November 2007, Wealth Manager
Are the wealthy part of the solution after all?
By James Picerno
Hunter Lewis is an unlikely candidate for questioning
wealth in the world’s pre-eminent bastion of capitalism.
As co-founder of the 34-year-old global investment firm
Cambridge Associates, he’s achieved more than a
modest helping of personal and professional success in
the business of advising institutional and high-net-worth investors.
Lewis wouldn’t be the first rich guy to turn on
his class, but he does nothing of the kind. His
new book—Are The Rich Necessary? Great Economic
Arguments and How They Reflect Our Personal Values
(Axios, 2007)—is far more nuanced than its
provocative title suggests. This is no screed on
the evils of wealth. Readers are given a brief but
engaging tour of the by now familiar economic
debates that radiate from both sides of the political
spectrum. But that’s only a prelude to the book’s finale: Society
has more to gain than lose by engaging wealthy individuals
in the cause of economic growth for all—especially
for those who need it most.
Dispensing with the usual prescriptions that
bounce between free markets and socialism,
Lewis asserts that America needs a new economic/
political model—nothing radical, but
an adjustment just the same. The fourth way,
as he calls it, can be achieved with a modest
tweaking of the tax code. The goal: Expanding
the power and reach of the non-profit sector
by drawing on the resources of wealthy individuals
in a more enlightened, efficient way
that’s as oriented to results as it is mindful of
economic history’s lessons.
The book considers how values and ethics
can partner with the cold, hard facts of the dismal
science in the name of a greater good. That
by itself is hardly a new idea, although Lewis manages to breathe
some fresh air into the subject. He doesn’t preach so much as re-
flect, using history as a guide. In the process, he remains a realist,
admitting that his ideas may take time to resonate, if ever. But
Lewis is a hopeful realist, and one with an eye on economics and
its next generation of stewards.
Part of Hunter’s motivation for writing the book springs from
wondering how today’s children will fare once they inherit what
promises to be the greatest transfer of generational wealth in history.
That includes his two young children, who were “very much
in mind” when he put pen to paper.
In the end, economic theories can be studied, assets can be managed,
and goals can be set, but the decisive variable for success or
failure remains homo economicus. Economics “now and always,
[is] an intellectual, moral, and material battlefield,” he writes. And
for 200-plus pages, Lewis is a general navigating the combat zone.
When the rhetorical dust clears, he dispatches the spoils of his war.
The rich, he concludes, are necessary after all.
Q: Your book’s title asks if the rich are necessary.
What’s the answer?
A: I acknowledge in the book that the Robin Hood argument is pretty
effective. That is, the rich have so much money while others have
almost nothing, and if we take money from those who have so
much and give it to those who don’t, things will be better for the
poor. It’s hard to argue with that as presented.
But then I explore all the reasons why the rich are necessary. And
one that I emphasize is that the rich are able to save and invest.
Poor people by definition can’t save. Middle class people can save
for a while but then they have to spend it eventually. The government
certainly spends. That leaves rich people who have so much
that they can’t spend it all; they have to save, they have to invest.
That’s sort of the pivotal role for rich people.
Q: What are you trying to accomplish with your book?
A: If we’re going to make any progress as a country, we need to
understand economics, and we need to work on developing
some values that we can agree on. My number-one goal is to
take economics, a subject that everyone thinks is very hard—
and some people think it’s boring because it’s hard—and make
it very easy to understand and to reveal how fascinating it
really is. That has a bearing on the high-net-worth area particularly
because if you have children, as I do, and if they’re
going to inherit any money, you want them to understand
about money. You want them to understand the social role
that money plays and you want them to develop their own
Q: Sounds like a plan for cutting government services.
A: Cut back on services, but those services would be picked up
by the charitable sector, which would do so without all the
bureaucratic rules and so on. Welfare, Medicaid—all of these
things can be provided by the non-profit sector instead of by
Q: How would the fourth way be established?
A: It can be done very easily through some rather minor changes
in the tax code by redirecting money straight to charities. It
wouldn’t go to the government in the first place; the government
wouldn’t be a grant maker. That’s better because you could promote
an entrepreneurial culture [in the world of charitable giving].
If the wealthy receive tax credits, they’ll give a lot of money
to charity. That’s the policy proposal.
It’s a change in the tax code, but it’s a fundamental change
in how government works. The non-profit sector would do a lot
more of what government’s doing with the money that would
have otherwise gone, through graduated income taxes, to the
government. We’re only talking about [redirecting] the money
the government takes from the upper tax brackets.
In the process, I’d also like to see entrepreneurs have more control
over their own charities than the rules now permit.
Q: Why is that important?
A: If you have a private foundation, the current tax rules don’t want
you to make the foundation a partner in your business. I think
that’s wrong. An entrepreneur should be encouraged to make a
private foundation a major partner in his or her own business and
therefore, in his or her own success.
For example, the rules don’t allow a private foundation to own
too much of an individual’s business. But if I’m an entrepreneur,
and I build a business, it would be better if I could give my own
company’s stock to my private foundation.
Q: How would that make a difference?
A: First, the foundation would benefit from an entrepreneur’s success.
Second, the entrepreneur would think of the private foundation
as part of what he’s doing. He’s making money; he’s also
giving away money. It’s all part of the same process.
Another example: The IRS encourages as broad and diverse a
board as possible in a non-profit foundation. But I don’t think it’s
a bad thing to have a family controlled foundation. It gives the
family an incentive to work hard at building up the assets of the
foundation and giving away the money in the most intelligent
and creative way possible.
Q: How does the estate tax factor into your fourth way approach?
A: The estate is the accumulated savings of a lifetime. Instead of taxing
that away to the government, which immediately spends the
money, it could be given to a charitable organization and kept as
an endowment. Then the savings would be preserved, and those
savings and investments would continue instead of being completely
What I’m saying with the fourth way is: If you can’t agree on
whether you want an estate tax or not, at least take the money
that would have gone to the estate tax and let it be given to charity
through a tax credit.
Q: A critic might say that your proposals sound like Republican
ideas that favor the rich.
A: Democrats believe in charitable giving just as much as Republicans
do. Hopefully, I think that what distinguishes the book is
that it’s neither a Republican nor Democratic proposal. The idea
is to get away from the incredibly unproductive arguments we’ve
been having between Republicans and Democrats.
Q: What’s the message in all of this for wealthy individuals?
A: The most important point is offering a way to educate their
children. If their children don’t have some idea about money,
and some sense that it’s an interesting topic, then the kids aren’t
going to be very good stewards of the money they inherit.
Q: Is it easier to find common ground these days on the issues
you’re talking about?
A: I think it’s worse. There’s less of a consensus now than there’s
almost ever been—other than, say, in the Civil War. That’s
a major problem, and a lot of it is just economic ignorance.
One example: If you ask people in polls whether they’d like to
have free health care, they say, “Yes, we’d like to have free health
care.” That reminds me of the P.J. O’Rourke joke: If you think
health care’s expensive now, just wait till it’s “free,” and then
you’ll see how expensive it can be. That’s an example of how
people don’t understand economics. People can’t be effective
as voters and policy makers without a basic understanding of
economics, which I hope the book starts to offer.
Q: Presumably, you’ll be passing on a fair amount of wealth to your
A: My children are 10 years old—I have twins. When I wrote the
book, they were very much in mind. They were getting almost
old enough to understand this, and I wanted them to have the
book as a resource.
Q: In the context of the issues we’re discussing, what are the
stakes in the years to come?
A: The United States is in real jeopardy of losing its pre-eminent
position in the world through economic mistakes that aren’t understood
in any significant sense by the President, the Senate or
Congress. They can’t even evaluate the issues.
One issue that really concerns me right now is that the Federal
Reserve has done a very bad job under Greenspan, and now
under Bernanke. The Fed’s been creating excessive amounts of
new money, which has led to the bubbles—the dot-com bubble
and now the housing bubble, the private equity bubble and so
on. That’s a major worry, and it’s compounded when I hear President
Bush say at a press conference, “I’m not an economist.” It
goes back to the primary purpose of the book, which is to teach
economics. Policy makers need to understand economics just
as our children do.