Nick Hanauer: The Middle Class Is The Hub Of The Universe; Not The Rich
It is astounding how one idea can shape a society and its policies. Consider this one: The 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 indeed shaped much of the economic landscape.
But sometimes the ideas that we are certain that are true are DEAD WRONG.
Consider that for thousands of years, humans believed that the Earth was the center of the universe. It’s not. And an astronomer who still believed that it was can do some pretty terrible astronomy.
Likewise, a policy maker who believes that the rich are job creators and therefore should not be taxed will do equally terrible policy.
I have started, or helped start, dozens of companies and, initially, hired lots of people. But if there was no one around who could afford to buy what we had to sell, all those companies and all those jobs would have evaporated. That is why I can say with confidence that rich people don’t create jobs, nor do businesses large or small.
Jobs are a consequence of a circle of life 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 consumer is more of a job creator than a capitalist, like me.
That’s why when business people take credit for creating jobs, it’s a little bit like squirrels taking credit for evolution. It’s actually the other way around.
Anyone who has ever run a business knows that hiring more people is a course of last resort for capitalists. It’s what we do if, and only if, rising consumer demand requires it.
And in this sense, calling ourselves job creators isn’t just inaccurate it’s disingenuous.
That’s why our existing policies are so upside down. When the biggest tax exemptions and the lowest tax rates benefit the richest—all in the name of job creation—all that happens is that the rich get richer.
Since 1980 share of income for the top 1% of Americans has more than tripled while their effective tax rates have gone down by 50%. If it was true lower taxes for the rich and more wealth for the wealthy led to job creation, today we would be drowning in jobs.
And yet unemployment and underemployment are at record highs.
Another reason that this idea is so wrong-headed is that there can never be enough super rich people to power a great economy. Somebody like me makes hundreds or thousands of times as much as the median American, but I don’t buy hundreds or thousands of times as much stuff.
My family owns three cars, not three thousand. I buy a few pairs of pants and shirts a year like most American men. Occasionally we go out to eat with friends. 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 cars, any clothes or enjoy any meals out. Nor can I make up for the falling consumption of the vast majority of middle class 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 retained the same share of income that they did in 1970 they would earn about $45,000 more per year. Imagine what our economy would be like if that were the case.
Significant privileges have come to people like me—capitalists—for being perceived as job creators, at the center of the economic universe. And the language and metaphors we use to defend the current economic and social arrangements is telling. It’s a small jump from “job creator” to “The Creator”. This language was not chosen by accident.
And it’s only honest to admit when somebody like me calls themselves a job creator, we are not just describing how the economy works, but more particularly we are making a claim on status and privileges that we deserve.
Speaking of special privileges… the extraordinary differential between the 15% tax rate that capitalists pay on carried interest, dividends and capital gains and the 35% top marginal rate on work that ordinary Americans pay, is kind of hard to justify without a touch of deification.
We’ve had it backwards for the last 30 years. Rich people like me don’t create jobs. Jobs are a consequence of an ecosystemic feedback loop between customers and businesses. And when the middle class thrives businesses grow and hire and owners profit.
That’s why taxing the rich to pay for investments that benefit ALL is such a fantastic deal for the middle class and the rich.
So, ladies and gentlemen, here’s an idea worth spreading: In a capitalist economy, the true job creators are middle class consumers. And taxing the rich to make investments that make the middle class grow and thrive is the single shrewdest thing we can do. For the middle class, for the poor, and for the rich.
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