Nick Hanauer is an entrepreneur and venture capitalist with a net worth of about a billion dollars. He earned his money as a co-founder of the venture capital company Second Avenue Partners and by selling tech companies. He was the first non family investor in Amazon.com. He was the founder of gear.com which was eventually merged into Overstock.com. Mr. Hanauer is also the co-founder of the political action think tank known as The True Patriot Network, which is based on the ideas of he shares with Eric Liu and presented in their book called The True Patriot. He is a co-founder of the League of Education Voters, a non partisan political group dedicated to improving public education. He is a member of the board of the Cascade Land Conservancy, The University of Arizona’s Mount Lemmon Science Center, and The University of Washington Foundation. This is a very busy man.
Earlier this year, Mr. Hanauer gave a speech at the TED University conference. TED stands for Technology, Entertainment and Design. It is a set of conferences owned by the private non-profit Sapling Foundation, formed for the primary purpose of distributing worthy ideas. TED was founded with an emphasis on technology and design. The conferences now address an increasingly wide range of topics regarding science and culture. Past presenters include Bill Clinton, Jane Goodall, Al Gore, Gordon Brown, Richard Dawkins, Bill Gates, Google founders Larry Page and Sergey Brin, and many Nobel Prize winners. TED’s current curator is the former computer journalist and magazine publisher Chris Anderson.
TED attracted controversy when it chose not to put a copy of Mr. Hanauer’s speech on their website as is the customary practice. The speech analyzed the impact of taxes rates on unemployment and the economy. However, Mr. Anderson felt that Mr. Hanauer’s speech could not be released because it would be regarded as too political in the middle of a presidential election year for an organization that is supposed to be nonpartisan.
But Mr. Hanauer is a hard man to keep down. When he found out that his TED speech would not be posted, he hired a public relations firm to promote the talk independently. While the officials at TED may have been too timid to post the speech, plenty of sites were waiting in the wings to promote it. Regardless of your stand on the issue of taxes, Mr. Hanauer’s speech is worth a notice. Considering that TED promotes itself as an organization committed to the distribution worthy ideas, one would think this topic would be right up their alley.
The following is the text from his speech.
“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 indeed shaped much of the economic landscape. But sometimes the ideas that we are certain 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, would do some pretty terrible astronomy. Likewise, a policy maker who believes that the rich are job creators, and therefore should not be taxed, would be 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’s 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-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 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 creating evolution. It’s actually the other way around. Anyone who’s 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 customer demand requires it. And in this sense, calling yourselves 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 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 top one percent of Americans has more than tripled, while our effective tax rates have gone down by fifty percent. If it was true that 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 under employment is 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 as times 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 under employed 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’d earn like $45,000 more a 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 obviously wasn’t chosen by accident. And it’s only honest to admit that when somebody like me calls themselves a job creator, we’re not just describing how the economy works, but more particularly, we’re making a claim on status and privileges that we deserve.
Speaking of special privileges, the extraordinary differential between the fifteen percent tax rate that capitalists pay on carried interest, dividends and capital gains and the thirty five percent top marginal rate on work that ordinary Americans pay, it’s kind of hard to justify without a touch of deification.
We’ve had it backwards for the last thirty years. Rich people like me don’t create jobs. Jobs are a consequence of an eco systemic 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 gentleman, 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 will make the middle class grow and thrive. It’s the single shrewdest thing we can do for the middle-class, for the poor, and for the rich.