Thursday, 10 July 2014

A "Zillionaire" Calls for More Equality

Nat O'Connor: "Zillionaire" Nick Hanauer (net worth $1bn+) has written an opinion piece in entitled "The Pitchforks Are Coming… For Us Plutocrats".

It is a call to self-interested "0.01%ers" to dump trickle-down economics in favour of "middle out" arguments. Give more money to the broad middle class (i.e. everyone in employment) and the economy will grow, leading to more (not less) profits and rewards for those on top.

The pitchforks argument is as follows "If we don’t do something to fix the glaring inequities in this economy, the pitchforks are going to come for us. No society can sustain this kind of rising inequality. In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out. You show me a highly unequal society, and I will show you a police state. Or an uprising. There are no counterexamples. None. It’s not if, it’s when."

Some people might be familiar with Nick Hanauer, as he appears in Robert Reich's film, Inequality for All, as screened by the Jameson film festival with TASC's panel discussion in February. In Reich's film, he reiterates the same arguments for spreading incomes more widely.

Hanauer's opinion piece (and a related TED talk) has been criticised by various commentators (e.g. Max Borders, author of Superwealth a book defending inequality) and Forbes magazine, who helped spread interest in Hanauer's piece by branding it his "Latest Near Insane Economic Plan".

One of Hanauer's central arguments is that Ford paid his workers more, who could then afford his cars. Worstall's counter-argument is a calculation that Ford's workers would spend less on cars than Ford gave them in additional wages.

The problem with Worstall's argument is that Hanauer is talking in more general terms. As Hanauer makes clear, employers cannot be expected to pay uncompetitive wages, hence employers need statutory instruments (like the new $15 Seattle minimum wage) to level the playing pitch. To continue the Ford analogy, if ALL workers gain a living wage, not just Ford's own workforce, hundreds of thousands could then afford cars. That's the real argument for economy-wide rises in wages, for wage-led economic growth.

And are there limits to this? Of course. But the argument is to rebalance the return to labour in terms of wages versus the return in terms of profit or dividends to capital. Balance is the key word here. The growing inequality of the last four decades has seen the balance move in favour of the top 10%, and particularly the top 1% (and top 0.1%, 0.01%, etc.) New tools - a Living Wage, tax reform, etc. - are needed to re-balance things in favour of the 'bottom 90%'.

Another Worstall critique is that savings are essential for investment whereas Hanauer seems in the opinion piece to discredit the role of savings. However, what Hanauer mentions in the Reich film - but does not articulate clearly in the article - is that savings now get invested globally, which does not benefit most people in America right now.

Hanauer is not entering the debate as an expert macroeconomist. However, he is a financially-literate, savvy businessman who made big money from being an early investor (of a family fortune) in Amazon. His entrance into the political debate is precisely that, political. He is challenging ideological touchstones in US political economy, such as the role of the super-rich as 'job creators', the 'trickle-down effect' and the culture of entitlement that CEOs have around extraordinary levels of remuneration. Crucially, he argues that Democrats are failing to win this argument because they talk about social justice, whereas he argues in terms of wage-led economic growth and the self-interest of the rich, who can benefit from a faster growing economy.

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