Sunday, December 23, 2007

Two Wealthy Candidates with Very Different Attitudes Toward Wealth

David Leonhardt has an interesting article in today's New York Times about two extremely wealthy presidential candidates -- John Edwards and Mitt Romney -- and the radically different views they have about their success and the obligations it implies:

By the final weeks of 1984, well before either turned 40, John Edwards and Mitt Romney had already built successful careers. But the two men were each on the verge of an entirely new level of financial success.

Mr. Edwards, then making a nice salary as a lawyer at a small North Carolina firm, spent early December staying at the Inn on the Plaza in downtown Asheville. Scattered around his room were documents relating to his first big malpractice case, a lawsuit filed by a man named E. G. Sawyer, who used a wheelchair after his doctor had overprescribed a drug. On Dec. 18, at the courthouse opposite the hotel, a jury awarded Mr. Sawyer $3.7 million.

In Boston, Mr. Romney had risen to become a vice president at Bain & Company, an upstart management consulting firm, and had been chosen to run a spinoff investment firm known as Bain Capital. He spent the end of 1984 flying around the country — in coach class, to save money and to show his investors how serious he was about turning a profit — visiting companies and deciding whether to invest in them.

In the decade that followed, Mr. Edwards would win one big verdict after another, and Mr. Romney would oversee a series of hugely profitable investments.

Like thousands of other Americans in a global, high-technology economy in which government was pulling back and wealth was being celebrated, Mr. Edwards and Mr. Romney used talent, hard work and — as both have suggested — luck to amass fortunes. They became a part of a rising class of the new rich.

Whether this class is a cause for concern — whether it deserves some blame for the economic anxiety felt by many middle-class families — has become a central issue in the 2008 presidential race. And Mr. Edwards and Mr. Romney are basing their candidacies in large measure on the very different lessons each has taken from his own success.

“Some people come from nothing to being wildly successful and their response is, ‘I did this on my own,’” Mr. Edwards said in an interview. “I came to a different conclusion. I believe that I did work hard, and I think people should work hard, but I think my country was there for me every step of the way.”

Today, he added, “the problem is all the economic growth is going to a very small group of people.”

Mr. Romney, by contrast, talks about the ways that his experiences at Bain showed him how innovative and productive the American economy can be and, particularly, how free markets can make life better for everyone.

“There is a model of thought among the Democrats — that the amount of money, the amount of wealth in a nation, is a fixed amount,” he said in an interview. “And that if Bill Gates and Warren Buffett are making a lot of money, that just means somebody else is not able to make as much. That happens to be entirely false.”

The two men represent a clear divide between the Democratic and Republican parties over whether the government should redistribute more wealth, from the rich downward, now that economic inequality is greater than it has been since the 1920s.

Income inequality is not about "somebody else" not being "able to make as much" as Bill Gates or Warren Buffet -- or Mitt Romney or John Edwards. But of course it plays much better to frame the issue this way than it does to accurately state the true problem, as Arthur Herzog, Jr., and Billie Holliday did almost 70 years ago, much more lucidly than I ever could.

The "free market" does not have a satisfactory answer to that old news -- which is why we continue to get shallow, misleading analyses like this one:
Romney came from greater wealth, as his father was an executive at the American Motors Corporation. But Romney made his personal fortune on his own and did it much in the same way that Edwards made his fortune; through lots of talent, lots of hard work and again, not a little luck (as Jefferson noted, the harder one works, the luckier one tends to get). I might doubt--as I have in the past--whether Romney, a very bright man, is as intellectually engaged in politics as he was in business. But there is no doubting the fact that Romney was indeed tremendously intellectually engaged in business and that degree of intellectual engagement helped win him the wealth he now has.

These two life stories help buttress Romney's argument that wealth is not a zero sum game. Power--especially political power--may well be a zero sum game but wealth and economic prosperity is a different matter entirely. Edwards could have gotten a lot of respect by pointing to his life story and making an optimist's argument to the electorate to the effect that if he could rise to the great financial heights he has achieved, anyone could. Sure, he would probably segue from that into making claims regarding how big government would help in the effort, but at the very least, he would be speaking to people's hopes and not to their fears.

Instead, he chooses to play the class warfare game and tell the electorate "watch what I say and pay no attention whatsoever to the nature of my life story as I talk about wealth and prosperity distribution in America." His own life story belies his populist claims and enhances Romney's case.

Except that it doesn't, because Edwards knows that he didn't become wealthy entirely on his own -- that talent and hard work were only part of the reason for his success, and not even the largest part. If talent and hard work were the major factors behind Edwards' success, what would that say about the vast majority of Americans who will never know that level of success? That they are lazy and untalented?

Pejman Yousefzadeh's assertion that "these two life stories help buttress Romney's argument that wealth is not a zero sum game" is utterly illogical. What about everyone else? If the life stories of two fabulously wealthy Americans support the argument that such wealth is attainable for anyone, what do 37 million Americans (in 2006) who are living below the poverty line tell us? Or the millions of Americans who are falling out of the middle class? What do they tell us about the certainty of wealth for anyone who is talented and hard-working?

The inconvenient truth is that the "free market" is not free, and "prosperity" in the U.S. economy as it exists today is a zero-sum game in which, as Maha notes, those who create the wealth benefit the least from it.
I’d like to point out that ordinary working people created most of that wealth. Inequality doesn’t grow because the wealth are somehow more deserving and working stiffs less so; it grows because the wealthy are able to control the wealth distribution system to their advantage. The role of government is not to take money away from the rich to give to the poor, but to keep the wealthy from gaming the system.

Back in February, NPR had a 7-part series in which Uri Berliner examined the "Haves and Have-Nots: Income Inequality in America." In his introduction to the series, Berliner provided some insight into how those who already have most of the nation's wealth keep getting ever more of it, to the detriment of everyone else.

Insight #1: Stock options are better than paychecks, especially in a flat-wage economy.
To get a sense of how the very wealthy have prospered over the past generation, consider this: The share of total income going to the top-earning 1 percent of Americans went from 8 percent in 1980 to 16 percent in 2004.
One reason: gains in the stock market. Affluent people own more stocks, and executives are often paid in stock or stock options. So when the market does well, their wealth accelerates quickly. ...

During the same 10-year period, American workers became among the most productive in the rich, industrialized, world. But the growth in their wages, when adjusted for inflation, was spotty at best.

Insight #2: Job insecurity is rising and employer-provided benefits are vanishing.
For people in the broad middle class, the economic picture over the past decade has been mixed. Unemployment has been low and inflation largely contained. But behind those reassuring trends, you'll find a lot of volatility in labor markets — what economists call "churn." In short, there's more hiring and firing going on.

That churn had led to new opportunities for many workers, but caused hardship and anxiety for many others. Add to this the fast-rising cost of health care and the decline of employer-paid pensions, and you understand why many middle-class families describe themselves as financially squeezed. Low-income Americans, of course, are financially squeezed as well, only more so.

Insight #3: Increasingly rarefied skill sets, more outsourcing, weaker unions.
New technology has made many jobs obsolete, while creating dramatic opportunities for wealth in computers, finance, and media and entertainment. Global competition has done the same. As middle-class assembly-line jobs vanish, and routine white-collar work gets outsourced overseas, the value of education and special skills rises. The power of unions continues to decline.

And how does the ordinary Joe or Josie pay for another certification or degree every few years when there is barely enough money to pay the rent?

The fight is fixed.

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