Adam Davidson Parrots Disinformation as He Extols Rule by the Top 0.1%

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Adam Davidson is moving up in the world. He has gone from fellating the 1% to the top 0.1%.

But bear in mind that we can’t hold Davidson solely responsible for his latest assault on common sense, decency, and most important accuracy. It was the editors of the Sunday Magazine that not only decided to showcase an interview with Mitt Romney’s uber wealthy former partner Edward Conard (“The Purpose of Spectacular Wealth, According to a Spectacularly Wealthy Guy“) but to give it a full 6 pages (per my browser) and put it on the magazine cover. Conard says his new career is to “make his case for a new, decidedly pro-investor way to think about the economy.” And what follows is half-baked, largely inaccurate, unabashed propaganda.

Now admittedly, Davidson as interlocutor gets to have it both ways. He presents Conard’s arguments pretty much straight up for the first half of the piece, and treats them and Conard with a good deal of respect (well, save Conard’s view of the crisis, that is was a run on sound banks which is utterly batshit, and Davidson does pause to intimate that). For instance, after pointing out that Conard is heretofore best known in the wider world as being a mystery Romney funder at the center of a pending scandal that went poof when Conard outed himself, Davidson suggests he might be media wary. But no, this is how Davidson described his first meeting:

Over lunch with editors from The Times Magazine, Conard proved the exact opposite. He looks like a benign middle-aged guy until he starts making an argument. At which point, Conard stares into your eyes and talks with intense force, punctuated by the occasional profanity, in full paragraphs. He delighted in arguing over corporate-bond rates and Chinese central-bank policy, among other arcane minutiae. It also became clear that he had exhaustively thought through the role of the superrich in our economy, and he wasn’t afraid to share those opinions.

This introduction to Conard as a real person segues into an overview of Conard as an icon of successful risk-taking (a theme in Conard’s book, due out next month, which this story also has the unfortunate effect of promoting): born into a middle class family, rising through consulting firm Bain to become partner, leapfrogging to M&A boutique Wasserstein Perella, taking a pay cut to go for greater upside by returning to the Bain fold, but this time at private equity firm Bain Capital.

Aside from the description of Conard’s devoid-of-reality take on the crisis, Davidson uncritically recites his views in the first half of the story and then only, all too politely, as no doubt fits in a world where men like Conard deserve deference, questions his ideas towards the end.

But even with this unduly respectful treatment, the picture that emerges is stunning. Conard is in fact a living, walking homo economicus. If he were written up in a novel, he’d be treated as a ridiculous parody. He treats finding a mate like a shopping exercise, and recommends a sampling phase prior to a selection phase. He thinks philanthropy is bad and money should go only to investments:

During one conversation, he expressed anger over the praise that Warren Buffett has received for pledging billions of his fortune to charity. It was no sacrifice, Conard argued; Buffett still has plenty left over to lead his normal quality of life. By taking billions out of productive investment, he was depriving the middle class of the potential of its 20-to-1 benefits. If anyone was sacrificing, it was those people. “Quit taking a victory lap,” he said, referring to Buffett. “That money was for the middle class.”

And, not surprisingly, Conar denies that rent seeking occurs any place other than despotic third world countries.

But it isn’t simply that the overly polite questioning of Conard’s utilitarian world view is too mild and comes too late. It is that Davidson happily recites things that are simply untrue. And to make matters worse, if my readership is any indicator, many people don’t get past the first page or two of this piece before deciding they’ve read plenty and so get a full dose of claptrap before tuning out.

The article is chock full of blatant falsehoods. Let’s start with Conard’s personal Big Lie: that he is a risk taker and risk taking is good. All you have to do is look at his career to see that it contradicts both claims. He sees himself as a risk taker because…hold your breath…he went to Harvard Business School rather than going to law school! I graduated from HBS the year before Conard, and was accepted by both top law schools and business schools. Anyone with an operating brain cell will tell you that the fancy grad school route, particularly back then, when tuitions were vastly lower, was a risk averse strategy. You get good grades, show up for job interviews wearing a decent suit and exhibit at least adequate social skills, and you are guaranteed a well paid job.

And of the career choices of a newly minted MBA in the early 1980s, the big consulting firms were the least risky path on offer. Unlike Wall Street, where even first year pay had a meaningful bonus component, consulting firms pay high salaries. And they hysterical thing is he repeatedly rags on lawyers as prototypical people who “don’t maximize their wealth creating potential.” Yet he went on a path exactly like that. Consulting firms take fees, like law firms, and have explicitly modeled their pay and promotion structures on law firms’. He then went to Wasserstein (another firm which takes fees, albeit largely dependent on whether deals get done), which was already an established powerhouse, hence pretty much nada in the way of financial downside in joining them. And partners in private equity firms do not take risk either. PE firms get 2% of the funds under management and 20% of the upside. Partners may but are not required to invest along side the limited partners.

Conard has absolutely no clue about what entrepreneurship is about. Experts on entrepreneurship, like Amar Bhide, who has done considerable research into Inck 500 companies and entrepreneurship generally, have found that the top performers have founders who have very high ambitions and are good at minimizing risk.

Another Big Lie that Davidson promotes is Conard’s claim that the sort of investing he did at Bain Capital and that wealthy people do generally. Earth to base, academic studies have shown that PE fund returns are due to financial engineering and application of leverage. They don’t nurture companies. Anyone who has been in an PE investee company will tell you they are aggressive cost-cutters and investment minimizers. Anything to boost cash flow and facilitate a flip at a higher price to a corporate buyer or public shareholders goes. Ex angel investors or long-term owners of private companies who reinvest their profits, the investments of the uber wealthy are in established companies, the overwhelming majority of the time in secondary trading of securities (which means they are simply cashing out other investors rather than providing growth capital). And for public businesses, the biggest source of investment funds is retained earnings, second is debt financing, and the occasional stock sale is a distant third.

Davidson says things that are factually incorrect in parroting Conard’s argument (and notice how he depicts it as cogent):

Conard, however, has laid out a tightly argued case for just how much consumers actually benefit from the wealthy. Take computers, for example. A small number of innovators and investors may have earned disproportionate billions as the I.T. industry grew, but they got that money by competing to constantly improve their products and simultaneously lower prices. Their work has helped everyone get a lot more value. Cheap, improved computing helps us do our jobs more effectively and, often, earn more money. Countless other industries (travel, telecom, entertainment) use that computing power to lower their prices and enhance their products. This generally makes life more efficient and helps the economy grow.

First, it’s clear Conard never heard of Moore’s law as the driver of falling computing costs.

Second, investors had comparatively little to do with the growth and success of the computing industry (and in general this is true. Bhide has found that only 1/4 of the Inc 500 companies were venture capital funded). If you look at the PC revolution (which was when the real falls in price and growth in reach of computers took place), the drivers were geek tinkerers and hobbyists who all wanted to create a new Hewlett Packard. HP was founded in 1939 and it grew into a dominant Silicon Valley player in the 1950s and 1960s, when top Federal marginal income tax rates were over 90% in the later 1950 and over 70% in the 1960s. Silicon Valley came into being thanks to the work of engineers who clearly were not motivated by dreams of becoming Filthy Rich, since it was pretty much impossible back then.

If you look at the iconic companies of the 1980s tech revolution, few had venture capital or wealthy individuals as backers. Apple funded itself off of purchase orders. Software firms like Microsoft and Oracle didn’t need meaningful seed money. Cisco didn’t take VC until shortly before its IPO so as to get a better multiple.

Third, the internet was created by the Federal government (remember them?). Unix, still the most robust computing platform, was funded by heavily regulated and highly profitable monopoly AT&T, not by wealthy investors. These are also important parts of the tech infrastructure.

We also have stuff like this:

There is a huge mechanism constantly trying to seek out and support these new ideas — entrepreneurs, multinationals and, crucially for Conard, investment firms and hedge funds and everyone down to individual bond traders…In a competitive market, all that’s left are the truly hard puzzles. And they require extraordinary resources. While we often hear about the greatest successes — penicillin, the iPhone — we rarely hear about the countless failures and the people and companies who financed them.

This is how bad things have gotten, that Davidson and Conard dare suggest that the discovery and solving of production problems for penicillin had anything to do with homo economicus grasping for the brass ring. Don’t New York Times fact checkers know how to use Wikipedia?

[Alexander] Fleming finally abandoned penicillin, and not long after he did, Howard Florey and Ernst Boris Chain at the Radcliffe Infirmary in Oxford took up researching and mass-producing it, with funds from the U.S. and British governments. They started mass production after the bombing of Pearl Harbor. When D-Day arrived, they had made enough penicillin to treat all the wounded Allied forces.

So penicillin was the product of a persistent but unsuccessful effort of a brilliant researcher (Fleming was highly regarded even before the potential of his penicillin discovery was realized), carried forward by researchers at Oxford (risk averse academics!) funded by the government (horrors!) who made the critical production breakthroughs.

And the iPhone was very much a product of Steve Jobs’ vision, and Steve Jobs flies in the face of the World According to Mr. 0.1%. Consider this diatribe:

What are they doing, sitting here, having a coffee at 2:30?” he asked. “I’m sure those guys are college-educated.” Conard, who occasionally flashed a mean streak during our talks, started calling the group “art-history majors,” his derisive term for pretty much anyone who was lucky enough to be born with the talent and opportunity to join the risk-taking, innovation-hunting mechanism but who chose instead a less competitive life.

Conard must not believe in art of any kind. Can’t a rich guy like him see the need of art educated adults, if nothing else, to help curate his collection, to inform the aesthetics of architects and city planners? And the decorators I know are plenty entrepreneurial, far more so than “never took a real risk” Conard.

In addition, Conard apparently does not read newspapers and has not heard that unemployment is really high these days. He clearly labors under the delusion that anyone not working is a dilettante. I’d hazard that at least some of these Starbucks denizens are underemployed and go there to get out of the house (yours truly also did a lot of work on ECONNED at Starbucks for similar reasons).

Most important, Steve Jobs, the capitalist’s wet dream, did everything Conard rails against: took art courses, didn’t graduate from college, followed his inner muse (doing drugs, spending a year in India).

But the key to Conard is in that last section. He doesn’t revere risk taking. He reveres competition and numbing overwork. Davidson close to the end picks up on that:

The world Conard describes too often feels grim and soulless, one in which art and romance and the nonremunerative satisfactions of a simpler life are invisible. And that, I realized, really is Conard’s world. “God didn’t create the universe so that talented people would be happy,” he said. “It’s not beautiful. It’s hard work. It’s responsibility and deadlines, working till 11 o’clock at night when you want to watch your baby and be with your wife. It’s not serenity and beauty.”

His vision is the logical outcome of the belief system of early industrialists, who needed to justify their exploitation of formerly self sufficient farmers. Per Yasha Levine:

English peasants didn’t want to give up their rural communal lifestyle, leave their land and go work for below-subsistence wages in shitty, dangerous factories being set up by a new, rich class of landowning capitalists. And for good reason, too. Using Adam Smith’s own estimates of factory wages being paid at the time in Scotland, a factory-peasant would have to toil for more than three days to buy a pair of commercially produced shoes. Or they could make their own traditional brogues using their own leather in a matter of hours, and spend the rest of the time getting wasted on ale. It’s really not much of a choice, is it?…

Faced with a peasantry that didn’t feel like playing the role of slave, philosophers, economists, politicians, moralists and leading business figures began advocating for government action. Over time, they enacted a series of laws and measures designed to push peasants out of the old and into the new by destroying their traditional means of self-support.

Levine quotes a book by Michael Perleman, The Invention of Capitalism, which cites numerous tracts bewailing the idleness of the lower orders (notice this was never perceived to be a problem prior to the Industrial Revolution). For instance:

Our Forests and great Commons (make the Poor that are upon them too much like the Indians) being a hindrance to Industry, and are Nurseries of Idleness and Insolence.

So Conard celebrates competitiveness, when he managed to find his way onto the low-risk elite path when it was less crowded than today. And high income disparity serves that end. If you lose your economic perch, unlike in more equal societies, you are almost certain to lose most of your putative friends. If you can’t socialize at their level, over time you disappear from their set (and that’s before you factor in the possibility of serious budget problems). Yet as you peel the layers back, despite his confidence that the world would work better if it was mashed into his template, it sounds utterly miserable.

Just because someone has an internally consistent world view does not make it accurate. Fans of slavery, alchemy, the Inquisition, trial by combat, and Ptolemaic astronomy all had logical looking arguments supporting their now discredited views. Conard at first seems to yet another evangelist of a hopelessly flawed and dangerous orthodoxy, and the more he speaks, the more he seems to be deeply imbalanced, so intensely invested in his distorted personal mythology that he is driven to make the world at large reflect it back. It would be far better for Davidson and the New York Times to treat people like Conard as epitomes of deep-seated cultural pathologies, rather than promote them.

Update: In a misrepresentation I missed (hat tip Lynn Parramore), Davidson cites Dean Baker as supporting Conard’s views. Baker objects:

At one point, the piece cites me as saying that for each dollar earned by investors (corporations), the rest of society gets five dollars.

This should not sound surprising. This is simply the division of national income between capital and labor. The after-tax capital share of corporate income is roughly one-sixth of total income. This means that if GDP increases by $1 billion, then capital will typically get around $160 million, with the rest going to labor and corporate taxes.

Note that this does not mean that investors are responsible for this $1 billion increase in output. Their actions contributed to the growth of output in the same way as did the actions of workers and the government. The misleading part of the picture is Conard’s implication that if not for the heroic investor, none of this wealth would have been created.

In standard economic theory if one investor had not put money to use, then another one would have have. The difference in output would have been trivial.

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    1. Susan the other

      At least Romney feels insecure enough about his own integrity to act silly and innocent. That is why he makes us cringe. His buddy Conard doesn’t make us cringe, he just pisses us off.

      1. Lambert Strether

        The two legacy party candidates share these characteristics. That’s why they are the candidates. They just have different class and cultural markers, that’s all.

      2. jawbone

        Maybe that’s why I feel like Romney comes across so much like a huckster, like one of those knife salesmen or women in a discount or grocery story. They’ve got the patter down, they seem really enthusiastic, but it’s a script for the most part. For Romney it seems like he’s working so hard to pretend to care about what he’s saying that it comes out…fake and…hucksterish.

        He can’t say what he really wants to do because then he’d only get at most 10-20% of the votes. Maybe that’s why he has this jejeune, boyish expression; it’s how he thinks a sincere adult would look. Or how a convincing, nonthreatening android would look….

  1. Russ

    Bravo, Yves!

    “…so intensely invested in his distorted personal mythology that he is driven to make the world at large reflect it back”

    You must have enjoyed coming up with that line. I know I enjoyed reading it.

  2. PaulArt

    I almost got apoplexy when I saw the piece but here is another take – its good that they are giving prominent coverage to this ‘under the rock’ creature. The more coverage he gets the more people know and understand what Mitt and his ilk really think about inequality and class warfare.

  3. John Merryman

    It’s the history majors who see these cycles of boom and bust in all their eternal glory, not the little rodents like conard.

  4. andrew hartman

    conard is self serving, justifying his pile of money. but……their is a big lack
    appreciation at this website for ANYTHING related to business, which is not
    just guys like conard but lots of people with good companies and useful products. stop the rant for a day or two and look at them.

    1. James Cole

      Your eyes must have accidentally skipped over the parts of Yves’s post that refer to Apple, the Inc 500, Oracle, & Cisco. And that’s just this post, which is for the most part cultural criticism.

    2. Norcal_Steve

      Andrew, this blog is about finance and the financial services industry and how the latter came to make most of the countries profits and drain them in huge salaries while causing their own firms’ failure and a depression on mainstreet. It’s also about the fact that nothing has been done to change this nor to stop rampant fraud, and regulation is getting pushed further back rather than retooling to prevent even worse failures of the financial system. Taxpayers have paid to replace the vast amounts of money siphoned off and destroyed by massive credit fraud.

      Those writing and reading here find this topic to be of highest concern. If you want something else, you are in the wrong place.

      1. andrew hartman

        i agree that this site is mostly about predatory banking and finance: that’s why
        i read it. but i also find that a lot of the commentary is generalized hard left
        hatred of anything to do with business. some if it is–unhinged. and unhelpful.
        i have been listening to it for 50 years. what has it accomplished? the people’s mic?

        1. Capo Regime

          What? Hard left–if anything ver hard on left and on democrats. Ives suffers no fools, right or left? Hatred of business? No–expose of crony capitalism and its corrupting influences do not equate to hatred of business. Heck the guy who runs the drycleaner down the street adds a great service to my life and society. The banker who is essentially backstopeed by government is no businessman.
          Also, there is no hatred here–just expose and mockery. Perhaps WSJ or MSNBC is a better choice for some…..

        2. SubjectivObject

          What am I missing here. My impression is that the site owner and contributors want fair capitalistic practice in a fair and authentic rule of law environment. Abuses of political, state, and capital power should provoke oprobrium in all cases. And the business demographic you defend should itself be more visible in opposition to the corrupt status quo. But should they be forgiven if they cannot yet see the long term freedom and liberty forest for the near term profit trees?

        3. citizendave

          Auto Translate: ON

          Author writes: “anti-business”
          I hear: “I don’t want to pay taxes”

          Author writes: “hard left”
          I hear: “I don’t care what happens to Earth, IBGYBG”

        4. Otto


          a lot of commentary on this blog is hard left hatred of business fraud, deception, law breaking, and corruption. It is about the WorldComs, Enrons, and the robo-signers who have the money and the influence to buy their way out of legal difficulties. It is also about the politicians who enable and support them, and feed off them.

          None of it (on this blog) is unhinged.

          What has it accomplished? That is an interesting question. First of all, the question of what it has accomplished is orthogonal to its accuracy and truthfulness (that means the criticism can be correct but falls on deaf ears like yours and therefore accomplishes nothing). The question of what it has accomplished is a classic obfuscation and diversion from the real arguments and the real observations. Nowhere in this blog has Yves ever claimed major accomplishments in causing reforms. In fact the observations are so devastating because the system is so clearly money and influence driven as it drifts away from any sense of democracy, and in fact drifts away from any purpose of benefiting society and the nation.

        5. curlydan

          I don’t find NC and its commenters to be anti-business at all. I believe we are mainly anti-“rent extraction”. Rent extraction can be part of business, but when it comes at the expense of the middle class, safety, and long-term stability then it is dangerous. So thank God it’s called out and exposed here.

          As Peter Thiel, Pay Pal’s founder, said (or was paraphrased) in a Stanford class lecture:
          “The usual narrative is that capitalism and perfect competition are synonyms. No one is a monopoly. Firms compete and profits are competed away. But that’s a curious narrative. A better one frames capitalism and perfect competition as opposites; capitalism is about the accumulation of capital, whereas the world of perfect competition is one in which you can’t make any money.”

          NC readers I’d say are fairly pro-busienss, pro-competition but extremely frustrated at the rent-extracting, pro-monopoly stance in the current biz and govt environments.

        6. chitown2020

          Trying to label those of us who are exposing the criminal element that has hijacked America is not going to make us go away.

          1. andrew hartman

            i repeat:many of the people who comment on this blog seem like ranting haters
            to me. the american people are very willing to listen to specific progressive
            proposals but not comic book marxism and class warfare. that was obvious
            a few days ago. OWS is and will continue to be an epic fail. what’s next? beating
            up people on the way to work?

          2. Yves Smith Post author


            Tell me exactly what is wrong with the analysis and information in this post. The fact that it offends your romanticized world view is not persuasive. You offer nothing substantive in the way of a rebuttal.

        7. nonclassical


          I come here for specifics-not abstraction. Please show definitive examples of “unhinged, unhelpful”, hate of business…? I hate abstract criticism without specifics…the test is TRUTH-is what is being stated, TRUE? (Socratic method)

  5. craazyman

    I risked $10 and won the lottery. It was a hard walk to the deli. The temperature was 25 degrees. There was ice on the street. I could have fallen down! But I didn’t because I’m a man. And if you don’t take the risk of getting out of bed and walking to the deli (even when it’s cold and you’re sleepy and even if you’re a woman with poor spatial cognition) and invest $10 on a lottery ticket, you can’t get rich like I did. Anybody can do it, if they only try. And if you can’t spatially cognate and find the deli through perseverance alone, get a map! I have no patience for poor people. They only have themselves to blame. And my taxes to pay their bills.

    1. JurisV

      I can’t wait for the Adam Davidson piece on you Craazyman! You are awesome..

      What a tale of determination, skill, adventure, and solid character. You too may become an entrepreneurial icon. we, the peasants of the NC world, will be bursting with pride if that comes to pass.

    1. Doug Terpstra

      Indeed, Conard is a pitiable mannequin. Scorn for art is a horrifying symptom of a shriveled soul.

    2. F. Beard

      A gracious woman attains honor, and ruthless men attain riches. Proverbs 11:16

    3. Christophe

      And marking them so we will know they are soulless before being innocently lured into their misery.

  6. Peter in Brooklyn

    The comment about computers really does show an extremem ignorance of history. Besides some of the things YS points out, the onset of serious work on digital computing began during WWII funded completely by US and UK governments. It continued to be funded, if not directly than through procurement, until relatively recently when the costs finally came down enough that computers could be marketed to consumers.

    And then! the bit about farming and agriculture. There are federal subsidies in that industry, right? I’m under the (perhaps false?) impression that for corn in particular, subsidies exceed profit, and farmers are in essence paid to grow corn.

    I don’t think it’s correct to credit Canard with a internally consisted world view, unless that view happens to be “rich cry babies should be protected at all costs.”

    Good humourous post, thanks.

  7. Klassy!

    Small point– Conard, not Conrad but otherwise this post is just what the doctor ordered– especially this: It would be far better for Davidson and the New York Times to treat people like Conrad as epitomes of deep-seated cultural pathologies, rather than promote them.

    I had the name burned into my brain because I tried in vain yesterday to find out what “middle class” Detroit suburb Conard grew up in. At the New York Times I’m sure Grosse Pointe Shores qualifies as “middle class”. Pretty much anything short of Bel Air does.

    1. McKillop

      All this artsy stuff, yeh?
      Spellin’, allusians to literature, eternal questions too flippantly answered to be considered as answered: as well, _connard_ is “francais”. And seems to apply.

    2. Doug Terpstra

      My spell checker won’t let me add Conard to the dictionary. It insists on “Canard”: “a hoax, a deliberately false report or rumor, especially something silly intended as a joke.” Not funny.

      So Canard it is. Like Lambert’s Obomney, he’s the model economic man, a person wihtout a soul—AKA corporation, that maximizes its own utility whatever the cost. Here is the “benevolent” plantation slave master, who “bewailing the idleness of the lower orders” rescues them from the devil’s workshop, those “nurseries of idleness and insolence”, for the salvation of their immortal souls. We should fall on our unworthy knees and thank God for noblemen like Conard.

    3. AngryKrugman

      Wait–Did Conard actually grow up in Grosse Pointe Shores, or is that just speculation? If the former, even more outrageous.

    1. Marcus Webster

      I found the contrast with today’s NYT article on Death of a Salesman to be seriously ironic…quoting…Willy’s middle-class dreams put the system that betrayed them to shame. In our current context, Willy’s dreams of love, dignity and community through modest work make him a deluded loser….Instead of humbling its audience through the shock of recognition, the play now confers upon the people who can afford to see it a feeling of superiority — itself a fragile illusion.

    2. McKillop

      Again, the word might apply: perhaps “seat” of darkness.
      If all such enormously monied creatures are like the man, it’s a good thing that their lives stay “discrete”. Or that they are not political leaders.
      Umm . . . wait . . . .

  8. Jack Straw

    Blake: We’re adding a little something to this month’s sales contest. As you all know, first prize is a Cadillac Eldorado. Anybody want to see second prize?
    [Holds up prize]

    Blake: Second prize is a set of steak knives. Third prize is you’re fired.

  9. Klassy!

    “Ed Conard’s book presents the most cogent and persuasive analysis of the Financial Crisis to date.”
    —Andrei Shleifer, Bates Clark Medal winner, Harvard University

    Alrighty then.

    1. JurisV

      Good grief! Are they all on acid? Jobs got an insight into the human and spiritual Universe — all these guys seem to get is a trip to the Dark Side with its madness and sociopathy.

      What an embarrassment for friends and colleagues of Schleifer!!

        1. JurisV

          My God — How naive can I be !

          You are spot on. These cretins are way beyond shame. How quaint of me to have thought that shame was still operative.

  10. Jim

    “First, it’s clear Conard never heard of Moore’s law as the driver of falling computing costs.”

    Huh? Did the chips just shrink themselves — or was it the relentless innovation and competition which brought the costs down . . . like Conard said.

    Moore’s law is a result, not a cause.

    1. YankeeFrank

      Well, whatever it is, it certainly isn’t Conard’s or Bain’s “investments” which provide the foundation for Moore’s law’s existence.

      This guy is a class A tool, and is not doing anything but helping to bring about the end of the current zeitgeist, which is overdue for its trampling under, with every word he utters. So much for his proselytizing for the expansion of his worldview. And he, and the New York Times, are spinning as hard as they can to keep their world turning. Hello Conard. Goodbye Conard.

      1. Literary Critic

        I’m sure the way it worked was first a “private equity” firm spotted an unprofitable company that needed “fixing” by someone with biz acumen.

        The private equity firm borrowed a bunch of short term money and took the company over and fixed it by laying off all the “fat”, cutting wages and benefits for the remaining employees,cutting all capital equipment spending, cutting all R&D spending, went to “just in time inventory” and slow paying suppliers, and put in their own accounting guy that knows how to do books the right way.

        They place a $50,000 contract to a graphics design consulting firm to develop a new corporate name and logo. The new CEO orders stationary and business cards for everyone.

        Then they sold a bunch of junk bonds based on much improved financials and paid off the short term loans used to take over the company.

        With new CEO at the helm, fresh MBA in hand, they begin mapping out a biz strategy. They know they need a product, and if it is a “killer” product, so much the better. A fellow in engineering by the name of Andrew Grove pipes up and says,” I’ve been hooking together a few of our microprocessors at home in my garage, and I’ll bet if we just made them bigger we could use them in computers and computers would be cheap – maybe even as low as $10,000!”

        The corporate lawyer reminds Andrew of the standard employment contract Andrew signed in lieu of being laid off – which states all inventions, patents or otherwise good ideas of employees are the property of the company irregardless of whether the employee developed them on his own time and expense.

        Andrew says, “Cool! I just want something cool to work on. I’ll bring in my sleeping bag to work!”

        The CEO mulls this over, and says, “All right then. We’ll be a killer macro processor company!”

        And the rest is history.

    2. Yves Smith Post author

      Real chip economics experts welcome to correct me, but my understanding is that chips are massively capital intensive and the cost of chips is primarily driven by the cost of the “fab”. Bigger, most costly fabs make cheaper chips (I’m really out of date, but even in the 1990s, a current gen fab was $5 billion). But the market has to be there to support their output (highly capital intensive businesses ALSO need to have very high uptime for their economics to work)

      The big driver thus is market grows enough to support next gen of fab > next gen of fab with cheaper chips expands market/uses via cheaper prices > market now bigger enough to support even bigger fabs.

      This isn’t the niggling and tinkering process that Conard described. There is a really huge risk in timing, and you do have to do all the things needed to keep your chips competitive when launching a fab. Those are NOT trivial. But I believe the cost reduction dynamics come from the huge capital intensity of the fabs.

      1. Literary Critic

        I rate myself well below expert and am hopelessly out of date, but I had to learn some of this back when I liked buying chip maker stock.

        True “fabs” are very, very, expensive (Intel used to throw out the $5B in the 90s) and need lots of volume.

        The chip makers handle this in two different ways. In the case of Intel, AMD and more recently Sandisk-Toshiba, they have confidence in getting the sales volume, so they build there own fabs. In this case they can develop proprietary mfg tech for a competitive advantage. They also control their supply and can’t get put on “allocation” by a vendor when times are hot.Then there are the “fabless” chip makers. They design them then go to a “foundry” like Taiwan Semiconductor who manufactures the design.

        They way to reduce unit cost is multiple chips get made on a single silicon wafer. The wafer is then cut into the individual chips and they are packaged. So newer generation fab plants always are increasing the diameter of the silicon wafers they can handle, and then the chip microcircuit keeps getting miniaturized – with higher density placement of transisitors, lower electrical losses to keep thermal dissipation down, etc…and the fab equipment has to be able to lay down this ever finer circuit.

        1. The iTod

          FYI- AMD spun off their fab as Global Foundries a few years ago so they are now fabless as well. I am a silicon valley veteran on my 6th straight startup, 2 IPOs and 1 acquisition already behind with a possible liquidity event in the near future. I back what Yves said. The true entrepreneur takes huge risks and many companies are started with their own money. When you consider the failure rate of startups it requires a lot of belief in yourself to do this. Usually an engineer works for some successful companies, makes some decent cash and goes out to develop a good idea he/she has.

          The other thing is that Venture Capital, while not being as clueless as PE, are no geniuses either. They follow the trend and diversify their investments across many, many companies. They only want big winners so they avoid anything that looks like it may only be a sub $1B market which leaves a lot of room for smaller profitable companies. Venture Capital and Angel Investors do bring more to the table though in terms of contacts and experience since many are engineers and ex-technology people and have successful portfolio companies. It is imperfect but compared to PE they look like true risk takers.

          As Yves stated, many successful companies and technologies came out of government or University research. University research or graduate work created companies like Cisco, Google, VMware. VMware was interesting in that it was entirely self-funded as many VCs don’t seem to believe in investing in software until there is actual product and customers, in which case, who needs VC money.

          The Universities seem to benefit by allowing technology developed in-house or by student research to spin off in return for endowments later on. Stanford has perfected this more than most.

          When people in my field look at PE, they seem mostly vampiric in looking for companies they can asset strip and “manage”, usually loading them up with debt to pay themselves and shareholders. They seem to actually just kill good companies and destroy good jobs to make money. There was one story in the last few years of one of the big mattress manufacturers that was essentially a great business that PE looted and destroyed.

          1. Literary Critic

            yup. I had my experiance with the vamps back when they still called themselves LBO guys.

            we had 30% net profit when they bought us and folded 2 years later.

  11. Capo Regime



    At risk of being tiresome. I recommend Starr’s book on the political origins of the media. Great history of the media and in particular the U.S. contribution (central actually) and how media have always served owners if you will Apparently, it was always understood that papers where organs of opinion for political economic interests. All this was muddled with the marketing of Hearst Papers as objective and that has somehow stuck as some sort of organizing principle of the U.S. Still for some time there was a patina of objectivity and even zeal for truth. We are back at the gilded age stage of media, internet, twitter and all…..

  12. PK-384921/D

    Cmon, there but for the grace of phony bullshit imaginary god… Indoctrination works. Just perhaps, he could have been saved by something as subtle as a main squeeze at a typical BF vulgarian corporate Gala who blurts, Everybody you ever respected is gone. What are you still doing here? (Whew.) Then again, Conard probably picked them on strict boobjobs and makeup criteria. Poor brainwashed bastard, never had a chance.

  13. Steven Bradley

    Somehow, I’m reminded of a story Jesus told about a rich man and a beggar–of course, Jesus was the quintessential poor man (no place to live, only one set of clothing, relied on others’ mercy for His livelihood)–
    The story is about the death of both, and the reward they both finally received for the life they led. It is fascinating that a man can be revered for choices that bring him wealth at the expense of others, as if that was the only measure of his worth. I suppose that he would have opined that Mother Teresa wasted her life.
    See Luke 12:13-21.

      1. Zhu Bajie

        Yet others have made a good case that Hitchens wasted *his* life. Read Alexander Cockburn’s various critiques!

  14. jenahill


    What a relief, this is why you are my favorite economic blogger. I had exactly the same reaction to reading this story yesterday and wondered if it would just be subsumed into the irrational elitist narrative being spewed by these folks or evaporate into the air, as though it never happened. One issue I see as truly problematic is the repetition of the elitist position by the media verbatim, and on heavy rotation. These statements and positions have been repeated so often that our regular person starts repeating them and they are now considered valid and somehow authoritative. The NY Times piece is a sad commentary on how easily “journalists” are participating in cementing this ridiculous and harmful narrative as factually accurate and morally acceptable.
    I always think of Jonas Salk as the prime example of an entrepreneur, scientist and true humanitarian, a leader who saved so many and without the expectation of huge financial compensation. And that is someone who if it were measured, would certainly be deserving.

  15. chitown2020

    Talk about disinfo …! CNBC this morning interviewed the author of the book entitled The Big Short. They were discussing whether or not Insider Trading is actually illegal or if anyone should have gone to prison. Their conclusion….? No, stupids… ! No laws apply here and….SECURITIES FRAUD IS NOT A CRIME PUNISHABLE BY JAIL TIME..! Preposterous you say….? Ha….! Hmmmm..could it be the timely removal of the Uptick Rule by the SEC in 2007 made this all legal…? Nah…they were just robbing people with impunity. All of their MOBSTER STYLE RACKETEERING ACTIVITIES: The overselling of FRAUDULENT SALES of interests in FRAUDULENT SECURITIES caught up with them…SO THEY TOOK THE MONEY AND RAN..the Patriot Act allowed them to TRANSFER OUR WEALTH INTO OVERSEAS BANK ACCOUNTS….NO QUESTIONS ASKED…JUST FILL OUT A LITTLE FORM THAT
    MAKES IT ALL LEGAL… As usual it is what lies just beneath the surface that is the actual crime they are hiding. Not so well hidden but, nobody looks to see why the crash occurred and why they were Insider Trading like mad hatters on that day. Causing chaos works for the crooks everytime. By the time the dust settles the crime is done and they tell. you there is nothing to see here folks. So…like the song goes…Don’t ask me no questions.
    and I won’t tell you no lies. Don’t ask me ’bout my business and I won’t send you away.

    won’t send you away.

  16. Fraud Guy- Also

    Conard and Romney both present themselves and Bain Capital as herioic, entrepreneurial risk-takers, the essence of private sector capitalism. Yet look at a partial list of the governments that make up their investors:

    California State Teachers’ Retirement System (CalSTRS)
    Employees’ Retirement System of Rhode Island
    Illinois Municipal Retirement Fund
    Indiana Public Retirement System
    Iowa Public Employees’ Retirement System
    Keva (Public Pension Fund- Finland)
    Los Angeles Fire and Police Pension System
    Maryland State Retirement and Pension System
    Massachusetts Pension Reserves Investment Management Board
    Pennsylvania Public School Employees’ Retirement System
    Pennsylvania State Employees’ Retirement System
    Public Employees’ Retirement System of Nevada
    Regents of the University of California
    San Diego County Employees Retirement Association
    San Francisco City & County Employees’ Retirement System
    State Teachers’ Retirement System of Ohio
    Teacher Retirement System of Texas
    Tennessee Consolidated Retirement System
    West Midlands Pension Fund
    Alaska Permanent Fund

    Among the implications of this fact:

    1) Bain is not so different from Solyndra. In its current form, it depends on governments for capital. Why people let Romney get away with ducking this fact baffles me.

    2) A meaningful part of Bain’s capital base (and that of investment managers generally) is the deferred wages of government employees. How does this square with Conard’s narrative that the savings of the uber-wealthy are the core of entrepreneurial risk-taking? Answer: it doesn’t.

    3) Conard: “I don’t want to talk about rent-seeking”. Private equity fundraising from public pension funds has a very large element of rent-seeking, I assure you. For evidence, I would point to prosecutions and convictions over the last 10 years for bribery and influence peddling in the course of private equity fundraising at CalPERS, Illinois Teachers, Connecticut Treasurer, and New York State Common. Moreover, ask yourself why the transaction fees collected by PE firms are not reported to investors, per the definition of a broker/dealer in the ’34 Act? Answer: PE firms have convinced the SEC not to enforce that requirement on them.

    1. JurisV

      And Conard and Romney and Bain also are Anti Public-Employee Unions. However, like all capitalists who have migrated to the dark-side, they especially love collecting rents from those they despise. Nothing personal — it’s just business.

      On the other hand, it may be an elegant conspiracy by all those union bosses, thugs, and fellow travelers to invisibly aid the looters.

    2. Aquifer

      Hmmm, seems to me all these folks ought to disinvest in Bain and like firms – they are investing in the very folk who are screwing the folk they claim to be working for …

      Seeking the “highest rate of return” seems to be an all pervasive Trojan Horse, the “gift from the gods” that opens its trap door in the middle of the night to burn the city to the ground ….

      Bain giveth and Bain taketh (even more) away …

  17. F. Beard

    And for public businesses, the biggest source of investment funds is retained earnings, second is debt financing, and the occasional stock sale is a distant third. Yves Smith [emphasis added]

    Common stock sales should be a major source of investment capital, not a minor one. But who can pass up loans from a government backed/enforced counterfeiting cartel, the banking system and still remain competitive?

    So now, instead of broadly distributed wealth via common stock ownership, we have dangerous wealth concentration.

  18. F. Beard

    “God didn’t create the universe so that talented people would be happy,” he said. “It’s not beautiful. It’s hard work. It’s responsibility and deadlines, working till 11 o’clock at night when you want to watch your baby and be with your wife. It’s not serenity and beauty.” Edward Conard

    The Bible disagrees:

    One hand full of rest is better than two fists full of labor and striving after wind. Ecclesiastes 4:6

    1. chitown2020

      Brainwashing people into thinking they have owners has been done all throughout history. They keep reinventing the scam. This time it is a global credit scam they used to hijack us. All that we really need to know is that they lent us nothing of value. It was all a scam and a mindgame meant to overthrow what our Creator intended for all of his creations to be which is to be free and independent.

    2. JurisV

      F.Beard, I need your biblical help.

      With all the discussion in this post about the differences in how Steve Jobs and Ed Conard have interpreted the world — it tripped (no pun intended) my memory modules. I remember reading in the distant past about Jesus’s response to a question of where is this “Heaven on Earth” or paradise that you speak of? The response by Jesus was something of the order that >it is here right now and you are living in it — all you have to do is see it. This is a paradise if you do not choose to make it Hell.<

      Did I fantasize this or is it even remotely "true?"

      If it's not — then under the powers that exist under "truthiness" it darn well ought to be true.

      Frankly, I am getting really pissed off at all of the bots like Romney and Conard that are trying to make this world a living Hell. Under the spell of Darkness they seem to be prepping the world for Armageddon. I am not pleased.

  19. Fraud Guy- Also

    For good measure, a partial list of Bain’s university endowment investors. These are some of the “charities” that Conard seems to despise people donating their money to, and they produce the “art history majors” that he also disdains:

    Amherst College Endowment
    Auburn University Foundation
    Berkeley Endowment Management Company
    Cornell University Endowment
    Davidson College Endowment
    Harvard Management Company
    Michigan State University Endowment
    Princeton University Investment Company (Princo)
    Purdue University Endowment
    University of Michigan Endowment
    University of Pittsburgh Endowment
    University of Texas Investment Management Company
    University of Virginia Investment Management Company
    University of Washington Endowment
    Yale University Endowment

  20. libarbarian

    Show me a man who denies rent-seeking is a problem and I’ll show you a guy who wants to hide his own rent-seeking

  21. Hugh

    We live in a kleptocracy. Kleptocracy is dynamic. It is like a car with no brakes and a gas pedal that can only be pressed further down. It has advanced and accelerated to a stage where more and more of the original niceties and facades it needed to hide itself and protect itself against backlashes are being dropped. We see it in the courts with decisions like Citizens United, as in all “your political process are belong to us” kleptocrats. We see it in attacks on signature New Deal/Great Society programs like Social Security and Medicare, that now even Democrats, like Obama, feel comfortable making, openly and often. We see its ugliness not just laid increasingly bare by Jamie Dimon’s whining or jarring statements like Lloyd Blanfein’s doing God’s work, but by psychopathic little shits like Edward Conard. This is your world and it is only going to get worse until the you rise up, take back your country and its economy, and put criminals like Conard away in prisons for the rest of their exceedingly unnatural lives.

  22. Logans_Run

    What profit a man that he gain the whole world but in the process lose his soul. Or how about A fool is wise in his own eyes. Or there is a way that seems right to a man but the end thereof is death.

  23. newposter

    Thank you, Yves. This Davidson person must be relentlessly attacked whenever he comes out with one of these pieces. His work always consists of variations on one line or another of right-wing propaganda in the form of pop (i.e. false or dumbed down) economics for the NPR and NYtimes set. He is one of the most pernicious commentators around.

    Unfortunately, NPR, NYtimes and their ilk are filled with these people. This is a reason why these institutions, far from being “liberal media” in any way, often serve so well as elite propaganda organs.

    1. Synopticist

      Damn right. They’re 1% enablers and quislings.
      But no doubt they think of themselves as liberal, because, you know, they have some black friends, and they think gay marriage is great.

    1. F. Beard

      Obama say: “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.”

      What is “free market” about a government enforced/backed money monopoly for private debts, our banking system?


      The famous boastful statement of Nathaniel Meyer Rothschild, speaking to a group of international bankers, 1912: “The few who could understand the system (cheque, money, credits) will either be so interested in its profits, or so dependent on its favours, that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.” from

  24. Lambert Strether

    That Yasha Levine quote is gold:

    Using Adam Smith’s own estimates of factory wages being paid at the time in Scotland, a factory-peasant would have to toil for more than three days to buy a pair of commercially produced shoes. Or they could make their own traditional brogues using their own leather in a matter of hours, and spend the rest of the time getting wasted on ale. It’s really not much of a choice, is it?

    Il faut cultiver notre jardin. We need the hops!

    1. F. Beard

      quote is gold LS

      It’s amazing how we have been indoctrinated into worshiping gold as the measure of all things.

      One should be careful not to perpetuate that meme. The gold standard folks are waiting in the wings to re-crucify mankind on a “cross of gold”.

      They will fling their silver into the streets and their gold will become an abhorrent thing; their silver and their gold will not be able to deliver them in the day of the wrath of the LORD. They cannot satisfy their appetite nor can they fill their stomachs, for their iniquity has become an occasion of stumbling. Ezekiel 7:19

        1. F. Beard

          “That Yasha Levine quote is sobering:”

          comes to mind in view of the part about ale.

      1. pws

        However, gold is a very interesting metal. For example, it’s one of the best metallic conductors of electricity.

        In fact, it’s a waste of such a noble metal to dig it out of the ground, shape it into bricks, and then bury it back in the ground again under a metal door.

        1. F. Beard

          In fact, it’s a waste of such a noble metal to dig it out of the ground, shape it into bricks, and then bury it back in the ground again under a metal door. pws

          Yep! A waste of time, effort and the environment too.

          It’s a sad refection on our current money system that anyone would seriously wish to go back to a gold standard.

  25. Roquentin

    After reading this, it’s pretty clear to me Conrad is a bitter old man, demanding everyone blindly support the same system which castrated him, robbed him of most of the enjoyment he could have in life (the part about hating art-school kids, and anyone who doesn’t spend 12 hours a day behind a desk is most telling). What he really hates is the idea that people are happy doing anything except for making money, because if that’s true he’s thrown most of his life down the toilet.

    He’d much rather live in a world free of art, leisure, and romance because that’s precisely what he’s given up. So much so, that he’d rather spend all day in the office than be reminded of it and even demand everyone else do the same just do they can’t have any fun either.

  26. Gil Gamesh

    “It would be far better for Davidson and the New York Times to treat people like Conrad as epitomes of deep-seated cultural pathologies, rather than promote them.” Brilliant, and indeed. However, the NYT is paid for promotion, not truth telling, or heaven forfend, siding with humans, as opposed to the noxious creatures of our rentier class.

  27. digi_owl

    So we got a honestly breathing Randian ubermench? Kill it, kill it with fire!

    1. pws

      Well, in some ways. However, when he blathers on about how “God didn’t mean for talented people to be happy” he pretty much spits in the face of the only appealing part of her dogma. (Rand has many faults and is in many ways the super arch-villainess of modern times. However, she had one good quality; she was a hedonist.)

      So, he’s a combination of a Dickens villain (inflict misery on oneself in the pursuit of profit) and a Rand hero.

      Where are those torches, anyway?

  28. wonkster

    “God didn’t create the universe so that talented people would be happy,” he said. “It’s not beautiful. It’s hard work. It’s responsibility and deadlines, working till 11 o’clock at night when you want to watch your baby and be with your wife. It’s not serenity and beauty.”

    Wow, I’ve had it completely wrong my whole life. I remember When I was watching my baby I felt closer to God than any other time in my life. I didn’t realize I was really supposed to be at work. Maybe if I had an insane amount of money I too would understand why God created the universe.

    I’m not surprised that there are d-bags like this guy (hey,look at Mr. Burns on the Simpsons for example). But I do share Yves outrage that the NYT and Adam (“Planet Money”)Davidson are pimping him as some sort of great thinker. For my money, the NYT and NPR have both done a horrible job of covering the financial disaster (hell, Rolling Stone has a far far better reporter…and when was the last time Rolling Stone mattered at all?). Perhaps they’re afraid of being portrayed as “too liberal.” More likely it’s because they live in the same neighborhoods in NYC and Washington and go to the same yoga classes, etc. as the apparatchiks for the Wall St/Washington oligarchy.

    Great job, Yves.

  29. Wendy

    Let’s not forget also that, as an NPR dude, Davidson is considered a *de facto* liberal.

    Which gives this article and its themes the *de facto* blessing of liberals.

    Way to go, Davidson. Thanks for disserving liberals with your worship of the uber rich and their fraudulent ramblings.

  30. Sluggeaux

    Bravo! A proper debunking of Conard by the woman who was Baker Scholar at HBS while he slithered his low-risk way through the same halls. These clowns take no risk at all: the investment pool from which they award themselves bonuses is made up of pension savings of government employees and university endowments — some of it MY money.

    Am I the only reader who is a francophone? Mr. Conard’s name resonates perfectly in that language:|en|connard

  31. casino implosion

    Delightful to see Yves beboppin’ and scattin’ all over this clown. Her tone is perfect: contempt.

  32. JTFaraday

    “What are they doing, sitting here, having a coffee at 2:30?” he asked. “I’m sure those guys are college-educated.” Conard, who occasionally flashed a mean streak during our talks, started calling the group “art-history majors,” his derisive term for pretty much anyone who was lucky enough to be born with the talent and opportunity to join the risk-taking, innovation-hunting mechanism but who chose instead a less competitive life.”

    This is so wrong that I actually mis-read it and had to read it at lest 3 times before I managed to read it his way. The real story is:

    ““art-history majors,” his derisive term for pretty much anyone who was lucky enough to be born with the talent and opportunity to join the risk-taking, innovation-hunting mechanism AND who chose to do it.”

    F- him.

  33. pws

    “He treats finding a mate like a shopping exercise, and recommends a sampling phase prior to a selection phase.”

    I imagine that for truly awful rich men, finding a mate is much like a shopping exercise. (Hopefully after which he manages to keep the cute art history majors out of her boudoir.)

    1. K Ackermann

      He thinks like an economist. I forget which two economists were involved, but one criticized the other for picking out and decorating his own Christmas tree, claiming it was a huge waste of the guy’s time when he could’ve divided the labor much more effectively (had someone else do it).

      The other economist’s retort was that the first economist failed to account for all externalities such as the positive value of excercise and feeling happy.

      Conrad is the first guy x10.

  34. charles 2

    The french speakers among us will have appreciated the lapsus from Conrad to Conard.

    1. Sluggeaux

      As the French would say, “Quel con, quelqu’une?” “Conrad” is the lapsus linguae, “Conard” is the creep’s actual name. Quelle connerie…

  35. K Ackermann

    This guy is a philistine, and a bully. He doesn’t have an original bone in his body. He sounds like a nightmare.

    As an aside, Apple’s products are designed by Jonathan Ive, who drew heavily on Braun’s products.

  36. Rcoutme

    There, but for the grace of God, go I. I could have switched majors from chemistry to business and finance. I did not wish to lose my soul.

  37. wczasy egipt

    An fascinating dialogue is worth comment. I believe that it’s best to write extra on this matter, it may not be a taboo topic however usually persons are not enough to speak on such topics. To the next. Cheers

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