Newsflash: Businesses Need Customers

December 9th, 2011 at 10:19 am

Millionaires apparently get this, even if conservatives in Congress do not.

There are a number of recent stories surfacing of rich people who a) recognize that their fortunes have something to do with the rest of us, b) get that it therefore makes sense to provide their customers with more buying power by renewing the payroll tax holiday and paying for it with a surcharge of 1.9% on incomes over a mil, and c) believe that conservatives in Congress who oppose the above are neither representing their personal nor business interests.

I thought venture capitalist Nick Hanauer nailed these points in an oped last week.  And here’s a great NPR story where they…um…actually talked to some wealthy business folks about this.

From that story:

Senator Thune: “It’s just intuitive that, you know, if you’re somebody who’s in business and you get hit with a tax increase, it’s going to be that much harder, I think, to make investments that are going to lead to job creation.”

Business Owners:

“It’s not in the top 20 things that we think about when we’re making a business hire,” said Ian Yankwitt, who owns Tortoise Investment Management.

“If my taxes go up, I have slightly less disposable income, yes,” said Burger, co-owner of CSS International Holdings, a global infrastructure contractor. “But that has nothing to do with what my business does. What my business does is based on the contracts that it wins and the demand for its services.”

Surtax or no, Schwarz says she hopes to keep hiring.

“We’re going to keep on writing proposals, going after contracts, hopefully winning them, and when we do we’re going to continue to hire people,” says Schwarz.

See also this editorial from today’s NYT re the fact that 99% of small business make less than a million bucks per year.   Here’s the punchline:

Back in the real world of small businesses — start-ups, corner stores, Main Street, small companies in large supply chains — a surtax on high earners that pays for a payroll tax cut would be helpful because that tax cut would put more spending money in customers’ pockets.

Once again, we have a problem–high unemployment and weak demand–a solution–extend the payroll tax cut for another year–and even a payfor–the surcharge.   But conservatives are once again creating a firewall between problems and solutions, and in this case, that’s clearly not in the interest of the businesses they claim to be protecting.

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11 comments in reply to "Newsflash: Businesses Need Customers"

  1. Jake Lopata says:

    I also read Nick’s OP-ED and found it very insightful. The NPR story adds a significant amount of dialogue to the debate about the payroll and other business taxes.

    I think your last point is intuitive; and sadly many people fail to make the connection.

    The consumer is the employee, the employee is the consumer.

    I like to ask people an intuitive question to understand how they see our current unemployment problem:

    “What came first, the consumer or the business?”

    Your answer determines Your understanding of our economic problems.


  2. Will says:

    Whoa there, Jared. I always knew you didn’t follow the ‘conventional wisdom’ and were a progressive economist, but this concept is really radical!

    You may want to keep your extremist views to yourself or beltway insiders may not take you seriously!


    • Jared Bernstein says:

      I know–businesses need consumers…truly radical stuff.


      • Will says:

        It’s truly sad how low our national discourse has sunk. I’m not even sure it’s aspirational politics anymore. We’re far beyond that point.

        I think “You’re on your own” is the best summary of the messaging. I just can’t believe voters are eating it up.


  3. Tyler says:

    I went to an economic roundtable last night. The only person there who made sense was Steven Rattner. He reminded everyone that deficit reduction is contractionary.

    I disagree with you that we should pay for stimulus, but I’d probably still vote for extending the payroll tax cut, and just hope that the surcharge on millionaires doesn’t cost anyone their job.

    Too many people in Washington are perfectionists. If a bill doesn’t contain exactly what they want, they won’t vote for it.

    P.S. People who think the Clinton economy boomed because he raised taxes are confusing correlation with causation.


    • JTN says:

      I don’t know who says that the Clintin economy boomed BECAUSE of the tax hikes; most of us realize that the tax hikes did not stop the boom (which the republicans claimed it would), and allowed the budget to be balanced. In a similar vein, the Bush tax cuts didn’t help or hurt the econmy, but they did increase the deficit.


      • Jared Bernstein says:

        That’s exactly in the spirit of what the business folks are saying in the NPR story.


      • urban legend says:

        I would suggest the possibility that that period was one example where the “confidence fairy” worked from a nominally contractionary policy. But it was consumer confidence, not business confidence in the supply-side sense. We had relentless growth of the deficit during the Reagan and Bush I years — both largely bought their prosperous years with large deficit spending — and there seemed to be a pervasive sense that things were simply out of control. It was encouraging that we could see effective economic management when the deficit came down. It was further encouraging, with presumably good effects on consumer confidence and contrary to the expert doomsayers, when we combined very low unemployment (nder 4%) with low inflation, thus blowing the defeatist NAIRU concept out of the water.

        Of course, there was also offsetting tax reduction in expansion of the earned income tax credit. More money in the hands of people who would spend it versus less money for those who would not have spent it anyway: where have we heard that trade-off as a way to break the deficit-or-growth Gordian knot being discussed before?


    • Jared Bernstein says:

      Totally agree that we should put temporary stimulus on the deficit–it has very little medium term impact because it’s temporary. But real politic won’t allow that right now. Key is to make sure payfors kick in later than stimulus. Also, a payfor targeted at top 0.3% of taxpayers won’t hurt growth at all.


  4. readerOfTeaLeaves says:

    Business is mostly about customers. It’s largely about relationships.

    It’s my sense that the GOP is representing hedge funds, or businesses that don’t actually have to deal with customers — certainly not repeat customers. The GOP appears to be talking about ‘business’ as existing primarily in the finance sector, where money is used to make more money. Or else possibly utilities or gas companies (i.e., businesses that are essentially vertically integrated monopolies). That may explain their obsession with capital gains; I don’t hear either party articulate a decent focus on customers as the source of business activity.

    Hanauer invested in Amazon, and that was a proving ground in the value of building an online infrastructure designed to serve customers. Like it or hate it, Amazon (like Starbuck’s, like my local tire dealer or grocery) live or die on what customers experience. And you want repeat customers, which to my way of thinking underscores Hanauer’s paradigm of the economy as an ‘ecosystem’ full of millions of feedback loops.
    (I worked at Amazon briefly, ‘back in the day’. I don’t know Hanauer, but I learned at Amazon to focus on the customer, the customer, the customer.)

    Successful businesses build in feedback loops: Starbuck’s wants you to be thrilled with the experience; Amazon lets you rate your customer experiences. Those companies **create** feedback loops to constantly monitor performance and implement improvements. Apple, with its Genius Bar and online support, has beat out all rivals in terms of customer support and loyalty, as near as I can tell; they did it by putting the ‘user’ (customer) first, second, and third. Lo and behold, they have a lot of customers. So does Nordstrom, which is phenomenally customer-focused.

    What Hanauer and the NPR interviewees are saying is hardly rocket science.

    My private theory: the DC policy infrastructure has failed to recognize that at present, value appears to have moved to **the individual**. The DC policy infrastructure seems to be stuck in an era of mass consumption, when value was perceived as something that companies create; the bigger and more monolithic the company, the greater value was assumed to be created.

    I don’t see the economy working that way any more; maybe oil and gas work that way, perhaps telecomm does. But most businesses that I encounter don’t actually work that way these days.

    Today, the economic activities appear to lie in customization (‘do you want a Coke, or a Diet Coke? fries or chips?’). That kind of activity is **all** about keeping customers happy, and the nonsense about capital gains is about as relevant to that kind of economic focus as a gnat is to an elephant.

    Capital gains matter to oil companies, banking, telecomm and other big, institutional actors. But those are not the economically vibrant, dynamic economic actors in the US these days, IMVHO.

    Whether it’s my dentist (who now sends out an email link asking for feedback on how my visit went), or Starbucks, or my local hair salon, the best businesses that I see are very focused on the customer experience, and on building in simple feedback loops to enhance and improve the experience in order to retain good, reliable customers.

    There are clearly people in DC who are oblivious of this simple set of facts. Here’s hoping they clue in, and the sooner, the better.

    Business today is far more about building in and tending feedback loops to monitor customer needs and satisfaction than it is about fretting over capital gains taxes.


  5. Christopher says:

    So many things you and others (Krugman, for one) write about that you find frustrating make perfect sense with just this one rule:

    The purpose of the firewall is simply to keep Obama from getting reelected.


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