Friday, May 18, 2012

A capitalist tells the truth

Nick Hanauer, an investor in Amazon among other businesses, tells the

truth. (Copy shamelessly stolen but I think he wants this idea to

spread, so I don't expect to find myself in intellectual property


"It is astounding how significantly one idea can shape a society and

its policies. Consider this one.

If taxes on the rich go up, job creation will go down.

This idea is an article of faith for republicans and seldom challenged

by democrats and has shaped much of today's economic landscape.

But sometimes the ideas that we know to be true are dead wrong. For

thousands of years people were sure that earth was at the center of

the universe. It's not, and an astronomer who still believed that it

was, would do some lousy astronomy.

In the same way, a policy maker who believed that the rich and

businesses are "job creators" and therefore should not be taxed, would

make equally bad policy.

I have started or helped start, dozens of businesses and initially

hired lots of people. But if no one could have afforded to buy what we

had to sell, my businesses would all have failed and all those jobs

would have evaporated.

That's why I can say with confidence that rich people don't create

jobs, nor do businesses, large or small. What does lead to more

employment is a "circle of life" like feedback loop between customers

and businesses. And only consumers can set in motion this virtuous

cycle of increasing demand and hiring. In this sense, an ordinary

middle-class consumer is far more of a job creator than a capitalist

like me.

So when businesspeople take credit for creating jobs, it's a little

like squirrels taking credit for creating evolution. In fact, it's the

other way around.

Anyone who's ever run a business knows that hiring more people is a

capitalists course of last resort, something we do only when

increasing customer demand requires it. In this sense, calling

ourselves job creators isn't just inaccurate, it's disingenuous.

That's why our current policies are so upside down. When you have a

tax system in which most of the exemptions and the lowest rates

benefit the richest, all in the name of job creation, all that happens

is that the rich get richer.

Since 1980 the share of income for the richest Americans has more than

tripled while effective tax rates have declined by close to 50%.

If it were true that lower tax rates and more wealth for the wealthy

would lead to more job creation, then today we would be drowning in

jobs. And yet unemployment and under-employment is at record highs.

Another reason this idea is so wrong-headed is that there can never be

enough superrich Americans to power a great economy. The annual

earnings of people like me are hundreds, if not thousands, of times

greater than those of the median American, but we don't buy hundreds

or thousands of times more stuff. My family owns three cars, not

3,000. I buy a few pairs of pants and a few shirts a year, just like

most American men. Like everyone else, we go out to eat with friends

and family only occasionally.

I can't buy enough of anything to make up for the fact that millions

of unemployed and underemployed Americans can't buy any new clothes or

cars or enjoy any meals out. Or to make up for the decreasing

consumption of the vast majority of American families that are barely

squeaking by, buried by spiraling costs and trapped by stagnant or

declining wages.

Here's an incredible fact. If the typical American family still got

today the same share of income they earned in 1980, they would earn

about 25% more and have an astounding $13,000 more a year. Where would

the economy be if that were the case?

Significant privileges have come to capitalists like me for being

perceived as "job creators" at the center of the economic universe,

and the language and metaphors we use to defend the fairness of the

current social and economic arrangements is telling. For instance, it

is a small step from "job creator" to "The Creator". We did not

accidentally choose this language. It is only honest to admit that

calling oneself a "job creator" is both an assertion about how

economics works and the a claim on status and privileges.

The extraordinary differential between a 15% tax rate on capital

gains, dividends, and carried interest for capitalists, and the 35%

top marginal rate on work for ordinary Americans is a privilege that

is hard to justify without just a touch of deification.

We've had it backward for the last 30 years. Rich businesspeople like

me don't create jobs. Rather they are a consequence of an eco-systemic

feedback loop animated by middle-class consumers, and when they

thrive, businesses grow and hire, and owners profit. That's why taxing

the rich to pay for investments that benefit all is a great deal for

both the middle class and the rich.

So here's an idea worth spreading.

In a capitalist economy, the true job creators are consumers, the

middle class. And taxing the rich to make investments that grow the

middle class, is the single smartest thing we can do for the middle

class, the poor and the rich.

Thank You.

Nick Hanauer"


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