Dawn J. Bennett, founder and CEO of Bennett Group Financial Services and host of Financial Myth Busting with Dawn J. Bennett, recently interviewed Ed Conard. Conard is the bestselling author of Unintended Consequences: Why Everything You’ve Been Told About the Economy is Wrong (2012) and The Upside of Inequality: How Good Intentions Undermine the Middle Class (2016). Conrad has also written a number of op-eds for The Washington Post, The Wall Street Journal, Politico, Fortune, Harvard Business Review, and more.
In his interview with Dawn J. Bennett, Conard discusses the theme of his latest book— the upside of inequality.
“If you look at United States, we have a very deep pool of well-trained talent which is taking more entrepreneurial risks than their counterparts in Europe and Japan, substantially more risk, and producing faster growth and higher median wages,” Conrad told Bennett. “If you look at the U.S., employment growth has grown twice as fast as Germany and France since 1980 and three times faster than Japan, at median household incomes which are 15 to 30 percent higher than those economies.”
The U.S. is generating faster growth at higher incomes, compared to other nations. According to Conrad, the U.S. has too few high-skilled workers and the ratio between high and low is very significant. When you think about what a high-skilled worker can do, they really have three jobs, he explained.
“One is they can create innovation like the iPhone that’s beneficial to everyone; the second is they can be doctors and lawyers that just keep the gears moving, and the third is that they can organize unskilled workers into companies that can serve customers more effectively that increases the productivity of unskilled workers,” he said. “Those are the three functions so, to the extent if we’re short on workers, one of the arguments that the book makes is that properly trained talent and entrepreneurial risk-taking are the binding constraints to growth today, not savings. What we see is savings that are unused and the productivity of our workforce slows down.”
Though many people assume it’s impossible to climb the socioeconomic ladder in societies with large inequality income mobility, Conrad pointed out that that’s actually not the case. He explained that there is are two famous studies, one done by two fairly liberal Harvard researchers and one from the University California, that show mobility has not declined at all relative to the past in the U.S. It’s actually increased overtime, he said.
Conrad also noted that there are studies comparing U.S. mobility to that of Scandinavia, which has the most equally distributed income of all high wage economies. What you find is mobility in the U.S. appears to be a sociological issue more than an economic one.
“What you find is mobility is virtually identical for all Americans except in the bottom 20 percent and if you dig into the bottom 20 percent, the mobility is identical for white Americans, it’s slower for black or African-Americans in the bottom 20 percent,” he said. “And if you dig into that, what you find is that single motherhood and high school dropout rates seem to account for almost all of the differences in mobility and that has profound effect on mobility across all races, across all income groups.”
Conrad also said that the Fed’s actions of raising taxes on the risk, regulations and entitlements only slow down growth, which worsens the initial problem.
“The Fed does come in for criticism in trying to pump up growth by printing money,” said Conrad. “I don’t think it will work. You’ve got to remember that the Federal Reserve doesn’t produce anything, it doesn’t create anything that would actually increase growth. But the argument I made in my first book was that the money would largely sit unused because we’re bumping up into other constraints to growth which is our willingness to take risks so, for example, borrow that money and put it to work. It would sit unused and create neither inflation nor growth. So I think it’s largely to destabilize the economy a bit. It’s made financial markets harder to interpret but it’s had actually very little effect, I think, on the economy, so a lot of risk for not much benefit.”