“Job Creators” and “Capitalists Like Me”

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.

Jack Metzgar

Chicago Working-Class Studies



Expanding Inequality

In a series of articles in Slate this fall, Timothy Noah traced the growth of income inequality in America and identified several contributing factors: the decline of organized labor, the poor quality of K-12 education, and various government policies among others.  He reviewed the arguments of economists and policy analysts, and he considered – and rejected — claims that economic inequality doesn’t matter.  As British scholars Richard Wilkinson and Kate Pickett argue, economic inequality is bad for all of society, not just those who are struggling to survive on the bottom.  Nicholas D. Kristof summarized their argument in his column in yesterday’s New York Times:  “inequality undermines social trust and community life, corroding societies as a whole.”

Inequality matters, in other words, and not only on moral grounds.  The productive functioning of our society, for everyone, rich and poor, depends on reducing the level of economic inequality.  But given recent trends in employment, education, and public policy, the income gap won’t decrease anytime soon.  In fact, it’s likely to get worse.  Here’s why.

First, as Jack Metzgar and I have both noted here in previous blogs, the working-class jobs of the present and future are, increasingly, low-wage service-sector jobs.  Moreover, according to the Bureau of Labor Statistics, we’re going to see more and more of those kinds of jobs.  Combine the growth of such jobs with the decline of the labor movement – the social institution that has, historically, contributed most to higher wages and better benefits for all workers, not just union members – and it’s easy to see how these emerging employment patterns will contribute to more inequality, not less.  Simply put, workers will earn less and have limited social or legal resources with which to advocate for better wages and benefits, much less better working conditions or fair treatment in the workplace.

As a society, we don’t seem worried about this emerging trend.  Perhaps we accept low wages because we believe that they make goods and services more affordable, or because we buy the claim that paying higher wages would cripple businesses.  We forget, though, that these advantages, to both consumers and employers, come at a cost in taxes. A California study found that Walmart workers cost the state $86 million a year in public assistance.   But the Ohio Legislature recently defeated a bill that would identify companies whose employees rely on public assistance, and supporters were accused of being anti-business.

We may also accept low wages because we believe that those who work in low-paying jobs deserve what they get. America is supposed to be the land of opportunity, and we believe that anyone who tries hard enough should be able to get a good job.  After all, if you had been smart or hard-working enough, you’d have gone to college, which would give you access to a better-paying job, right?

While it’s true that getting a college degree correlates with higher lifetime earnings, and earning a degree does help individuals get ahead, economic inequality is a systemic problem, one that can’t be solved by increasing higher education alone. If most of the job growth over the next few decades is in low-wage jobs that don’t require higher education, then education won’t reduce economic inequality.

Education can even contribute to inequality.  The poor quality of K-12 education available to most poor and working-class students helps perpetuate inequality in this country. Too many schools simply don’t do a good enough job preparing these students for either employment or further education, much less to participate well in civic society or advocate for their interests.

Many working-class people who do seek college degrees or further training encounter two key problems: they get sucked into for-profit schools that leave them in debt, often without yielding good employment, or they enter the public higher education system, which is battling budget cuts and overcrowding.

For many working-class and poor students, the best educational option is community college, which offers training for the workplace at an affordable cost and helps prepare students to go on to four-year degrees.  If these schools could accommodate all of those students, they might improve their economic chances – though, again, that wouldn’t solve the underlying problem of too many jobs that pay too little. But community colleges across the country are facing budget cuts and having to turn away motivated students.

Which brings us to the next reason why economic inequality will grow over the next decades: government policies that provide less support for the poor and working class, including cuts to higher education.  According to a recent report in the Washington Post, community colleges in California alone have had to turn away 140,000 students because of budget cuts.  Even when space is available, cuts in state funding often yield tuition increases, making higher education less affordable for those who need it most.

Of course, this reflects economic trends: state budgets are in trouble.  That’s partially due to the struggling economy, and they’re losing federal support as the stimulus ends.  But they are also taking in less revenue because of tax cuts.  According to the Center on Budget and Policy Priorities, 46 states have cut taxes in recent years.  Taxpayers have pushed for lower taxes, and politicians tout them as a way of stimulating the economy by making states more “business friendly,” garnering votes along the way.  Never mind that it doesn’t work, according to economists Iris J. Lav and Robert Tannenwald.  It’s also a sleight of hand trick: we may pay less taxes as workers and citizens, but we make up the difference in what we pay for college tuition, as well fees on various state services (such as drivers’ licenses and car registrations).

And as Noah points out, income inequality has grown more during Republican administrations than during Democratic ones.  Why?  Because conservative policies favor the wealthy.   Noah notes, for example, that the real tax rate for the wealthiest Americans declined from 42.9% under Carter to just 4.3% under George W. Bush.  Republicans claim that putting more wealth at the disposal of business owners will generate more jobs and income increases for the rest of us, but in fact, most people’s incomes increase more slowly when Republicans run things than when Democrats are in charge.  Not surprisingly, the only people whose incomes increase at a faster rate under Republicans are those in the top 20% of income brackets.

Which suggests a final reason why we should expect more inequality in coming years:  the Republicans regained power in the November election – not full control, but enough to push through continuing tax cuts for the wealthy.  In several states, newly-elected Republican governors have pledged to “go after” public employees, hoping to reduce costs by laying off thousands of workers and cutting the wages and benefits of many others.  I doubt that most of those who voted for Republican candidates in November did so because they wanted to see economic inequality increase, but that seems to be where we’re headed.

Sherry Linkon, Center for Working-Class Studies

Missed Opportunities: On Limbaugh, Bush, and Obama

In light of GOP tea bagger Scott Brown’s victory in the Massachusetts Senate race—a victory that cost Democrats their filibuster-proof majority, doomed substantive health insurance reform (the White House long ago stopped calling it health care reform), and made it virtually impossible for President Obama to propose or pass anything that even slightly resembles a pro-worker, progressive agenda for the foreseeable future– my first blog of 2010 begins with a tip of the hat to two people with whom I usually disagree: Rush Limbaugh and George W. Bush.

Let’s start with Limbaugh. There are few people more willing to bend the truth to gain political advantage than he.

And that’s why it pains me so to agree with his take on Brown’s victory.  Bloviating from Florida, the great prevaricator said that 2010 is “1994 on steroids.”  Unfortunately for the scores of Democrat political activists who are whistling past the graveyard by willfully misidentifying the cause and minimizing the effect of the GOP win in Massachusetts, “Mr. All Drug Addicts Should Be Jailed Except Me” is exactly right.

That’s because he understands that what Democrats and their working class supporters just lost is much more valuable than what Bill Clinton kicked away in 1993—94.  Back then the party merely forfeited its Congressional majorities.

This year it lost the opportunity to change America and the world.  With 60 votes—the Dems only had 56 when Clinton gagged on health care in ’93—a principled, popular president can do just about anything he wants.  Reform health care.  Re-regulate the financial industry.  Reinvigorate the union movement.  Dedicate billions to job-creating infrastructure and green energy projects.  Change the rules that govern foreign trade.  Appoint liberal justices to the Supreme Court. Pass real campaign finance reform.  Protect the environment.  Implement a rational, compassionate solution to the immigration dilemma. .

As Limbaugh’s remarks about the consequences of Brown’s victory demonstrate, he understands this better than many of the Democrats who have shrugged off the loss of the seat Ted Kennedy held in the U.S. Senate for 49 years as an anomaly or minor setback attributable to “tactical errors” and/or a poorly run campaign.  Limbaugh knows that by losing the opportunity to enact meaningful health care reform the Democrats have squandered the chance to prove that big government fueled by progressive ideas can solve the problems that beset America in the 21st Century. Truth be told, Limbaugh and his cohorts weren’t afraid that health care reform would pass, they were afraid it would work.

And now they’re rejoicing over the fact that Americans will never know.

That brings me to Mr. Bush.  Despite his many failings, viewed in the context of the health care reform meltdown, he deserves grudging applause for demonstrating moral certitude and the willingness to act upon it.  As delusional as he may have been, apparently the 43rd President believed that going to war in Iraq and hanging Saddam Hussein by his neck until dead were essential and righteous acts.

That explains why his resolve never wavered even as his stated rationale for going to war changed repeatedly.  Whether based on Iraq’s complicity in the 9/11 attacks (not true), on the rogue nation’s development and stockpiling of weapons of mass destruction (not true), or on the contention that Hussein was simply a bad guy (true, but certainly not reason enough for the U.S. to waste the billions of dollars and expend the thousands of lives required to depose him) Bush remained steadfast in his conviction that destroying Iraq in order to save it was both justified and necessary.  It also explains why he was initially able to convince the public, the media, and Congress that he was right.  Doubters withered in the face of his dogged belief.

President Obama could and should have learned a few things from Mr. Bush.  Had he approached the effort to reform health care with the same moral certitude that characterized his predecessor’s rush to war, a substantive bill would have passed six months ago because the American people would have accepted nothing less.

Yet, after declaring reform the top priority of his administration, Mr. Obama relinquished control of the issue to Congress and stepped off the stage.  Predictably, as House and Senate Democrats engaged in internecine warfare, support for reform waned, especially when the Administration was forced to buy the Democratic votes needed to pass a watered-down bill in the Senate member by reluctant member, interest group by interest group.  Clearly this unseemly public display of legislative sausage-making at its worst set the stage for Scott Brown’s victory and all the bad things that will flow from it.

If Mr. Obama had simply embraced the Bush model and relentlessly and spiritedly fought for what he supposedly believed in, no one would have forgotten that both the AARP and the AMA endorsed the Senate bill.  No one would have forgotten that groups as disparate as organized labor and the health insurance industry supported reform.  No one would have paid attention to Limbaugh’s rants.  No one would have voted for Scott Brown.

Instead, Democrats now find themselves looking down the barrel of a gun held by members of a disenchanted electorate who are currently demonstrating a clear proclivity to vote for the party of no ideas—the GOP–over the party of badly executed ones.

And they have no one to blame but themselves.

Leo Jennings III

Republicans and the Working Class?

Last week, Jack Metzgar considered how definitions of class are being used in political analysis, noting that the press and some political analysts have defined the working class either as those who don’t have a college education or as those earning less than $50,000. Ross Douthat and Reihan Salam use the first definition as the foundation for their new book, The Grand New Party: How the Republicans Can Win the Working Class and Save the American Dream.

Briefly, Douthat and Salam believe that both Democrats and Republicans have misunderstood the shift in working-class voting patterns – from Democratic to Republican – that Jack described. When Democrats argue that the working class has been distracted from class interests by the war and national security and symbolic and cultural issues, they fail to understand that those “symbolic” issues have been at the heart working-class insecurity. For example, crime, welfare policy, immigration, and especially family values are closely tied to financial security and social mobility. At the same time, Douthat and Salam contend that Republicans have overrated the working class’s philosophical shift to conservative Goldwater/Reagan values.

Rather, they argue, Republicans appeal most effectively to working-class voters when they engage in “limited government pragmatism rather than small government Puritanism.” This “applied neoconservatism” reflects the domestic policy-minded neo-conservative approach last seen in the 1970s. Based on this analysis, Douthat and Salam argue that Republicans should rethink social policy formulations to include more family-friendly policies such as changes in the tax code to encourage family building, tax credits for parents who care for children at home, more spending on highways (because suburbs are better than cities for raising children), job subsidies for entry level employment, summer enrichment programs for poor kids, more cops on the streets, new school funding formulations, more progressive income tax, and a national healthcare plan similar to that being offered by Democrats. No doubt, these policy ideas will resonate with many working-class and middle-class voters.

One might ask if this is just another version of the Republican’s bait and switch and campaign-based Democratic-lite politics used to entice working-class voters. We all remember Bush’s promises of “compassionate conservatism.” That may have been persuasive in the past, but not this time. Deep divisions split the Republican party between the small government “moneycons” who run the party and younger big government social conservatives and Sam’s Club Republicans (aka the working class) who think the Goldwater/Reagan wing of the party has run out of ideas and that a political massacre is on the horizon. After all, Republicans have already lost three special elections in solid Republican districts in the last year, and over 80% of the population now believes that the country is on the wrong track.

If Douthat and Salam are correct, John McCain will have difficult task navigating between his larger donors and more progressive social conservatives within the Republican Party. This is going to be particularly true in swing states like Ohio. In the past, shrinking Northeast Ohio – long a Democratic stronghold — has been balanced by socially conservative, Republican-dominated and growing Southwest Ohio. Yet, in 2006, Republicans were largely swept out of state offices as result of job losses, a “culture of corruption,” and growing discontent among the working-class and social conservatives over economic and social policy. Job losses have continued, especially in automotive manufacturing and particularly in the largely conservative Dayton/Cincinnati area. Furthermore, as we found when we conducted focus groups with the Wall Street Journal earlier this year, working-class discontent with the war had grown significantly. Support for the war and security issues were central to the Bush victory in Ohio in 2004, but this year the key will be economics. Both candidates, but especially McCain, need to provide specific plans that economically support working-class Ohioans, if they are to win their support in 2008.

John Russo