It’s one thing when one of the world’s wealthiest capitalists argues that he is not being taxed fairly because he is not being taxed enough, as Warren Buffett did last August. But it’s quite another when a wealthy capitalist explains why the kind of gross inequality of income the U.S. now has is actually bad for business. That’s what Nick Hanauer did in a TED University talk last month about “job creators”: “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 [emphasis added].”
Hanauer is a super-wealthy venture capitalist who was an early investor in Amazon.com and founded a couple of internet start-ups that were bought by Overstock.com and Microsoft – the latter for a tidy $6.4 billion. In his TED talk he denied being a “job creator,” and with directness, humor, and plain-spoken common sense, he attacked the notion that folks like him create jobs. It’s only 6 minutes long, but it sparked an internet fury when TED refused to post the speech on its web site, as it ordinarily does. Time Magazine’s links-rich retrospective of the controversy that forced TED to post the speech can bring you up-to-date if you didn’t know about it.
Certifiably successful capitalists (and Buffett and Hanauer make Republican Presidential Nominee Mitt Romney’s $250-million net wealth look mediocre) arguing that they should be taxed more is the classic man-bites-dog story that is supposed to attract journalists. In both cases Buffett and Hanauer did eventually get a fair amount of attention, but only because they are savvy entrepreneurs who made extraordinary efforts to get that attention. Once attended to, however, they are treated as outliers, interesting personalities, eccentric curiosities – sort of like men who bite dogs – rather than initiating discussion about the issues they tried to raise.
Who or what creates jobs? How could our tax system be fairer – and simpler? And what is the connection between jobs and taxes? These are big issues that should be at the center of the political debate in this year’s election, as the two mainstream political parties have very different answers to them.
First, there is a sense in which capitalists – whether investors, owners, or top management – do create jobs. They make decisions to start or expand businesses that require new employees. The question is why they decide to start or expand businesses. Is it because they have a lot of spare money, or is it because they think they can sell lots more of the product or service they provide, thereby making a handsome profit? In general, both spare money and profit opportunities based on potential consumer demand are necessary. But what is more necessary at any given time varies in specific economic circumstances, and the question becomes an empirical one about our current circumstance. Here’s where facts and figures matter, and we are fortunate to have an extremely clear set of them to answer these questions.
There is lots and lots of spare money in the hands of rich people and corporations, so much that they don’t know what to do with it all, and there’s not enough in the hands of workers and consumers. This could be a temporary situation based on the continuing slow growth of the Great Recession, but the well-documented huge and growing inequality of income in the U.S. clearly suggests that there is a long-term and worsening problem of insufficient consumer demand. When the top 10% get about half of all income, with the top 1% getting the lion’s share of that, the bottom 90% does not have sufficient income to provide the consumer demand that would provide enough profitable opportunities for capitalists to use their spare money to expand businesses and, thereby, create jobs. This is what Nick Hanauer means when he says “the true job creators are consumers,” not “capitalists like me.”
The Republican economic program – whether Mitt Romney’s, the Ryan Plan that was passed in the House of Representatives more than once, or the approach of GOP state governors such as Wisconsin’s Scott Walker – responds to a diagnosis of the problem that will not stand empirical scrutiny. Reducing taxes on corporations and wealthy individuals assumes that capitalist “job creators” are not creating enough jobs because they do not have enough spare money, which is clearly not the case. Massive, if largely unspecified, cuts in government spending at all levels will further reduce total demand (the sum of consumer, investor and government spending) and, thereby, economic growth. The combination of cutting these taxes and government spending will further worsen income inequality, making the insufficiency of consumer demand even worse – initiating a new and potentially “greater” recession, as it has in England.
The Democratic economic program – from President Obama’s weak and late-arriving American Jobs Act plus the tax plan in his 2013 Budget to the full-throated Congressional Progressive Caucus’s People’s Budget – increases taxes on top earners and increases government spending for a wide variety of activities that would increase the number of jobs and, thereby, overall consumer spending power. It assumes that rich people and corporations have enough spare money and that workers and consumers need more.
These are startlingly different directions. They cannot both be right, and compromise between them, besides being very difficult, would likely involve dilution not correction. But these are the choices we face this year as American voters. Both facts and logic favor the Democrats, but that will matter only if they, and especially the President, have the wit and courage to insist on explaining them to so-called “low-information voters.” So far the President has favored gimmicks like the Buffett Rule rather than clear explanations of why a thorough redistribution of wealth and income is necessary and in the common good. The President and other Democrats need to make their economic case clearly and boldly. They should not wait for the occasional capitalist superstar to bite a dog.
Chicago Working-Class Studies