This Guy Totally…and I mean TOTALLY…Gets It

December 1st, 2011 at 11:47 am

If you read nothing else today—nothing else this week—read this oped by Nick Hanauer on job creation and tax policy.

He’s a successful venture capitalist who both understands and is able to explain in compelling terms the relationship between investment, growth, and job creation:

…I’ve never been a “job creator.” 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.

The policy implications of this are stark and fly in the face of most of today’s debates.  If market outcomes return most of the growth those at the top, that feedback loop between economically healthy consumers and growing businesses is broken.  Same with tax policy:

When the American middle class defends a tax system in which the lion’s share of benefits accrues to the richest, all in the name of job creation, all that happens is that the rich get richer.

To me, this little piece is the most convincing attack on the logic of trickle-down, supply-side economics that I’ve seen because it doesn’t just invoke fairness or the squeeze on the middle class.

Hanauer’s insights point towards a different model of growth, one that has at its core the interdependence between those throughout the income scale.  Entrepreneurs, venture capitalists, the very rich must recognize their inherent linkages to the broad middle class if we are to build a sustainable economy.  Any policy architecture that fails to reflect those interdependencies will ultimately topple under its own top-heavy weight. 

And we’re looking awfully top-heavy these days.

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11 comments in reply to "This Guy Totally…and I mean TOTALLY…Gets It"

  1. Tyler says:

    Should we be focused on raising taxes on the rich or reasserting the power of unions? I say the latter.

    • bh says:

      Why should this be the choice? On what planet is it the choice? Not on Earth, for sure.

      Increased union power would make a more progressive tax system easier to implement. There’s no reason to hold off on trying for either, though.

  2. Tyler says:

    Taking one trillion dollars out of the economy to supposedly pay for one trillion dollars of government spending makes no sense. Why not just spend one trillion dollars? Yes, this would grow the short-term deficit, which is exactly what we are supposed to be doing right now. The perils of deficit reduction are clear:

    1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
    1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
    1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
    1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
    1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
    1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.

  3. D. C. Sessions says:

    The whole “job creators” schtick has been griping me for a long time. From time to time I try to get someone interested in a series of ads with everyday people buying stuff, tagged with the slogan “I am a job creator.”

    How many businesses (I’m thinking of my garage, for instance) would be willing to put up signs saying, “Thank you. You are a job creator!”

    • lsk100 says:

      I like this idea. We need a Movement, a campaign, like the Buy American, but bigger. Attatch it to OWS? Dont know. But one thing is sure . We need to break Norquists hold on GOP and educate the FOX viewers that they are being dupped by good ol’ American propaganda.

      As a business owner I wouldnt hire one new employee now in this demand recession is my tax rate were ZERO. GOP lawmakers must jnderstand this. Corruption stinks.

  4. jonathan says:

    I may have posted this before but you need only look at Germany. Their unemployment rate is 5.5% because they’ve cut hours instead of people.

    Why does this create jobs? Because working people can buy things and people who have no jobs can’t. Suppliers in Germany have confidence – that word!! – they will have buyers because their consumers have jobs. That is actual confidence, not the kind imagined by austerity.

    Contrast the US. When times get bad, we cut jobs. If times get back to normal, this doesn’t matter much because businesses believe the cycle turns and they’ll produce and hire based on expectations of the upturn. But in an environment of economic uncertainty, the kind that doesn’t come along often, the layoff approach creates uncertainty in suppliers. They simply can’t assume their customers will have jobs because they know – and fear – companies will cut more jobs if things stay bad or turn worse. Our system works in normal up-down-up but fails in extended downs because it generates a cycle of increasing uncertainty that stifles demand and production.

  5. Greg Hargis says:

    He not only gets it, he explains it in a way that makes sense to the layman. One of the problems in this whole debate about how to salvage what’s left of the economy is that things that sound sensible – or can be made to seem sensible with enough misdirection, are actually suicidal. So it makes sense to folks that if families have to cut back, the gov’t should to, that high taxes ‘punish’ job creators and they’ll quit ‘kill’ jobs, etc.

    The delicious irony here is that all you smarty-pants economists are unable to come up with clear, accessible explanations for the problems and solutions (and Republican / conservative lies) but a pure one-percenter can lay it out in a 10 minute read with no charts, graphs, tables, or math.

  6. CSTAR says:

    Do we need to to change the consumption function of the Keynesian model I was taught in Kindergarten, that is make it something like:

    Y = C_FATCAT( alpha Y) + C_99percent (beta Y) + other stuff

    where alpha is the proportion of income that goes to fat cats and beta = decimal point followed by lots of 9s.

  7. readerOfTeaLeaves says:

    Hanauer on the Dylan Ratigan program on 12-2-2011:

    He’s as articulate on television/web feed as he is in writing.
    And having worked in at least one company that he invested in and the business model is based on strong, middle class buyers. No doubt in my mind Hanauer knows what he’s talking about, economically speaking.

    I **completely** agree with Hanauer’s points that bad economic policies (and ideas) are absolutely killing the customer base that is critically necessary for economic prosperity.

    It’s nice to see some moral courage and clear thinking, and I hope we see a lot more of it.

    What I find enormously heartening is that he did not make his wealth on Wall Street, nor in banking. He made it in the real economy. What a concept…

  8. billyblog says:

    Henry Ford also totally got it with the Model T, realizing that all of his innovation and entrepreneurship would be for aught unless it was affordable:

    “I will build a car for the great multitude. It will be large enough for the family, but small enough for the individual to run and care for. It will be constructed of the best materials, by the best men to be hired, after the simplest designs that modern engineering can devise. But it will be so low in price that no man making a good salary will be unable to own one – and enjoy with his family the blessing of hours of pleasure in God’s great open spaces.”

    Of course modern day Republicans now want to do away with a “good salary.” Newt Gingrich especially has school janitors in his sights. Fire them because they’re making $15 /hr and hire their kids to replace them at $5 /hr.

  9. lsk100 says:

    This concept that “trickle up” is the only cure for economic woes is so self-obvious, it pisses me off the GOP followers of Grover Norquist refuse to disengage with his bondage. This type of common sense renews my disgust and anger at the corrupt, greedy, self-defeating party of selfishness, not to mention heartlessness.