This is a response to an excerpt from Chrystia Freeland's Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else, published in October by Penguin Press.
Nick Hanauer is a successful entrepreneur and the author of Gardens Of Democracy: A New American Story Of Citizenship, the Economy, and The Role Of Government.
It’s great to be what you people are now calling a plutocrat. I know. I am one.
We plutocrats live incredible lives, surrounded by luxury and insulated from risk and discomfort. Things have gone very well for us over the last several years. Since George Bush left office, the stock market has doubled, we got a (sweet!) $700 billion rescue of the financial system, and corporate profits are at a 50-year high. BOOYA!
The growing economic distance between people like me and the little people like you hasn’t been this great in a long, long time. You may call that inequality. We call it freedom. But if things are going to continue to go this well, you people need to get with the program. Here, I’d like to have a frank discussion about that.
It is something of a puzzle to many of you little people why we plutocrats, who have benefitted most from these trends, view President Obama with such intense disdain. Why, you might ask, given how good the economy has been to you plutocrats, are you so maniacally angry?
“Maybe,” you say to yourself, “I just don’t understand economics.” I’ll let you in on a little secret. You understand economics just fine. What you don’t understand is that this fight isn’t about economics. It’s about status, privileges and power.
People like me don’t hate Obama because he’s going to raise our taxes, although we hate that plenty. We hate him because his views about the importance and primacy of the middle class diminish our status. The threat he represents isn’t economic; it’s existential. It’s not just our pocket books that are threatened, but, more importantly, our prestige and our influence on this country. Our manhood is at stake.
Facts are for little people.
We plutocrats have a long and proud history of controlling human societies, and the belief systems that we create about how the world works enable us to do that. “Earth is the center of the solar system” was a useful one for us in the past. “Lowering taxes on the rich produces growth” is one of our current favorites. You show me an orthodox belief, and I’ll show you plutocrats who benefit from it.
We understand human nature well enough to know that people believe and accept ideas for all sorts of reasons, but rarely because of facts or evidence. Mostly, people believe what suits them, what makes them feel good. And what makes us feel good is a set of beliefs that reinforce our status, privileges and power.
So it’s both annoying and hilarious that you people think you’re going to be able to talk us out of being plutocrats with “evidence” or “facts”. Our current position and power is the only fact we care about. And we viscerally hate anyone who has the temerity to challenge it.
When Jack or Mitt or I call ourselves “Job Creators”, it isn’t because it’s true or that there is any evidence for it. It’s because being a job creator puts us right at the center of the economic universe – where we deserve to be. This belief system isn’t just convenient to us, although it is. It’s essential in order to justify our status and power.
We used to call this divine right. Today we call it “economics”.
You say democracy. We say plutocracy.
You need to understand that as job creators, at the center of the economic universe, the better we do, the better it must be for you. In particular, the richer we get and the less constrained by law and regulation we are, the more jobs will trickle downward. Basically, the less we plutocrats contribute to society in tax, and the less constrained we are, the better it is for you and everyone else. And you thought we didn’t care!
You need to accept as fact the idea that all prosperity trickles down from the top. That means that, economically speaking, we plutocrats matter. It also means that you don’t matter. Tax cuts for the rich create growth and jobs. Investments in the middle class and the poor balloon the deficit and will bankrupt this great country. National budget priorities that reflect this will be great for you and your family. Really.
A bard once said that plutocrats hate regulation for the same reason that robbers hate cops. That’s a cheap shot, and underappreciates the sophistication of our argument. Since we are the “job creators”, any restraint on us necessarily decreases the jobs that trickle down to you. That’s why we deserve a free hand to run the country in whatever way suits us best. You show me a country with limited government and regulation, and I’ll show you some happy plutocrats busily “job-creating”.
Get With The Program!
So what’s puzzling you about why we hate Obama? He’s in our way. And that’s a much bigger threat to us than higher tax rates. Our incredible sway over politics, the economy and culture is being challenged.
Repeat after me. You sir, are a job creator and the richer you get, the better off my family will be. Regulation is bad, and the less of it we have, the better off my family will be. Never forget these things. And never forget that the rising inequality you see all around isn’t a sign of decay. It’s a sign of prosperity. Get with the program. Now. Or we will fire you.
SEE ALSO: Finally, A Rich American Destroys The Fiction That Rich People Create Jobs
Finally, A Rich American Destroys The Fiction That Rich People Create The Jobs
https://www.businessinsider.com/rich-people-do-not-create-jobs-2011-12?
Henry Blodget Dec 12, 2011, 10:38 AM EST
America's real job-creators...who can't afford to create any jobs.
In the war of rhetoric that has developed in Washington as both sides blame each other for our economic mess, one argument has been repeated so often that many people now regard it as fact:
Rich people create the jobs.
Specifically, entrepreneurs and investors, when incented by low taxes, build companies and create millions of jobs.
And these entrepreneurs and investors, therefore, the argument goes, can solve our nation's huge unemployment problem — if only we cut taxes and regulations so they can be incented to build more companies and create more jobs.
In other words, by even considering raising taxes on "the 1%," we are considering destroying the very mechanism that makes our economy the strongest and biggest in the world: The incentive for entrepreneurs nd investors to build companies in the hope of getting rich and, in the process, creating millions of jobs.
Now, there have long been many problems with this argument starting with
- Taxes on rich people (capital gains and income) are, relative to history, low, so raising them would only begin to bring them back in line with prior prosperous periods, and
- Dozens of rich entrepreneurs have already gone on record confirming that a modest hike in capital gains and income taxes would not have the slightest impact on their desire to create companies and jobs, given that tax rates are historically low.
So this argument, which many people regard as fact, is already flawed.
But now a super-rich and super-successful American has explained the most important reason the theory is absurd, while calling for higher taxes on himself and people like him.
The most important reason the theory that "rich people create the jobs" is absurd, argues Nick Hanauer, the founder of online advertising company aQuantive, which Microsoft bought for $6.4 billion, is that rich people do not create jobs, even if they found and build companies that eventually employ thousands of people.
What creates the jobs, Hanauer astutely observes, is a healthy economic ecosystem surrounding the company, which starts with the company's customers.
The company's customers buy the company's products, which, in turn, creates the need for the employees to produce, sell, and service those products. If those customers go broke, the demand for the company's products will collapse. And the jobs will disappear, regardless of what the entrepreneur does.
Now, of course entrepreneurs are an important part of the company-creation process. And so are investors, who risk capital in the hope of earning returns. But, ultimately, whether a new company continues growing and creates self-sustaining jobs is a function of customers' ability and willingness to pay for the company's products, not the entrepreneur or the investor capital. Suggesting that "rich entrepreneurs and investors" create the jobs, therefore, Hanauer observes, is like suggesting that squirrels create evolution.
(Or, to put it even more simply, it's like saying that a seed creates a tree. The seed does not create the tree. The seed starts the tree. But what creates the tree is the combination of the DNA in the seed and the soil, sunshine, water, atmosphere, nutrients, and other factors that nurture it. Plant the seed in an inhospitable environment, and it won't create anything. It will die.)
So, then, if what creates the jobs in our economy is, in part, "customers," who are these customers? And what can government policy do to make sure these customers have more money to spend to create demand and, thus, jobs?
The customers of most companies, Hanauer points out, are ultimately the gigantic middle class — the hundreds of millions of Americans who currently take home a much smaller share of the national income than they did 30 years ago, before tax policy aimed at helping rich people get richer created an extreme of income and wealth inequality not seen since the 1920s.
The middle class has been pummeled, in part, by tax policies that reward "the 1%" at the expense of everyone else.
(It has also been pummeled by globalization and technology improvements, which are largely outside of any one country's control.)
But, wait, aren't the huge pots of gold taken home by "the 1%" supposed to "trickle down" to the middle class and thus benefit everyone? Isn't that the way it's supposed to work?
Yes, that's the way it's supposed to work.
Unfortunately, that's not the way it actually works.
And Hanauer explains why.
Hanauer takes home more than $10 million a year of income. On this income, he says, he pays an 11% tax rate. (Presumably, most of the income is dividends and long-term capital gains, which carry a tax rate of 15%. And then he probably has some tax shelters that knock the rate down the rest of the way).
With the more than $9 million a year Hanauer keeps, he buys lots of stuff. But, importantly, he doesn't buy as much stuff as would be bought if that $9 million were instead earned by 9,000 Americans each taking home an extra $1,000 a year.
Why not?
Because, despite Hanauer's impressive lifestyle — his family owns a plane — most of the $9+ million just goes straight into the bank (where it either sits and earns interest or gets invested in companies that ultimately need strong demand to sell products and create jobs). For a specific example, Hanauer points out that his family owns 3 cars, not the 3,000 that might be bought if his $9+ million were taken home by a few thousand families.
If that $9+ million had gone to 9,000 families instead of Hanauer, it would almost certainly have been pumped right back into the economy via consumption (i.e., demand). And, in so doing, it would have created more jobs.
Hanauer estimates that, if most American families were taking home the same share of the national income that they were taking home 30 years ago, every family would have another $10,000 of disposable income to spend.
That, Hanauer points out, would have a huge impact on demand — and, thereby job creation.
It's time we stopped mouthing the fiction that "rich people create the jobs."
Rich people don't create the jobs.
Our economy creates jobs.
We're all in this together. And until we return to more reasonable tax policies that help the 99% instead of just the 1%, our economy is going to go nowhere.
