The Milken Institute Global Conference, the annual talkfest for the financial elite at a posh hotel in Beverly Hills, is usually shot through with references to lifting up the downtrodden and making capital work for the common good.
This year, however — perhaps brought on by the election of Alexandria Ocasio-Cortez and the increasingly leftist tenor of the 2020 Democratic presidential field — there was also a hint of panic.
America’s wealthiest would suffer financial losses if some of those leaders had their way. Sen. Elizabeth Warren has called for a new tax on Americans with assets of $50 million or more in an attempt to help close the United States’ widening wealth gap. The Green New Deal, written by Ocasio-Cortez and Sen. Ed Markey, calls for a nationwide green upgrade for all US buildings and the phasing out of both fossil fuels and more carbon-intensive forms of agriculture, which right now are a big business in America. Proposals like aggressive antitrust regulation and crackdowns on stock buybacks are now mainstream ideas on the left.
“You’re seeing people talking about redistribution of wealth, the fact that earnings for X number of employees isn’t there,” said Jason Greenberg, managing director of the investment banking firm Jefferies. “By popular vote or by regulatory fiat, you could very easily see a world in which corporate profitability goes down. That will maybe touch the rest of the pie.”
Despite the economy’s apparent health, the fund managers and investors on stage seemed cognizant that the US is reaching gilded-age levels of inequality, and even yearned for a leader like Franklin Roosevelt to knit the nation back together.
“Roosevelt was the savior of his class. If it hadn’t been for Roosevelt, we would probably have spilled into socialism,” said Scott Minerd, global chief investment officer at Guggenheim Partners. “The reality today is, we are coming to a juncture where we are going to have very radical changes unless business and others step up and do something.”
The tagline of the conference was “Driving shared prosperity,” and attendees rattled off statistics about income disparities and access to health care, emergency savings and rental burdens. All of that, they said, is leading the youth of today down the road to socialism — and something has to be done.
“If you look at the right wing and the left wing, what’s really coming is class warfare,” said Alan Schwartz, executive chairman of Guggenheim Partners, who warned that debating the merits of socialism versus capitalism — rather than focusing on improving capitalism — can lead to a revolution.
In that regard, at least, Milken attendees agree with the progressive left: Capitalism has left many people out of America’s economic recovery. That’s leading more people to consider alternative economic and political systems, whether it’s Bernie Sanders’ soak-the-rich collectivism or Donald Trump’s populist nationalism.
Their diagnosis of the roots of the problem, however — as well as their proposed solutions — couldn’t be more different. And the analysis that Americans find most believable will likely determine who runs the country after 2020.
Wealth is a problem? Or a goal for everyone to aspire to?
The left, of course, has many explanations for the widening gap between rich and poor.
Among them: Globalization, automation and the decline of unions have weakened workers’ bargaining power. Corporate consolidation has sucked the vitality out of local communities. A generation of tax cuts has undermined social safety nets and the public investments needed to knit communities together.
Meanwhile, the progressive left also blame the well-off for abandoning public education and starving the system of resources. Contracting and franchising, progressives say, have destroyed the obligation that public-facing brands used to feel for their workers. Weak campaign finance enforcement has allowed business lobbies to optimize the laws in their favor. To some on the new left, the existence of extreme wealth is in itself a problem. “Every billionaire is a policy failure,” the mantra goes.
For the Milkenites, wealth is a goal for everyone to aspire to, not a problem to be solved. The real problem, they say, is much simpler: It starts with government mismanagement, and ends, mostly, with better equipping people to take part in the miracle of the free market.
For example, in a Tuesday afternoon conversation with Michael Milken, billionaire hedge funder Ken Griffin traced the discontent to what he characterized as government housing subsidies overinflating first the mortgage market — leading to the financial crisis — and then student loans.
“You’re looking at a generation of students who are completely disillusioned with their economic prospects, combined with the extraordinary cost of education, courtesy of the US government,” he said.
(In fairness, there’s plenty of evidence to show that the rising sticker price of public higher education is due in large part to falling support from state governments, and the claim that Fannie and Freddie caused the housing crisis was rejected by the Financial Crisis Inquiry Commission.)
Rather than reforming capitalism itself, or calling for any forced redistribution of wealth, those on stage at the Milken Conference usually advocated for remedies that wouldn’t require the rich to give up anything involuntarily. America’s top banking regulators trumpeted how their lighter-touch rules would help banks reach those without much money to put aside, and how their financial literacy programs would teach the poor to get ahead. There was a heavy emphasis on public-private partnerships in everything from criminal justice reform to infrastructure finance, and a re-orientation from traditional colleges toward workforce education — which also benefits businesses by providing them with well-trained employees.
“My question is, do we need to challenge capitalism and the market to deal with the inputs of getting people prepared to take the benefits of society, rather than the system itself?” Milken asked during the conference’s closing panel.
Rather than provide more funding for public schools, Milken said that wealthy individuals should personally assume the costs of educating promising young people, and then take a cut of their lifetime earnings. “I’m now highly motivated to make sure you’re successful, because I’ve just invested in you,” MIlken said.
Saving the world, sacrifice-free
The same dynamic plays out when it comes to climate change.
There’s agreement with the left on the symptoms, and the need for action. Extreme weather will lead to drought and food insecurity, which could in turn lead to war — and the type of geopolitical instability that roils markets. Super-storms will damage homes and infrastructure and displace people. All of these are a strain on the economy, and for companies, they represent uncertainty and volatility in their supply chains.
But fighting climate change isn’t cheap — at least, not as cheap as maintaining the status quo, for now. And Wall Street still doesn’t see the risk.
“I don’t think the markets are pricing in the cost of climate change because we’re too short-term oriented,” said Christopher Ailman, chief investment officer for the California State Teachers’ Retirement System and co-chair of the global capital markets advisory council at the Milken Institute.
When it comes to policy solutions to climate change, while the left has proposed both massive public investment in green infrastructure and a steep price on carbon, speakers from industry and conservative academia defaulted to technological fixes and individual actions requiring nobody to reduce energy consumption — or production — against their will.
“Some of what is being proposed in pursuit of a green economy implies a drastic reduction of what we view as economic freedom,” said Niall Ferguson, senior fellow at Stanford’s Hoover Institution. “How do you really prevent humanity as a whole from emitting massive amounts of carbon dioxide without massive amounts of coercion?”
While on the surface it may appear that America’s investor class is seriously questioning the system that made them wealthy, when pressed on the solutions, they’re a long way away from wanting to fundamentally change it.