Adam Davidson has a piece in the Sunday NYT magazine on Mitt Romney's former business partner, Edward Conard and his new book, Unintended Consequences. 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. The difference in output would have been trivial.

(I have a review of Conard's book on Huffington Post.)

[Thanks to Arthur Munisteri for spelling correction.]

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