Wall Street has never been particularly popular in the American imagination, but the recent growth of conservative populism threatens to erode its position even further. A case in point is a new think tank, American Compass, run by Oren Cass, a former policy director for Mitt Romney. One of its first major projects -- "Coin-Flip Capitalism" -- concludes that investment funds, like private equity and venture capital, are socially wasteful.

A primer on Coin-Flip Capitalism, published in May, reviews the returns of various funds over the past decade and concludes that "most fund managers are generating the results that one might expect from an elaborate game of chance -- placing bets in the market with odds similar to a coin flip."

The report laments that "the nation's top business schools have sent nearly thirty percent of their graduating classes into finance," where these people "invent, create, build, and provide nothing." Barack Obama has made a similar point, writing in the Economist that "too many potential physicists and engineers spend their careers shifting money around in the financial sector, instead of applying their talents to innovating in the real economy."

There is a fatal flaw in this analysis. Consider the case of private-equity buyout funds, one of the targets of right-wing populists. While Mr. Cass and company claim they are interested in social value, they look at returns net of fees, that is, after paying the fund managers for their services. While this is the appropriate metric for the decision about whether an individual should invest, what matters for society is how much wealth they create above the next-best alternative.

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