Surplus-seeking behavior

Posted: 2 May 2012 in Uncategorized
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As it turns out, the members of the surplus-seeking class, aka the “job creators,” really don’t say anything different away from the cameras compared to their public pronouncements. In both cases, “They typically repeat platitudes about investment, risk-taking and job creation with the veiled contempt that the nation doesn’t understand their contribution.”

That’s what Adam Davidson discovered when he met with Edward Conard, former Managing Director at Bain Capital, avid supporter and financier of Mitt Romney’s campaign for president, and author of the forthcoming book Unintended Consequences: Why Everything You’ve Been Told About the Economy is Wrong. Conrad repeats to Davidson what he and the other members of the 1 percent have been telling to all who would listen since their class was first invented: Everyone benefits from inequality because those on top take risks and create jobs. Financial institutions didn’t do anything wrong; it’s just that depositors panicked and caused a run on the banks. “If the payoff for risk-taking is better, people will take more risks.” And so on and so forth. It’s what we hear on a regular basis from the members of the 1 percent, from their political representatives, and from neoclassical economists.

And it’s wearing thin, which is why Conard is attempting to justify his activities and wealth by spending time with Davidson and publishing the new book.

Davidson’s worry is that people like Conard don’t understand the perils of rent-seeking behavior, “in which people or companies get rich because of their power, not because of their ideas.” But aside from that (and the fact that Conard applies “a relentless, mathematical logic to nearly everything, even finding a good spouse”), Davidson doesn’t really challenge the main activity of people like Conard: their surplus-seeking behavior.

Because that, in the end, is what it’s all about. The Conards of the world try to capture as much surplus as possible any way they can—whether by lobbying for changes in business regulations, hiring or firing employees, financing the production of goods and services and taking their cut of the surplus, and/or making sure taxes are as low as possible so that they can keep as much as possible of the surplus they’ve captured. And it’s true, they work hard to innovate, and even take risks, to capture that surplus—and, of course, they hire legions of others to assist them in the process.

But the one question they can’t answer—no matter how hard they try—is, are they really necessary? Sure, the rest of us are dependent on the decisions they make but that’s only because they’re in the position to make those decisions, because of the current economic arrangement. And the Second Great Depression is a direct result of the decisions they made—and continue to make—to seek as much surplus as they possibly can for themselves.

But it’s all possible to imagine a different arrangement, in which the surplus-seeking class itself would be eliminated.  Conard and his fellow equity and venture capitalists would no longer be on top but, instead, they might be hired—if they have any skills, as managers and consultants, receiving the same wage as everyone else—by those who actually produce the goods and services, to help channel the surplus so that it would be utilized to satisfy the needs of everyone, not just the top 1 percent.

In comparison to such a world, having a small elite with vast wealth is neither necessary nor good for the poor and middle class. To quote Conard, “From my perspective, it’s not a close call.”

  1. Scott M. says:

    From the article: “Conard understands that many believe that the U.S. economy currently serves the rich at the expense of everyone else. He contends that this is largely because most Americans don’t know how the economy really works — that the superrich spend only a small portion of their wealth on personal comforts; most of their money is invested in productive businesses that make life better for everyone. “Most citizens are consumers, not investors,” he told me during one of our long, occasionally contentious conversations. “They don’t recognize the benefits to consumers that come from investment.””

    If it’s all about the investment and not about being superrich, I’m sure Mr. Conard wouldn’t mind either coming down to our level and/or giving me his money so I can invest it. After all, I wouldn’t spend the majority of money on personal comforts.

    Personally, I find no comfort in Mr. Conard’s viewpoint.

  2. Scott M. says:

    Saw tonight Edward Munch’s painting “The Scream” just sold for $120 million dollars.

    Where would we be without the superrich investing in artwork to encourage others to paint?

    It would be beyond irony if Mr. Conard was the person who bought this painting given his disdain for the “art history majors”.

  3. […] had my criticisms of Adam Davidson’s reporting (such as here and here) but I do think he gets this one just about right: Art is often valuable precisely because it […]

  4. […] again (as with Adam Davidson) is the rent-seeking behavior of those on top. The word “rent” was originally used, and still […]

  5. […] of the new “rent-seeking” language used to describe incomes at the top (I prefer “surplus-seeking“) but otherwise Bivens is spot […]

  6. […] company,” it’s now possible to talk about rent-seeking behavior—but still not surplus-seeking […]

  7. […] an area in finance that doesn’t involve some kind of rent-seeking (or, as I prefer, surplus-seeking) behavior. The best Mullainathan can come up with is a general summary of the effects of the […]

  8. […] there’s an area in finance that doesn’t involve some kind of rent-seeking (or, as I prefer, surplus-seeking) behavior. The best Mullainathan can come up with is a general summary of the effects of the […]

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