Worth Books - Summary and Analysis of The Upside of Inequality: How Good Intentions Undermine the MIddle Class: Based on the Book by Edward Conrad

Summary and Analysis of

The Upside of Inequality

How Good Intentions Undermine the Middle Class

Based on the Book by Edward Conard

Contents

Context

In 2012, Edward Conards friend and colleague Mitt Romney was running for president. Conard, a founding partner of Bain Capital, published his book Unintended Consequences: Why Everything Youve Been Told About the Economy Is Wrong , which covered his take on the 2008 financial crisis and detailed his opposition to President Barack Obamas financial policies. The conservative-minded book, which advocated for less financial regulation, became a bestseller.

During the 2012 presidential election, income inequality became a talking point for both parties candidates, who saw the accumulation of wealth by the richest Americansthe 1% and 0.1%as a fundamental problem in modern society. Bucking conventional wisdom, Conards second book, The Upside of Inequality , argues that lessening inequality should not be the goal of economists or governments.

Overview

While many blame the wealthiest Americans for acquiring an ever-expanding percentage of wealth and starving out the lower and middle classes, Edward Conard argues that income inequality is not the cause of Americas problems.

First, he explains, the top 1% and 0.1% have become much wealthier for good reasons: We reward riskier investments and entrepreneurial choices fairly, and as the global economy grows, those who are successful logically receive more. Similarly, he argues that CEOs now make much more in proportion to their employees because corporations have grown in size and assets; therefore, the heads of these companies deserve a proportionately higher pay package. He dismisses any accusations that the wealthy dont earn their money, arguing that income from investment is a good way to encourage further investment.

At the same time, he declares that lower- and middle-class workers have not been impaired by this inequality. He argues that increased risk has allowed the US economy to grow when comparable countries have not seen the same advancement and that growing the economy is good for everyone. He blames the difficulties in the lower and middle classes on increased lesser-skilled Hispanic immigration and international trade deficits.

His argument is that any attempt to redistribute wealth through taxation would discourage investment, risk-taking, and entrepreneurship while not actually helping the lower and middle classes. His solution for all the countrys problems is to focus solely on growing the economy, which, he suggests, requires lowering taxes, reducing trade deficits, and encouraging high-skill immigration while discouraging low-skill immigration.

Summary

Part I: The World As We Find It

Chapter 1: The Causes of Growing Inequality

Edward Conard is fighting back against the idea, put forth by the economist Thomas Piketty and others, that the vast increase in the wealth and income of the top 0.1% of Americans has led to a stagnation of middle- and lower-class incomes. Conards argument is that inequality has led to more growth in the US economyand, therefore, a higher median household incomethan countries with more active wealth distribution. His belief is that innovation will continue to be rewarded at exponential rates, with the likes of Bill Gates growing richer relative to doctors, schoolteachers, bus drivers, and other median-income employees whose pay is limited by the number of people, or customers, they can serve. Also, since tech companies can succeed with less initial capital than corporations of the past, the wealth will be concentrated in the companies owners rather than spread out among investors.

Conard blames the decrease in well-paying, lesser-skilled jobs on globalization and immigration, and he believes that placing higher taxes on the wealthywith the goal of redistributing that moneywill only slow growth. Instead, he suggests lowering taxes and an increasing proper training of US talent, which means discouraging study in the liberal arts in favor of more practical curricula.

Conard argues that it is the expansion of the global economy that has led to the disproportionate wealth of the top 0.1%. Those who can achieve economy-wide success, such as Taylor Swift, will logically receive a larger share of the pie than the average worker, who is constrained by the proportion of the economy he or she can reach. He also argues that CEO income has gone up much faster than average-worker income because corporations have grown in size, making a CEOs work more valuable. At the same time, technology has made highly skilled workers more efficient, putting them in the position to demand exponentially higher wages. And as innovators require less capital investment, they stand to earn bigger payoffs, which encourages more people to take entrepreneurial risks. He compares it to the lottery: More people playing means a bigger payoff for the winner.

These risks ultimately create a feedback loop in which the successful will continue to take more risks and become wealthier. In countries where there is less incentive to take these risks, Conard posits that even their most productive workers are unable to succeed to the fullest of their capabilities. He asserts that, since the majority of increases in income for the top 1% comes from their investmentsrather than a percentage of the income earned by laborthe top earners are not taking anything away from the 99%.

Conards core thesis is that this style of reward system encourages more entrepreneurs to take risks, and their successes benefit the US economy: Their increased tax share funds social programs and the military.

Need to Know: Conard argues that income inequality in the United States is a result of massive innovation and the expansion of the global economy, and that, since those things are good for the US economy, theyand the resulting income inequalityare actually good for America.

Chapter 2: The Reasons for Slowing Wage Growth

Conard places the blame for the slowdown in middle- and working-class wages on trade and immigration. He argues that, since global trade lowers the costs of goods, trade makes everyone better off on average, but less-skilled workers suffer disproportionately from the loss of wages. He also blames low-skilled immigrants for flooding the US labor market and trade deficits for constraining resources.

Conard explores the twentieth-century changes that led to our current shortage of low-skill, high-paying jobs. The mid-twentieth century featured a growing economy and a restricted amount of labor, producing an unprecedented amount of high-paying jobs. More people went to college, meaning there were fewer people looking for low-skilled work. The growing population following the baby boom led to an increase in manufacturing, and more buyers meant more jobs and higher wages. In these circumstances, there is competition for workers and inequality lessens as the workers can demand higher wages. In essence, Conard argues that the end to these circumstances was inevitable because the country saturated itself with education and the migration from rural living to city living reached its peak.

Conard also argues that investment in new technologies has always led to a decrease in the cost of goods at the sacrifice of lower-paying jobs. He uses the example of a tractor, which made farming more efficient, lowered the cost of food, and allowed ex-farmworkers to work in other jobs that were more economical now that the cost of food was lower.