By BJ Bjornson
Via Kevin Drum, more proof that economics of the very rich don�t mesh all that well with Republican ideology. Not only does Nick Hanauer call for higher taxes on the rich, but he gets to real nub of just who are the �job creators� in society.
I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.
That�s why I can say with confidence that rich people don�t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be.
. . .
One reason this policy is so wrong-headed is that there can never be enough superrich Americans to power a great economy. The annual earnings of people like me are hundreds, if not thousands, of times greater than those of the average American, but we don�t buy hundreds or thousands of times more stuff. My family owns three cars, not 3,000. I buy a few pairs of pants and a few shirts a year, just like most American men. Like everyone else, I go out to eat with friends and family only occasionally.
. . .
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 clothes or enjoy any meals out. Or to make up for the decreasing consumption of the tens of millions of middle-class families that are barely squeaking by, buried by spiraling costs and trapped by stagnant or declining wages.
If the average American family still got the same share of income they earned in 1980, they would have an astounding $13,000 more in their pockets a year. It�s worth pausing to consider what our economy would be like today if middle-class consumers had that additional income to spend.
The whole column is well worth the read, and it�s always nice to see someone with wealth acknowledge that a policy of sticking it to the middle class and increasing income inequality is actually cutting their own throats as well.
The only unfortunate part being that there are still far too many vultures out there content to feed on the rotting carcasses their policies are creating. When one of the leading GOP candidates can talk seriously about using the labour of poor children to replace unionized janitorial staff because otherwise they'll be criminal riffraff and thereby increase his inner-party standing, you know things are unlikely to change fpr the better anytime soon.
In short, jobs are created by demand, not investment. Investment may come from cash or credit, but without demand all so-called "job creation" is a waste of resources. The reason so many companies are sitting on piles of cash is not uncertainty, as many claim, but simply a lack of demand. And as you pointed out, unless and until enough people have enough money to spend -- and this means the whole global economy, not just America -- the economy will remain in a slump.
ReplyDeleteThere is uncertainty, of course. But it isn't uncertainty about domestic politics. The fear paralyzing the economy is a reflection of the very real possibility that a global house of credit cards is on the verge of imploding -- a global echo of 2008 on steroids, this time with no meaningful safety net.
That fear comes from the top, not the bottom of the economy. It's a long way from the top to the bottom. But at the bottom there is nothing much left to fear. The distance from there to destitution is not that great. It gives me grim satisfaction to see big shots sweat.
All you need to do to know the true is to graph the "Gini coefficient" against "per capita income" for a large sample of countries. You will quickly see that the more unequally income is distributed in a country the poorer a country it. The simple reason for this is that the rich don't spend enough of their income to keep an economy growing. As the rich grab a larger and larger percent of the income pie there is less and less money in the general economy and it shrinks. This effect becomes more pronounce when the rich use their wealth to control the government and create rules that channel more and more of the country's wealth to themselves. This is what makes a third world country a third world country.
ReplyDeleteI wish more people understood the difference between income and net worth. They are two different metrics of wealth. But to hear the shrill complaints of those protesting higher taxes one would think someone was trying to carve away their net worth. Nothing could be further from the truth. Income taxes are only collected from twelve months MORE of additional wealth. Even then provisions are made to compensate for lost net worth by claiming capital and other losses.
ReplyDelete[At one time the tax code allowed for "income averaging" which allowed someone coming into a large annual income all at once to pay a smaller tax amount to make up for previous poor income. That provision helped take away some of the sting of a sudden heavy tax (think sports figures, entertainers, lottery winners, writers of best-sellers, those who get a big promotion, etc.). I didn't realize until recently that provision was eliminated when the tax tables were reduced from many to three.]
The rich are not just getting the most income. They are adding a proportionally greater amount to an already large net worth. I don't know how far down the scale one has to look, but at some point income is being taxed for many whose net worth is negative.
@John - It's a safe bet you wouldn't have to look very far to find those with a negative net worth paying taxes on their income. For starters, you have a rather massive population of graduates with their shiny new student loans that have no asset to offset the liability on their personal balance sheets. Add in all of those underwater mortgages, which is usually set against the most expensive asset most people will ever own, and I wouldn't doubt that the number is pretty damned high even for people with generally decent income.
ReplyDeleteYou see my point. The inequity is massive. Influential people in high places should drive home the message.
ReplyDelete