Jim Tankersley on The Inequality Speech That TED Won’t Show (h/t Brad DeLong)
Prepare to meet Nick Hanauer. He’s a venture capitalist from Seattle who was the first non-family investor in Amazon.com. Today he’s a very rich man. And, somewhat jarringly, he’s screaming to anyone who will listen that he, and other wealthy innovators like him, doesn’t create jobs. The middle class does – and its decline threatens everyone in America, from the innovators on down…
check out the full text of a speech Hanauer gave in March at the TED University conference. You can’t find the talk online, because TED officials have declared it too politically controversial to post on their web site. You be the judge:
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… .Another reason this idea is so wrong-headed is that there can never be enough superrich Americans to power a great economy. 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?
A link to the National Journal article, which in turn has links to the full speech and slides – Too Hot for TED: Income Inequality
When people say that capitalist innovators create jobs they mean by developing the products and bearing the risk of failure. Lots of people demand ipads, only one man had the foresight to invent it. Of course demand matters. Both sides matter, but some people always want to pick sides for some reason.
What good is an ipad without the infrastructure that supports it. An infrastructure that was created because of consumer demand and related to govt investments. Most of the power of the ipad comes from the fact that it being part the of the whole. On its own its utterly unremarkable.
If the working class continues on its current trajectory of receiving an increasingly smaller share of national income every year, at some future point products such as the iPad will simply not have the sales volume to be profitable.
That is the point.
Yes, I think it goes without saying that the USA is suffering from a struggling middle class and that the rich aren’t the ones who need the most help right now. The best thing we could do right now to help bring things back into balance is focus on policy that helps more middle class get into the upper middle class or the lower class into the middle class….
Cullen,
By definition, the middle class is the middle two quartiles of either the income distribution, or the wealth distribution. So pray tell me how you can expand the middle class, or take the middle class into the upper class? Expanding the middle class is a political phrase, that is semantically meaningless.
A rising tide. It’s all relative and there’s nothing political about it. We don’t have a rising tide. We have two different bath tubs. One for the rich and one for everyone else. One tub is getting filled with water constantly. The other is draining….Clear?
I think the point Cullen is making here is that if you look at what constitutes the lower class today, they are unbelievably rich in contrast to the upper class of 150 years ago, not to mention the middle classes of some modern societies. The things that society has created have enriched everyone to an incredible amount. So in that sense the tide has risen and made everyone wealthier, by a lot. But I take some issue with those who fall back on the “Well our poor are pretty rich compared to Somalia” argument, and Ive heard it. First off lets apply that argument to our rich and their cries for tax breaks. We pay some of the lowest taxes in the world. Secondly all that really matters is your relative position in the world you live. If I told a person weighing 240 pounds
“Well on the moon you only weigh 40 pounds!” that would be a very silly response.
I have talked before about the floor of society. Where do we want the floor to be? What is the lowest point any human should have to live at? We have the ability to set the floor wherever we wish (within reason of course) Govts can be hugely responsible for where that floor is. In the private sector everyone is only worried about their own floor but MOST people agree that all citizens must sacrifice some sort of “self concern” in order to make their neighborhood better.
Most admit to the need for a certain level of collectivist thinking.
You’re obfuscating. Have you ever heard of the Pareto distribution?
I know the Pareto Distribution, and the Boltzmann Gibbs distribution very well. Both of which are operational in income/wealth distribution and transfer. However, by definition, you cannot expand the middle class. You have to address the issue of redistribution of income/wealth head on, instead of hiding behind weasel words like “I want to expand the ‘middle class’”
I would also say that “Expanding the Middle Class” has the same problem as Garrison Keillor’s Lake Wobegon – “where all the women are strong, all the men are good-looking, and all the children are above average.”
You might be over-thinking the middle class thing. It’s not “middle two quartiles” formal. Neither rich nor poor will pretty much cover it and clarifies what people have in mind when they speak of expanding the middle class.
From American middle class
Hence my comment about the middle two quartiles
However, the article also says
Dante Chinni’s 2005 article is well worth reading
You MMTers are a tough group to please. You attack people even when they say they want to help the people you guys want to help. Hell, it’s not like I’ve called for supply side ideas contrary to the claims of some MMTers…..
Can’t win with you guys. Its job guarantee or bust…..
That’s what middle income means. Middle class means the people between the working class and the upper class. The middle class means small business owners, teachers, doctors, lawyers, writers, lower and middle managers, etc. (Some of these groups overlap into upper class.) The loss of the middle class means that the income distribution has become quite skewed, so that more and more people earn less than the mean income.
Two sides of the same coin as I like to say. It’s just silly to talk about demand without also understanding how the improvement in supply allows us to demand MORE in the future. Bell destroyed tons of jobs when he invented the telephone. But he also made us all infinitely more productive. In doing so he created more demand by streamlining our lives and give us more time. So yes, demand is hugely important. It’s the crux of it all. But an advancing society needs the innovators just as much as they need the consumers.
EXACTLY. Of course, it could be said that we’re rightly concentrating on the one side of the coin as we see trouble afoot on that side.
The I pad wasnt conceived ex nihilo in a vacuum. In a sense the i pad was a natural extension of the technology in place already. It was the result simply of a “what if” question in a 21st century high tech environment. There have always been and always will be the “what if” askers in the world. The US and other semidemocracies encourage these people. Countries run by religious extremists dont. Our current crop of neo liberal thinkers are akin to religious extremists. We’re not allowed to ask “what if ” they are wrong. Why was TED uncomfortable with Mr Hanauers talk ….. He asked “What if all this encouragement of wealth concentration is wrong?”
The difference is I acknowledge the vast importance of both sides, while many of you try to minimize the contribution of innovators. The iPad certainly isn’t the best example, there have been much more profound inventions than that. The point is technological change is the primary means through which we advance living standards, and this doesn’t happen itself. It requires the hard work, risk taking and creativity of innovators. We could have have a govt that ensured aggregate demand = supply at all times so there was never an output gap, while simultaneously never acheiving an increase in living standards if there was no innovation or capital accumulation.
“The difference is I acknowledge the vast importance of both sides, while many of you try to minimize the contribution of innovators”
If you mean minimize in respect to the amount of importance they are afforded in these times, yes thats true, but if you mean minimize the importance of innovation/technology to advance us….. not at all. I do however take issue with ANY one man gettting too much credit for any technological advance. These things usually are happening in different places at different times and its usually a lot of sheer luck that a certain guy gets a breakthrough. Not to mention, a larger overarching point is that in virtually every instance of life changing technological advancements, it is NOT a private person which funds it. Usually (virtually always Ill even say) it is a govt body which gets behind and funds the develoment of said technology at a large scale to be reproducible.
Ill go further and argue our standard of living would be at the Afghanistan level today if we had not used govt funding of things like the railroad all the way to the internet. If an 1800s version of Boehner and co had been around and successfully removed govt spending from the markets in the early 1800s, we would only be having this conversation today if we were in the same pub.
No one denies we need innovations, but innovations will always happen as long as human minds have problems they wish to solve. Its how we make the innovative idea into reality and this more often than not requires very large govt investments.
“It requires the hard work, risk taking and creativity of innovators”…. many of whom are often not willing to put in the hard work, risks and creativity required for truly great leaps forward.
The private sector tends to build incrementally, and takes an enormous amount of time to bring an idea about to truly revolutionary fruition. This is to be expected; no-one will risk enormous amounts of capital for highly speculative ideas, regardless of how great the rewards might be. We’re just not that risk-loving.
The truly enormous leaps forward have largely been government funded. I won’t go through the sizeable list – instead, I’ll simply point out that America was discovered on the back of government funding.
Perhaps they need to emphasise that more in American school books!
How about this analogy…
Aggregate demand is the soil in which innovation can take root, grow, and blossom. A middle class that is shrinking is like a soil that is being depleted of nutrients. The more it shrinks, the more difficult it become for seeds/innovation to take root, grow, and blossom. Likewise, an increasing middle class is then analogous to nutrient-dense soil, etc.
So long as the people have the (relative) freedom to innovate, then making sure there is sufficient aggregate demand should be the priority. Take care of AD, and innovation will follow.
I very much like that analogy.
I completely agree with the idea that by and large, most wealthy Western nations place little restriction on innovation. The suggestion that brilliant ideas get thrown in the bin when the government decides to support aggregate demand is, in my opinion, unsubstantiated nonsense.
If you have a relatively free society with, e.g, , stable rule of law, low corruption, good infrastructure and equal access to basic education, the “supply-side” is essentially taken care of.
Another term for innovation is problem solving. As long as there are problems there will be problem solving. Only the most oppressive of govts, and there have been a few, can squelch human creativity. Interestingly enough though it seems those govts end up being “innovated” away as well. Look at the social progress being made in the middle east. Much of that is due of course to the high tech information age world we live in where Middle East 20 year olds have been connecting with European and American 20 year olds for the last decade or so and seeing how life could be without asshats like Ghadafi or Assad or Mubarak.
I dont worry about humans losing their creative abilities only about paranoid govts squelching them. But I equally worry about private sector powerful players rigging a game where all the buying power ends up in very few hands. Its the nature of a competitive business world, under the right conditions, to end up in monopolies. We must always be vigilant to prevent both of these likely outcomes.
People in power will likely always try to increase their power.
Interesting Bad DeLong post….
“Six Questions I Asked Thomas Mann and Norman Ornstein About Their Book “It’s Even Worse than It Looks” on May 18, 2012″.
http://delong.typepad.com/sdj/2012/05/six-questions-i-asked-thomas-mann-and-norman-ornstein-about-their-book-its-even-worse-than-it-looks-on-may-18-2012.html
I just left a comment—
Brad, did you read Warren Mosler’s book?
“The origin of MMT is ‘Soft Currency Economics‘ [1993] which I wrote after spending an hour in the steam room with Don Rumsfeld at the Racquet Club in Chicago, who sent me to Art Laffer, who assigned Mark McNary to work with me to write it.”
Rumsfeld hired Cheney to be WH Deputy Chief of Staff for Ford, and Cheney returned the favor by hiring Rummy to be SecDef for Bush. While Cheney was in the WH, of course, Art Laffer famously drew the first Laffer Curve on a cocktail napkin for him. So when Cheney said “deficits don’t matter”, he wasn’t kidding.
Democratic pols are basically useful idiots. The 5% of GDP (per CBO today) fiscal cliff the Obama team is so proud of creating simply prefunded $750 billion A YEAR in future Republican tax cuts and corporate welfare spending.
As for Obamacare, in 1991 Sam Gibbons sponsored a bill to make Medicare universal, expanding its benefits and eliminating monthly premiums– a de facto $150 a month (in 2012 $) increase in avg. SS benefits. The Medicare Universal Coverage Expansion Act of 1991 was all of three (3) pages long! Come to think of it, it’d cost less than $750 billion a year to enact (as a filibuster-proof reconciliation bill, naturally).