‘Romney is Wall Street’s worst bet since the bet on subprime’
By Ezra Klein ,
Chrystia Freeland is editor of Thomson Reuters Digital and author of “The Plutocrats: The Rise of the New Global Super Rich and the Fall of Everyone Else.”
We spoke Tuesday about how the plutocrats she reported on for the book
were handling Mitt Romney’s loss. A lightly edited transcript of our
conversation follows.
Ezra Klein: You’ve written about the revolt of the very rich
against President Obama, and all the money they spent and time they
dedicated to defeating him. So what’s the mood in those circles now that
they’ve lost?
Chrystia Freeland: There’s a great joke on Wall Street which is that
the bet on Romney is Wall Street’s worst bet since the bet on subprime.
But I found the hostility towards Obama astonishing. I found the
commitment to getting him out astonishing. I found the absolute
confidence that it would work astonishing. On that Tuesday, the big
Romney backers I was talking to were sure he was going to win. They were
all flying into Logan Airport for the victory party. There’s this
stunned feeling of how could we be so wrong, and a feeling of
alienation.
The Romney comments to his donors, for which he was roundly pounced
on by Republican politicians, I think they accurately reflected the view
of a lot of these money guys. It’s the continuation of this 47 percent
idea. They believe that Obama has been shoring up the entitlement
society, and if you give enough entitlements to enough people, they’ll
vote for you.
EK: Here’s my question about those comments. Romney was
promising the very rich either a huge tax cut or, if you believe he
would’ve paid for every dime and dollar of his cut, protection from any
tax increases. He was promising financiers that he would roll back
Dodd-Frank and Sarbanex-Oxley. He was promising current seniors that he
wouldn’t touch their benefit. How are these not “gifts”?
CF: Let me be clear that I’m not defending any of them. But I think
the way it works — and I think Romney’s comments were very telling in
this regard — there are two differences in the mind of this class.
First, they’re absolutely convinced that they’re not asking for special
privileges for themselves. They’re convinced that it just so happens
that their self-interest coincides perfectly with the collective
interest. That’s where you get this idea of the “job creators”. The view
is that to seek a low tax environment or less regulation, that’s not
special pleading for yourself, it’s not transactional politics. It’s
that this set of rules is the most conducive to economic growth for
everybody. It will grow the pie. Now, it also happens to be an
incredibly convenient way of thinking. If you’ve developed an ideology
that what’s good for you personally also happens to be good for everyone
else, that’s quite wonderful because there’s no moral tension.
EK: You and I spoke shortly before the election for a piece I
was doing on Romney’s history as a manager. These folks, too, are
purportedly very data focused, very good at assimilating new
information. So I find it genuinely scary that neither Romney nor his
super-rich backers had any idea he was going to lose. All the polls, all
the models, all the betting markets said he was likely to lose. How did
a group of people who, in their jobs, have to be willing to read and
respond to disappointing data convince themselves to ignore every piece
of data we had?
CF: That’s the single most astonishing thing. By his own definition,
Romney’s single strongest qualification to become president was
analytically based, managerial excellence. And if the election campaign
were the test of that, and even if you were ideologically his fan, you
should think it right that he lost. Now, how could it happen? My first
thought was it was also the case that all the smartest guys in the room
managed to lose a lot of money in 2008 and managed to convince
themselves of a set of very mistaken beliefs about where the markets
where going to go. It was a lot of the same people on the wrong side of
both bets.
But I find it truly mystifying. I don’t claim to have particularly
unique insight. I think it could be a combination of things. One is a
generic belief that in order to run for president you have to think
you’re going to win. You can’t do it otherwise. A second thing, and this
is not so much about the rich guys as about the Republican Party in
America, I think Republicans have felt since the time of Ronald Reagan
that they are the party that represents the true America, and that the
Democrats might sometimes win, but it’s kind of an aberration. And when
it comes to the super-rich guy dimension, and I imagine this has
happened to Obama as well, when you’re a rich and powerful guy, it can
make it hard to see reality, especially when you’re paying your campaign
staff great salaries, as Romney was.
EK: One explanation for the deteriorating relationship
between Obama and this class of very, very rich folks is that it comes
down to taxes. But in 2008, many of these same people supported Obama,
and he said then, too, that he wanted to raise their taxes. Another
explanation is that the dislike is personal: They feel that Obama
doesn’t respect them, and so they hate him. Where do you come down?
CF: I think that it was both. I do think that Obama was particularly
bad at dealing with these guys. Unnecessarily so. And I don’t really
understand why. It’s of a piece with the general knock on him, which is
that he’s too aloof. He was certainly aloof with his rich donors.
I’ve heard from people who worked in the White House that he doesn’t
like rich people. I don’t actually think it’s true. I think he has a
kind of Harvard Law School sense of kinship with these guys. He’s a
member of the same technocratic elite. He could have taken that path. He
has an admiration for those skills. But what he doesn’t have at all is a
belief that the pure fact of having made a lot of money makes your
views more valuable, or makes you more interesting or smarter than
anyone else.
But remember, there are two different issues. One is, are you going
to pay a higher tax bill? At the end of the day, rich people really
don’t want to, and I think they’re finding they’re more averse to it
than they actually thought they would be as it comes closer to reality.
But second, iIthink what Obama has done is quite striking: he has said
the economy isn’t working for everybody, and he has said it’s possible
in this economy for economic acts to take place that are really good for
a wealthy person and neutral or even bad for the middle class. The Bain
Capital ads were such a lightning rod and so alienating even to some
Democrats because they put that on the table. That is something no one
has said in political power for 30 years. That is profoundly threatening
for this group. It’s threatening politically, but it’s also emotionally
and morally threatening.
I think the thing which has been so comfortable about being a member
of the super-rich, especially in the United States, is that you have
been able to feel that the act of becoming wealthy, absent everything
else, was also an act of civic virtue. That’s so wonderful! You’re not
just pursuing your own self-interest talking about lower taxes at the
top but the collective self-interest.
EK: I’d add one dimension to that. From my reporting with the
White House, I think the president’s view of the economy is that
globalization is here and it’s not going away. The economy rewards high
skills more than ever. Automatic and computerization and foreign
competition are wiping out many middle class jobs, and while some new
ones are created, it’s not at all clear that enough are being created.
But in his view, he sees more redistribution as very necessary in this
context. He thinks that if the economy is going to grow but the gains
won’t be broadly shared, then it’s the government’s role to try and
redistribute some, though of course not all, or even most, of those
gains.
My experience is that the very rich are open to higher taxes
in the context of a deficit deal. They like, or think they like, the
Simpson-Bowles plan. They’re very friendly with Mayor Mike Bloomberg,
who says he’d let all the Bush tax cuts expire. But they don’t like the
idea that their money should be redistributed simply because they have
too much of it. They don’t like the idea that, so to speak, they didn’t
build all of this, and as such, they need to give back in order to make
sure it continues. And so that’s part of the tension: They don’t like
why Obama is raising their taxes. And they certainly don’t like the lack
of admiration he’s showing while trying to do it. They see it as
punishing their success.
CF: I completely agree. I think Obama and the economists around him
have a very sophisticated understanding of both globalization and the
technology revolution and the impact they’re having on the world economy
and they way they’re creating these winner-take-all spirals. The
positive scenario, which I think is a bit pollyannaish, is all you need
to do is improve the education system and change the skill set and all
will be well. And even that takes a lot of investment and a lot of time.
But there’s actually the possibility that in order to have a healthy
middle class, you’re going to need to have a more redistributive
society, at least for awhile. I think that’s something the American
super-rich don’t think about much. One guy who’s a liberal Democratic
guy, who has worked in Washington for Democrats, who I quote in my book,
he said to me, maybe this is how the world is. Maybe the 1950s were an
aberration and the way the economy naturally works is this wide
difference in distribution.
EK: As a general point, though, I imagine that’s somewhat
scary to these guys. If the basic, positive-sum nature of economic
policy is eroding, and we’re going to have fiercer political battles
over who gets the spoils of growth, that’s got to be worrying. I imagine
the very rich look out and think to themselves, there are more of them
then there are of us. That seems to me to be the concern that’s
beginning to break into the open with this talk of “gifts.”
CF: The happy way of reconciling that problem is to have an economy
where the natural outcome of all of us working hard and being successful
and all those good things leads to a more 1950s-style distribution.
We’re more comfortable with that. Yes, the people with merit and
inventiveness should be at the top, but we want the natural outcome to
be harmonious. And the scary thing is, what if that’s just not how the
economy will work for the next 20 or 30 years? What if even if we get
education and economic policy and all the rest of it right, that we’re
not there? Do you say, okay, the way it’s working now is not consistent
with how we imagine this democracy should work and therefore we believe
the rich should be taxed more aggressively to support the middle class?
That’s a very different way of thinking about the economy and the social
contract. And after Romney’s loss, the scary thing for the super-rich
becomes actually maybe they’re not going to be the ones to decide.
EK: How much do these guys think about luck and privilege?
You have this great quote in the book from Larry Summers, where he’s
reflecting on the Harvard admissions process, and the question of
whether you admit the kid who has learned Mandarin with his private
tutor because, look, that kid learned Mandarin, or do you admit the kid
who is alike in all other respects but whose parents could never have
afforded a private Mandarin tutor?
CF: I think the issue of the kid is related to but separate of luck.
There’s a question of do you buy the Malcolm Gladwell, Outliers theory
of the world, or do you buy the manifest destiny, I-have-the-royal-jelly
and you don’t view? There’s no one way of seeing the world, and
different people are different, but for me, the most vivid statement of
the royal jelly view came from Mikhail Khodorkovsky, who said if a man
is not an oligarch, something is not right with him. The great thing
about the Russians is they’ll say that kind of stuff directly. My
suspicion is that’s a view quite a few of these people have.
We’re raised by our mothers not to brag too much, so that constrains
the impulse to say that kind of thing, but I also think that especially
for the guys who get to the billionaire level, they have a feeling, and
perhaps it’s not an unjustified feeling, of having an extremely unique
set of skills that sets them apart from everybody else, and it’s partly
brainpower, but they all see it as crucially including an ability to
judge and take risks and work very hard. They feel that that makes them
stand out in an important way. I think also that a lot of them think
that skills are transferable. That’s why a Bill Gates thinks the
skillset it takes to found Microsoft is the skillset that can cure
malaria.
Having said that, one thing I think is to what extent do you feel
that the most important measure of value in society is accumulating a
fortune. A lot of Americans think that’s really where it’s at. To get
back to Romney, that’s where you get the belief that being successful in
business qualifies you to be president. What’s interesting to me is
that if you talk to the billionaires in other countries that have
different social orders, you heard different views on this.
Yuri Millner, the Russian billionaire, set up a prize in theoretical
physics where he gave three million bucks each to what he thought were
the nine best theoretical physicists in the world. The reason he did
that, he said, is that he thinks that the way our society allocates
brainpower against work is not ideal. He thinks the work he does is kind
of boring and humdrum and doesn’t make that much of a difference in the
world but leads to these huge rewards, while in his view, the most
defining and important work, the work that makes us human, is grappling
with understanding the universe. George Soros will say that he thinks
the most important human endeavor is to be a philosopher. You encounter
that sentiment less often among the anglo saxons, because we’ve
persuaded ourselves that the heroes of our social narrative our
businesspeople.
EK: But the tension in that narrative, I think, is between
the businesspeople and the do-gooders. As i read it, much of the fight
between Obama and these financiers is the fight between the Ivy League
kids who turned away from the money and went into do-goodery professions
like community organizing and their roommates who went to Goldman Sachs
and have always felt resentful of both the implied and explicit verdict
that they sold out.
CF: I agree with that. I think what’s interesting is that division
into the two tribes, the do-gooders and the moneymakers, leaves out the
ideas pursuers. The only other thing I would say is that I think — and I
don’t reject this view, I think there’s a lot of legitimacy to it — I
think there is a view among many of these guys that says I am
contributing more good to the world than 99.9 percent of NGO workers. I
am a job creator.
You’ve probably talked to Ed Conard, the Bain Capital guy, and he
expresses this very articulately: His argument is the highest and most
important sphere of activity is the allocation of capital, that it’s
hard to do, that the people who do it well need to be rewarded, and that
that is actually what drives the improvements in society, more than a
lot of this do-goody stuff. So it’s not solely a question of the
business guys feeling they lose in the virtue stakes compared to their
college roommates who became community organizers. I think some of them
feel those people are just fooling around on the margins while they’re
engaged in the real questions that save and shape the world.
Now, I think Obama very much saw the world in the way you describe it
and made that choice not to make money and to instead try and make the
world a better place. But in some ways, Romney made that choice, too. He
could’ve gone and run the [Julian Robertson’s] Tiger funds, and instead
he went and worked really hard to try and become president.
Chrystia Freeland is editor of Thomson Reuters Digital and author of “The Plutocrats: The Rise of the New Global Super Rich and the Fall of Everyone Else.” We spoke Tuesday about how the plutocrats she reported on for the book were handling Mitt Romney’s loss. A lightly edited transcript of our conversation follows.
Ezra Klein: You’ve written about the revolt of the very rich against President Obama, and all the money they spent and time they dedicated to defeating him. So what’s the mood in those circles now that they’ve lost?
Chrystia Freeland: There’s a great joke on Wall Street which is that the bet on Romney is Wall Street’s worst bet since the bet on subprime. But I found the hostility towards Obama astonishing. I found the commitment to getting him out astonishing. I found the absolute confidence that it would work astonishing. On that Tuesday, the big Romney backers I was talking to were sure he was going to win. They were all flying into Logan Airport for the victory party. There’s this stunned feeling of how could we be so wrong, and a feeling of alienation.
The Romney comments to his donors, for which he was roundly pounced on by Republican politicians, I think they accurately reflected the view of a lot of these money guys. It’s the continuation of this 47 percent idea. They believe that Obama has been shoring up the entitlement society, and if you give enough entitlements to enough people, they’ll vote for you.
EK: Here’s my question about those comments. Romney was promising the very rich either a huge tax cut or, if you believe he would’ve paid for every dime and dollar of his cut, protection from any tax increases. He was promising financiers that he would roll back Dodd-Frank and Sarbanex-Oxley. He was promising current seniors that he wouldn’t touch their benefit. How are these not “gifts”?
CF: Let me be clear that I’m not defending any of them. But I think the way it works — and I think Romney’s comments were very telling in this regard — there are two differences in the mind of this class. First, they’re absolutely convinced that they’re not asking for special privileges for themselves. They’re convinced that it just so happens that their self-interest coincides perfectly with the collective interest. That’s where you get this idea of the “job creators”. The view is that to seek a low tax environment or less regulation, that’s not special pleading for yourself, it’s not transactional politics. It’s that this set of rules is the most conducive to economic growth for everybody. It will grow the pie. Now, it also happens to be an incredibly convenient way of thinking. If you’ve developed an ideology that what’s good for you personally also happens to be good for everyone else, that’s quite wonderful because there’s no moral tension.
EK: You and I spoke shortly before the election for a piece I was doing on Romney’s history as a manager. These folks, too, are purportedly very data focused, very good at assimilating new information. So I find it genuinely scary that neither Romney nor his super-rich backers had any idea he was going to lose. All the polls, all the models, all the betting markets said he was likely to lose. How did a group of people who, in their jobs, have to be willing to read and respond to disappointing data convince themselves to ignore every piece of data we had?
CF: That’s the single most astonishing thing. By his own definition, Romney’s single strongest qualification to become president was analytically based, managerial excellence. And if the election campaign were the test of that, and even if you were ideologically his fan, you should think it right that he lost. Now, how could it happen? My first thought was it was also the case that all the smartest guys in the room managed to lose a lot of money in 2008 and managed to convince themselves of a set of very mistaken beliefs about where the markets where going to go. It was a lot of the same people on the wrong side of both bets.
But I find it truly mystifying. I don’t claim to have particularly unique insight. I think it could be a combination of things. One is a generic belief that in order to run for president you have to think you’re going to win. You can’t do it otherwise. A second thing, and this is not so much about the rich guys as about the Republican Party in America, I think Republicans have felt since the time of Ronald Reagan that they are the party that represents the true America, and that the Democrats might sometimes win, but it’s kind of an aberration. And when it comes to the super-rich guy dimension, and I imagine this has happened to Obama as well, when you’re a rich and powerful guy, it can make it hard to see reality, especially when you’re paying your campaign staff great salaries, as Romney was.
EK: One explanation for the deteriorating relationship between Obama and this class of very, very rich folks is that it comes down to taxes. But in 2008, many of these same people supported Obama, and he said then, too, that he wanted to raise their taxes. Another explanation is that the dislike is personal: They feel that Obama doesn’t respect them, and so they hate him. Where do you come down?
CF: I think that it was both. I do think that Obama was particularly bad at dealing with these guys. Unnecessarily so. And I don’t really understand why. It’s of a piece with the general knock on him, which is that he’s too aloof. He was certainly aloof with his rich donors.
I’ve heard from people who worked in the White House that he doesn’t like rich people. I don’t actually think it’s true. I think he has a kind of Harvard Law School sense of kinship with these guys. He’s a member of the same technocratic elite. He could have taken that path. He has an admiration for those skills. But what he doesn’t have at all is a belief that the pure fact of having made a lot of money makes your views more valuable, or makes you more interesting or smarter than anyone else.
But remember, there are two different issues. One is, are you going to pay a higher tax bill? At the end of the day, rich people really don’t want to, and I think they’re finding they’re more averse to it than they actually thought they would be as it comes closer to reality. But second, iIthink what Obama has done is quite striking: he has said the economy isn’t working for everybody, and he has said it’s possible in this economy for economic acts to take place that are really good for a wealthy person and neutral or even bad for the middle class. The Bain Capital ads were such a lightning rod and so alienating even to some Democrats because they put that on the table. That is something no one has said in political power for 30 years. That is profoundly threatening for this group. It’s threatening politically, but it’s also emotionally and morally threatening.
I think the thing which has been so comfortable about being a member of the super-rich, especially in the United States, is that you have been able to feel that the act of becoming wealthy, absent everything else, was also an act of civic virtue. That’s so wonderful! You’re not just pursuing your own self-interest talking about lower taxes at the top but the collective self-interest.
EK: I’d add one dimension to that. From my reporting with the White House, I think the president’s view of the economy is that globalization is here and it’s not going away. The economy rewards high skills more than ever. Automatic and computerization and foreign competition are wiping out many middle class jobs, and while some new ones are created, it’s not at all clear that enough are being created. But in his view, he sees more redistribution as very necessary in this context. He thinks that if the economy is going to grow but the gains won’t be broadly shared, then it’s the government’s role to try and redistribute some, though of course not all, or even most, of those gains.
My experience is that the very rich are open to higher taxes in the context of a deficit deal. They like, or think they like, the Simpson-Bowles plan. They’re very friendly with Mayor Mike Bloomberg, who says he’d let all the Bush tax cuts expire. But they don’t like the idea that their money should be redistributed simply because they have too much of it. They don’t like the idea that, so to speak, they didn’t build all of this, and as such, they need to give back in order to make sure it continues. And so that’s part of the tension: They don’t like why Obama is raising their taxes. And they certainly don’t like the lack of admiration he’s showing while trying to do it. They see it as punishing their success.
CF: I completely agree. I think Obama and the economists around him have a very sophisticated understanding of both globalization and the technology revolution and the impact they’re having on the world economy and they way they’re creating these winner-take-all spirals. The positive scenario, which I think is a bit pollyannaish, is all you need to do is improve the education system and change the skill set and all will be well. And even that takes a lot of investment and a lot of time. But there’s actually the possibility that in order to have a healthy middle class, you’re going to need to have a more redistributive society, at least for awhile. I think that’s something the American super-rich don’t think about much. One guy who’s a liberal Democratic guy, who has worked in Washington for Democrats, who I quote in my book, he said to me, maybe this is how the world is. Maybe the 1950s were an aberration and the way the economy naturally works is this wide difference in distribution.
EK: As a general point, though, I imagine that’s somewhat scary to these guys. If the basic, positive-sum nature of economic policy is eroding, and we’re going to have fiercer political battles over who gets the spoils of growth, that’s got to be worrying. I imagine the very rich look out and think to themselves, there are more of them then there are of us. That seems to me to be the concern that’s beginning to break into the open with this talk of “gifts.”
CF: The happy way of reconciling that problem is to have an economy where the natural outcome of all of us working hard and being successful and all those good things leads to a more 1950s-style distribution. We’re more comfortable with that. Yes, the people with merit and inventiveness should be at the top, but we want the natural outcome to be harmonious. And the scary thing is, what if that’s just not how the economy will work for the next 20 or 30 years? What if even if we get education and economic policy and all the rest of it right, that we’re not there? Do you say, okay, the way it’s working now is not consistent with how we imagine this democracy should work and therefore we believe the rich should be taxed more aggressively to support the middle class? That’s a very different way of thinking about the economy and the social contract. And after Romney’s loss, the scary thing for the super-rich becomes actually maybe they’re not going to be the ones to decide.
EK: How much do these guys think about luck and privilege? You have this great quote in the book from Larry Summers, where he’s reflecting on the Harvard admissions process, and the question of whether you admit the kid who has learned Mandarin with his private tutor because, look, that kid learned Mandarin, or do you admit the kid who is alike in all other respects but whose parents could never have afforded a private Mandarin tutor?
CF: I think the issue of the kid is related to but separate of luck. There’s a question of do you buy the Malcolm Gladwell, Outliers theory of the world, or do you buy the manifest destiny, I-have-the-royal-jelly and you don’t view? There’s no one way of seeing the world, and different people are different, but for me, the most vivid statement of the royal jelly view came from Mikhail Khodorkovsky, who said if a man is not an oligarch, something is not right with him. The great thing about the Russians is they’ll say that kind of stuff directly. My suspicion is that’s a view quite a few of these people have.
We’re raised by our mothers not to brag too much, so that constrains the impulse to say that kind of thing, but I also think that especially for the guys who get to the billionaire level, they have a feeling, and perhaps it’s not an unjustified feeling, of having an extremely unique set of skills that sets them apart from everybody else, and it’s partly brainpower, but they all see it as crucially including an ability to judge and take risks and work very hard. They feel that that makes them stand out in an important way. I think also that a lot of them think that skills are transferable. That’s why a Bill Gates thinks the skillset it takes to found Microsoft is the skillset that can cure malaria.
Having said that, one thing I think is to what extent do you feel that the most important measure of value in society is accumulating a fortune. A lot of Americans think that’s really where it’s at. To get back to Romney, that’s where you get the belief that being successful in business qualifies you to be president. What’s interesting to me is that if you talk to the billionaires in other countries that have different social orders, you heard different views on this.
Yuri Millner, the Russian billionaire, set up a prize in theoretical physics where he gave three million bucks each to what he thought were the nine best theoretical physicists in the world. The reason he did that, he said, is that he thinks that the way our society allocates brainpower against work is not ideal. He thinks the work he does is kind of boring and humdrum and doesn’t make that much of a difference in the world but leads to these huge rewards, while in his view, the most defining and important work, the work that makes us human, is grappling with understanding the universe. George Soros will say that he thinks the most important human endeavor is to be a philosopher. You encounter that sentiment less often among the anglo saxons, because we’ve persuaded ourselves that the heroes of our social narrative our businesspeople.
EK: But the tension in that narrative, I think, is between the businesspeople and the do-gooders. As i read it, much of the fight between Obama and these financiers is the fight between the Ivy League kids who turned away from the money and went into do-goodery professions like community organizing and their roommates who went to Goldman Sachs and have always felt resentful of both the implied and explicit verdict that they sold out.
CF: I agree with that. I think what’s interesting is that division into the two tribes, the do-gooders and the moneymakers, leaves out the ideas pursuers. The only other thing I would say is that I think — and I don’t reject this view, I think there’s a lot of legitimacy to it — I think there is a view among many of these guys that says I am contributing more good to the world than 99.9 percent of NGO workers. I am a job creator.
You’ve probably talked to Ed Conard, the Bain Capital guy, and he expresses this very articulately: His argument is the highest and most important sphere of activity is the allocation of capital, that it’s hard to do, that the people who do it well need to be rewarded, and that that is actually what drives the improvements in society, more than a lot of this do-goody stuff. So it’s not solely a question of the business guys feeling they lose in the virtue stakes compared to their college roommates who became community organizers. I think some of them feel those people are just fooling around on the margins while they’re engaged in the real questions that save and shape the world.
Now, I think Obama very much saw the world in the way you describe it and made that choice not to make money and to instead try and make the world a better place. But in some ways, Romney made that choice, too. He could’ve gone and run the [Julian Robertson’s] Tiger funds, and instead he went and worked really hard to try and become president.
