced discussion of the problems facing our economy by inviting a liberal economist on your show—someone a little more conversant with the facts and not spouting right wing, Ayn Randian propaganda.

May. 03 2012 10:30 AM
anna from new york

Nothing new under the sun. The most ruthless grab, grab and grab, destroy, destroy and destroy, then hire some scribes to rationalize their insane wealth and brainwash illiterate population. Sooner or later the population is forced to verify this or that claim - divine power, superior "culture," economic necessity (like in this case), contribution to a "cause" (revolution for example) - and the "exciting" times come.

May. 03 2012 09:14 AM
Adam A from Brooklyn

What about the studies that show that economies with less income inequality grow at a greater rate? Why is this conversation happening without reference to actual facts? Does the US economy have different rules than other economies?

May. 03 2012 09:05 AM
Ed from Larchmont

As she said, the creation of jobs comes from small businesses and entrepreneurs - and we don't have enough young people.

May. 03 2012 08:36 AM
Sam from New York City

There is nothing inherently wrong with income inequality. It's a matter of degree. Richard Wilkinson gave a very interesting talk in which he showed that societal problems (and he shows the results for a wide variety of things generally considered "bad") were very strongly positively correlated with income inequality. Meanwhile, it's not like low inequality countries don't have rich people. It's just that the gap between the top 20% and the bottom 20% isn't nearly as large. So, sure the banker should make more than the ditch digger... just not a million times more.

May. 03 2012 08:11 AM
T from NYC from Queens

Part of the problem with the rich is that they are very annoying. If you work in the Upper East Side, the Upper West Side, and the wealthier Brooklyn neighborhoods as a service worker, you get used to being treated with contempt. I don't care about salaries, I just hate being hit over the head with their sense of entitlement.

May. 03 2012 07:21 AM

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