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It’s a small jump from job creator to The Creator

The truth hurts: “Somebody like me makes hundreds or thousands of times as much as the average American … but I don’t buy hundreds or thousands of times as much stuff. I own three cars, not three thousand.” Full transcript below.

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 shaped much of today’s economic landscape.

But sometimes the ideas that we know to be true are dead wrong. For thousands of years people were sure that earth was at the center of the universe.  It’s not, and an astronomer who still believed that it was, would do some lousy astronomy.  

In the same way, a policy maker who believed that the rich and businesses are “job creators” and therefore should not be taxed, would make equally bad policy.  

I have started or helped start, dozens of businesses and initially hired lots of people. But if no one could have afforded to buy what we had to sell, my businesses would all have failed 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. What does lead to more employment is 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 middle-class consumer is far more of a job creator than a capitalist like me. 

So when businesspeople take credit for creating jobs, it’s a little like squirrels taking credit for creating evolution. In fact, it’s the other way around.

Anyone who’s ever run a business knows that hiring more people is a capitalists course of last resort, something we do only when increasing customer demand requires it.  In this sense, calling ourselves job creators isn’t just inaccurate, it’s disingenuous.

That’s why our current policies are so upside down. When you have a tax system in which most of the 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 richest Americans has more than tripled while effective tax rates have declined by close to 50%.  

If it were true that lower tax rates and more wealth for the wealthy  would lead to more job creation, then today we would be drowning in jobs.  And yet unemployment and under-employment is at record highs.

Another reason this idea 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 median 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, we 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 cars or enjoy any meals out. Or to make up for the decreasing consumption of the vast majority of American 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 got today the same share of income they earned in 1980, they would earn about 25% more and have an astounding $13,000 more a year. Where would the economy be if that were the case?

Significant privileges have come to capitalists like me for being perceived as “job creators” at the center of the economic universe, and the language and metaphors we use to defend the fairness of the current social and economic arrangements is telling. For instance, it is a small step from “job creator” to “The Creator”. We did not accidentally choose this language. It is only honest to admit that calling oneself a “job creator” is both an assertion about how economics works and the a claim on status and privileges. 

The extraordinary differential between a 15% tax rate on capital gains, dividends, and carried interest for capitalists, and the 35% top marginal rate on work for ordinary Americans is a privilege that is hard to justify without just a touch of deification 

We’ve had it backward for the last 30 years. Rich businesspeople like me don’t create jobs. Rather they are a consequence of an eco-systemic  feedback loop animated by middle-class consumers, and when they thrive, businesses grow and hire, and owners profit. That’s why taxing the rich to pay for investments that benefit all is a great deal for both the middle class and the rich.

So here’s an idea worth spreading.  

In a capitalist economy, the true job creators are consumers, the middle class.  And taxing the rich to make investments that grow the middle class, is the single smartest thing we can do for the middle class, the poor and the rich.

Thank You.

Comments

  1. unbound says

    Not able to listen to the video at this time. I assume that what you wrote is either a quote or a paraphrase…and, if so, is a startling admission.

    It is the known truth (at least by anyone that has actually thought about it), but usually the rich don’t admit to such things. I’ve always thought of it in terms of mansions. They may own 10x the floor space, but they don’t hire 10x the plumbers, 10x the carpenters, etc.

    It truly defines why the economy remains unstable and limited growth. A strong middle class is why we did so well for most of the 20th century…and the steady erosion of the middle class is why the 21st century has continued to be economically so tepid.

    Who exactly are we mass producing goods and services for if the middle class is not allowed to flourish?

  2. says

    A billionaire certainly doesn’t own 1000X the floorspace of the average millionaire, or 20,000X the average worker bee. Class warriors will whine the rich employ enough people to make up for it, but the rich don’t create jobs, consumers do. Is it surprising that the greatest success stories in the last few years tend to involve products that are very affordable — phones, video games — or products that are free such as Facebook? These are the products the masses can all afford nowadays.

  3. w00dview says

    Found this moronic comment on YouTube.

    “To tax the rich? Or not to tax the rich? Is that, indeed, THUH question?! How about not taxing anybody at all? That’s the ticket – the Ron Paul ticket. Go Ron Paul!”

    If we just get rid of taxes entirely, we will reach our economic utopia! HERP DERP.

    Ron Paul worshipers are some of the biggest idiots on the internet, seriously.

  4. tynk says

    It is quite the idea.

    Increase demand, force an increase is supply.
    Jobs are created to facilitate the increase in supply.
    Increase in jobs means increase in consumers.
    Increase in consumers means increase in demand.

    The government needs to step in during times of economic down turn. A recession is looming? Increase taxes on the top earners, increase infrastructure spending, pad the safety nets. When we are in an economic boom the government can lower taxes on the top and lighten the debt. The government MUST work to smooth the natural spikes in an economy. But sticking with one base plan through out all markets is deadly.

    The model of trickle down economics during a recession has been continuously debunked for decades, why are we still trying to do it?

  5. says

    Tynk, we are still doing it because it pays well for those pushing it. Same as anything else: as long as people can make a decent living spreading lies about climate change or selling the afterlife, there will be people willing to do it. Climate change denialism pays particularly well right now. There are writers/bloggers who get a tenth of the traffic of PZ who make six figures.

  6. timberwoof says

    “When we are in an economic boom the government can lower taxes on the top and lighten the debt.”

    Nononono. Save the surplus and keep a pad handy, then reduce the taxes. California had a nice surplus going a few years ago, so they reduced taxes. Then the recession hit and the government was caught short. Heck, Clinton had a nice surplus going for a year or so … and then GWB wanted a refund.

    Hm. If there’s a tax revenue surplus, the rich want a refund. However, if there’s a deficit, the rich want a refund.

  7. baal says

    Nick Hanauer deserve some serious props. The message that demand from the middle class is the engine of the economy doesn’t get out nearly enough and he was brave enough to be honest about to arguable an audience that matters (rich decision makers). Here’s hoping for a Streisand effect for TED not posting it in the regular TED out put channels.

  8. redpanda says

    Any comments on TEDs response to this thing getting blown out of proportion? Just because someone is right doesn’t mean their arguments are sound. And if we parade someone around for saying what we think is right even though he argues his position poorly, we only make ourselves look bad.

    http://tedchris.posterous.com/131417405

  9. leftwingfox says

    Government surpluses as a “savings account” doesn’t strike me as a great idea, since it is generally pulling money out of the economy just as when the wealthy do. Perhaps it would be better if the government reinvested the surplus, and used the more regular dividends to cover debt payments.

    Double whammy: Investment continues to reinvest in the economy and drive growth and development, the income from that investment can cover obligations in the lean times, and reduce the burden of deficits past.

  10. leftwingfox says

    @redpanda: Note he dosen’t say which arguments they found “unpersuasive”. I’ve found a number of TED talks “unpersuasive”, but that hasn’t stopped them from posting it before. Perhaps if you suggest which of those arguments are “unpersuasive”, rather than suggesting that we should not be promoting these arguments, it might improve the debate.

    Also, the “partisan” nature of the piece was half a sentence; ” is an article of faith for Republicans and seldom challenged by Democrats”. If that one half line had been removed from the talk, it would not have altered the argument at all. Nor does it call for partisan solutions. But I guess, calling attention to which party believes nonsense and which party does not challenge nonsense is too explicit for TED.

  11. redpanda says

    @leftwingfox

    I’ll freely admit up front that I’m not equipped to argue about economics. It’s not part of my formal education, and I haven’t yet had time to make up for that. Generally I stay out of these discussions, because having been raised a young-Earth creationist I’ve learned to be cautious about hitching my wagon to a horse I don’t know enough about.

    So I’m just being cautious, that’s all. That’s why I asked for comments. Do you really think it’s simply because they’re afraid of appearing too partisan? It doesn’t seem like they’ve shied away from talks that openly embrace other politicized issues like evolution and climate change in the past.

  12. leftwingfox says

    It doesn’t seem like they’ve shied away from talks that openly embrace other politicized issues like evolution and climate change in the past.

    Right. If you talk about climate change denial, it’s almost exclusively in the domain of the right-wing political parties. The fact that they don’t actually call out the republican party when they make these talks is possibly the most transparent fig-leaf imaginable.

    Honestly, I do think it spooked the contributing corporations. Global warming only affects a few corporations bottom lines directly. Higher taxes affects them all, especially the decision-maklers who have directly benefitted from the lower tax rates to the top earners. They would all be directly impacted by the adoption of such rhetoric.

    Short of someone actually admitting to such pressure, I have no proof. But it is a reasonable assumption.

  13. jakc says

    Wow. As I read this, a Romney ad runs on tv – on day one of a Romney presidency, he will cut taxes for job creators, and yes, Mitt approves this message. And here is a 60 second smackdown of that stupid idea. As Huxley said of natural selection, “How extremely stupid not to have thought of that!”

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