Inequality Is a Bug, Not a Feature

Tue, May 8, 10:10am

Published By: MEGAN-MCARDLE

Megan McArdle - Megan McArdle is a senior editor for The Atlantic who writes about business and economics. She has worked at three start-ups, a consulting firm, an investment bank, a disaster recovery firm at Ground Zero, and The Economist. She is currently on leave.

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Megan was born and raised on the Upper West Side of Manhattan, and yes, she does enjoy her lattes, as well as the occasional extra-dry skim-milk cappuccino. Her checkered work history includes three start-ups, four years as a technology project manager for a boutique consulting firm, a summer as an associate at an investment bank, and a year spent as sort of an executive copy girl for one of the disaster-recovery firms at Ground Zero ⦠all before the age of 30.

While working at Ground Zero, Megan started Live From the WTC, a blog focused on economics, business, and cooking. She may or may not have been the first major economics blogger, depending on whether we are allowed to throw outlying variables such as Brad Delong out of the set. From there it was but a few steps down the slippery slope to freelance journalism. She has worked in various capacities for The Economist, where she wrote about economics and oversaw the founding of Free Exchange, the magazine's economics blog. She has also maintained her own blog, Asymmetrical Information, which moved to The Atlantic, along with its owner, in August 2007.

Megan holds a bachelor's degree in English literature from the University of Pennsylvania and an M.B.A. from the University of Chicago. After a lifetime as a New Yorker, she now resides in northwest Washington, D.C., where she is still trying to figure out what one does with an apartment larger than 400 square feet.

May 8 2012, 1:10 PM ET Comment Jim Manzi is founder and Chairman of Applied Predictive Technologies, and the author of Uncontrolled: The Surprising Payoff of Trial-and-Error for Business, Politics and Society.

I played in a lot of party bands in college, and there was a common expression among the soul and funk musicians I knew: "Never follow Aretha." In other words, it's rarely wise to walk onto a stage to perform right after the audience has just seen a virtuoso. Megan was very kind to invite me to help fill in here; but she was also pretty cruel, in that it will be natural to compare my writing to hers. It won't measure up. But at least she'll be back soon.

You are Megan's audience, so I'll try to stick to the kinds of economic topics that you come here to find. One of my co-bloggers for the week, Scott Winship, is a leading scholar on inequality and social mobility, so I'll start on that topic.

There is extensive blogospheric commentary right now about the article in the May 1st New York Times Magazine in which retired Bain Capital executive Edward Conard puts forward the view that current American income inequality is positive evidence that the market is correctly rewarding the innovators who drive economic growth. According to the article, he believes that America needs more technological innovation, and hence more income inequality, to motivate "art-history majors" and lawyers to become entrepreneurs.

I'm a technology entrepreneur. I think that Conard has an important point, but I also think that he is looking at one side of a trade-off. I argue in my book that America does need more technology-based innovation, and that this will likely require an even greater orientation toward markets and market-like mechanisms to accomplish. However, I think that this is likely to exacerbate social problems, and that those on the short end of the stick will not only react as Conard predicts by feeling "compelled to try to join" the successful entrepreneurial class, but also by attacking the innovation process.

Here's how I tried to put the problem concretely in one passage of Uncontrolled, after describing how the company I founded was one of a number that independently stumbled into the creation of Software-as-a-Service, or "cloud computing," as a method for delivering enterprise software:

Many entrepreneurs hold the opinion that "I did it all on my own," which may be well adapted to leadership success in certain situations, but it is objectively myopic. The entrepreneur relies on an ecosystem of venture capitalists, risk-taking purchasers, and so on. This ecosystem itself rests on a deeper foundation of collective, government-led enterprise. The delivery of our software, for example, depended on the existence of the Internet, which is the product of a series of government-sponsored R&D efforts, in combination with subsequent massive private commercial development. Government funding has been essential to much of the university science that entrepreneurs have exploited. Honest courts and police are required for functioning capital markets and protection of assets; physical infrastructure is required for the roads a

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