Monday, June 30, 2014
Centi-millionaire Nick Hanauer is at it again.
One of the country's most successful entrepreneurs and investors, Hanauer is on a mission to teach his fellow 1%-ers how the economy actually works — how jobs are actually created, how a higher minimum wage would actually help, and how the crazy "trickle-down nonsense" parroted by the ruling class is creating record inequality and actually crippling the economy.
As Hanauer points out in a new essay in POLITCO, "The Pitchforks Are Coming...For Us Plutocrats," the problem with our economy is that the once-powerful middle class has been impoverished by decades of cost cuts and wage stagnation, while Hanauer and his friends have captured an ever-greater percentage of the country's income. Unlike Hanauer and other 1%-ers, middle class people spend almost every penny they make, and this spending becomes revenue for companies started and owned by people like Hanauer. But right now, thanks to shortsighted greed, wages are at record lows as a percent of the economy, and the middle class is hurting. And that hurt, in turn, is holding back the revenue growth of companies owned by Hanauer.
Unlike most successful entrepreneurs and investors, Hanauer understands that his success is in large part the result of having been born in the right place at the right time. Had he been born in Africa, Hanauer points out — where the potential customers for his entrepreneurial efforts would have barely enough money to survive — Hanauer would likely be selling fruit by the side of the road. And so would the rest of his rich, successful entrepreneur and investor friends.
Happily, Hanauer was born in America, land of the (formerly) well-off middle class, so he was able to build and invest in companies whose customers could afford to buy their products. And the buying power of that affluent middle class made Hanauer's companies prosper and his family rich.
To anyone reared on the political orthodoxy of the moment — "rich people create the jobs," "higher wages cause higher unemployment," etc. — Hanauer's views sound like lunacy.
But they're just common sense.
By starting and directing America's companies, this story goes, entrepreneurs and rich investors create the jobs that sustain everyone else.
But entrepreneurs and investors like Hanauer (and I) actually don't create jobs — not sustainable ones, anyway.
Yes, we create jobs temporarily, by starting companies and funding losses for a while. And, yes, we are a necessary part of the economy's job-creation engine. But to suggest that we alone are responsible for the jobs that sustain the other 300 million Americans is the height of self-importance and delusion.
So, if rich people don't create the jobs, what does?
A healthy economic ecosystem — one in which most participants (especially the middle class) have plenty of money to spend. This ecosystem starts with the company's customers.
The company's customers buy the company's products. This, in turn, channels money to the company and allows the company to hire employees to produce, sell, and service those products. If the company's customers and potential customers go broke, the demand for the company's products will collapse. And the company's jobs will disappear, regardless of what the entrepreneurs or investors do.
Yes, entrepreneurs are an important part of the company-creation process. And, yes, so are investors, who risk capital in the hope of earning returns. But, ultimately, whether a new company continues growing and creates self-sustaining jobs is a function of the company's customers' ability to pay for the company's products, not the entrepreneur's vision or risk-tolerance or the investor's capital.
Saying "rich people create the jobs" is like saying that seeds create trees. Seeds do not create trees. Seeds start trees. But what actually grows and sustains trees is the combination of the DNA in the seed and the soil, sunshine, water, atmosphere, nutrients, and other factors in the environment that nurture them. If you think seeds create trees, try planting seeds in an inhospitable environment. Plant a seed in a desert or on Mars, and the seed won't create anything. It will die.
So, then, if what creates the jobs in our economy is, in part, our companies' customers, who are these customers? And what can we do to make sure these customers have more money to spend to create demand and, thus, jobs?
The customers of most companies are ultimately American's gigantic middle class — the hundreds of millions of Americans who currently take home a much smaller share of the national income than they did 30 years ago, before tax policy aimed at helping rich people get richer created an extreme of income and wealth inequality not seen since the 1920s.
It has also been pummeled by globalization and technology improvements, which are largely outside of any one country's control.
And, most importantly, it has been pummeled by our corporate obsession with short-term profits—by a prevailing business ethos in which employees are viewed as "costs" and companies strive to pay as little in wages as possible.
The economic story that justifies this behavior is the "trickle down" theory. Eventually, the mountains of money America's owners make, will get spent and, thus, find its way to the middle class ...
Unfortunately, that's not the way it actually works.
America's richest entrepreneurs, investors, and companies now have so much money that they can't possibly spend it all. So instead of getting pumped back into the economy, thus creating revenue and wages, this cash just remains in investment accounts.
I earn about 1,000 times the median American annually, but I don’t buy thousands of times more stuff. My family purchased three cars over the past few years, not 3,000. I buy a few pairs of pants and a few shirts a year, just like most American men. I bought two pairs of the fancy wool pants I am wearing as I write, what my partner Mike calls my “manager pants.” I guess I could have bought 1,000 pairs. But why would I? Instead, I sock my extra money away in savings, where it doesn’t do the country much good.
If $9 million out of Hanauer's $10 million of annual earnings went to 9,000 families instead of Hanauer, Hanauer has pointed out, it would get pumped back into the economy via consumption. And, in so doing, it would create more jobs. Instead, it sits in Hanauer's bank account or gets invested in companies that don't have enough well-off potential customers to sell to.
Hanauer estimates that, if most American families were taking home the same share of the national income that they were taking home 30 years ago, every family would have another $10,000 of disposable income to spend.
That, Hanauer points out, would have a huge impact on demand — and, thereby job creation.
So, if nothing else, it's time we stopped perpetuating the fiction that "rich people create the jobs."
Rich people don't create the jobs.
Our economy creates jobs.
We're all in this together. And until we understand that, our economy is going to struggle.
Friday, June 27, 2014
Tuesday, June 24, 2014
Thursday, June 19, 2014
Friday, June 6, 2014
Editor's note: Law professors June Carbone and Naomi Cahn have dived into a subject where economics meets the human heart. They investigate a distinct shift in American marriage patterns in which the pathway to partnership is diverging for those with economic resources and high status and those without. Conservatives tend to blame this shift on changing values and lack of moral character among working-class Americans. But Carbone and Cahn’s research reveals a different story: one in which growing inequality, economic insecurity and policy decisions combine to make marriage a risky bargain for people struggling to make ends meet. The following is an excerpt from Marriage Markets: How Inequality is Remaking the American Family, reprinted with permission from Oxford University Press.
The American family is changing—and the changes guarantee that inequality will be greater in the next generation. For the first time, America’s children will almost certainly not be as well educated, healthy, or wealthy as their parents, and the result stems from the growing disconnect between the resources available to adults and those invested in children. The time to address the real explanation for the changing American family is now.
The changes themselves, of course, have been the subject of endless commentary, both positive and negative. The age of marriage is going up, the rate of marriage is falling, and almost half of all marriages fail. An increasing number of states allow women to marry women, and men to marry men. The number of children born outside of marriage is drawing equal with the number of children born within marriage. And the percentage of children growing up in single-parent households is the highest in the developed world. These changes, however, do not affect everyone equally. Describing how the “average” family has changed hides what is really going on: economic inequality is remaking the American family along class lines, and families are not going through the same changes together. To understand what is happening to the American family—and how family law locks in the growing class divisions—requires examining the links between family change along the continuum from the top to the bottom of the American economy.
In the process, many of the existing explanations for why the American family today is so radically different from the American family of 50 years ago will prove hollow. The right blames declining moral values, the pill, welfare as we knew it, the rise of “soulmate” marriage, and a host of other social ills without providing a convincing explanation of why these changes affect one group more than another. The left celebrates individual choice, sexual liberation, and women’s equality without acknowledging that not all sources of change are benign and that the consequences of some of the changes they support contribute to the growing inequality they oppose. Neither group provides a complete explanation of these changes, and without a better explanation of why the top and bottom of American families are moving in opposite directions, efforts at family reform will remain futile.
A complete explanation of family change requires taking seriously the role of class in scripting our lives as well as the effect of greater economic inequality in remaking the terms of marriage, divorce and childrearing. Such an explanation needs to address not just why marriage has disappeared from the poorest communities, but also why, in a reversal of historical trends, elite women have become the most likely to marry. It requires the ability to explain why divorce rates, which for decades moved in the same direction for the country as a whole, are now diverging, falling back to the levels that existed before no fault divorce for the most educated while continuing to rise for everyone else. A comprehensive analysis must also be able to make sense of the decisions of working-class women, who often describe themselves as religious or conservative, to have children on their own even when the fathers of their children are willing to propose.
In short, a full explanation cannot look at the family in isolation from economic forces. Any attempt to respond to family change must include reconstruction of the script for the college educated, prompting investment in careers and marriages that can withstand the stresses of career changes, children’s illness, and geographic mobility. It also must address the destruction of the pathways that helped the working class aspire to the same combination of financial and family security.
The story accordingly starts with the greater inequality that characterizes the American economy. Rising inequality has affected men more than women, increasing both the number of men at the top who are eager to pair with high status women and the number of men at the bottom who no longer play productive roles. These changes fundamentally alter the “gender bargain,” that is, the terms on which men and women find it worthwhile to forge lasting relationships, and they do so in ways that push the top and the bottom of the socioeconomic system in different directions.
At the top, increasing disparities among men and among women have made both pickier about potential mates and wary of early commitments that might limit future opportunities. Women used to “shop around” for successful men. Male executives used to marry their secretaries, who would take care of them at home the way they did in the office. Now both look for mates who reflect (and enhance) their own expectations about the ability to enjoy the good life. Two substantial incomes rather than one make the difference between the home overlooking the golf course and the modest tract house in the less tony school district, and even if money is not at issue, the stay-at-home spouse with the Ph.D. possesses much more social status than does a high school graduate playing the same domestic role.
College graduates still largely forge lasting relationships and they typically will do so with one another, but they hedge their bets by delaying marriage and childbearing until they have a better idea of where they (and the partners to whom they commit) are likely to end up—concentrating elite advantage in the process as overwhelming numbers of them raise their children in financially secure, two-parent families.
For those whose incomes place them in the bottom third of the population, increasing disparities between men and women have made both more likely to give up on each other. International and interstate comparisons demonstrate that higher rates of inequality tend to be associated with chronic unemployment, high rates of imprisonment, and substance abuse—factors that disproportionately affect men. Women in these communities view commitment to a man who runs up the credit card bill, cycles in and out of jobs, or deals drugs on the side as more of a threat than an asset to the ability to care for children.
Men view women who take their money when they have it but do not stand by them when they flounder with distrust. These patterns encourage women to invest in their own resources rather than in the men in their lives and men to move on to new relationships when their current ones hit rough patches.
Family stability is an inevitable casualty.
The hardest patterns to analyze are those of the middle—the group clustered around the fiftieth percentile of family income in the United States. This group, which used to be called the “white working-class,” is now more racially diverse than both its comparable cohort of fifty years ago and the college-educated upper third of today. This group was once associated with well-paying blue-collar manufacturing jobs, but manufacturing jobs are no longer numerous or distinct enough to define the group. Education is perhaps the best proxy. Members of this group are high school graduates but lack a B.A. Many start at a university but do not finish, or they earn a community college or vocational degree.
The women from these families in the middle have done well. Unlike those in the top group, where sons are more likely than daughters to graduate from college and where the gender gap in income has widened, the women in this middle group have outpaced the men. They earn higher grades, stay in school longer, and are more likely to return to complete an unfinished degree later in life. When they have the same level of education and work the same number of hours as the men, the income gender gap narrows. With these changing fortunes, this larger group of successful women in the center seeks to pair with a shrinking group of comparable men. Female high school graduates used to be able to marry men with a college education; today they are much less likely to get married at all. And sociologists find that women in this center group, particularly among whites, cohabit more than American women in any other group; they live with a partner, marry, divorce, and cohabit with someone else to a greater degree than in any other group. We are providing a portrait of the changes that remade the country in the years 1990–2007. But the jury is still out as to whether the family patterns of the center, which used to look more like the family patterns at the top, will eventually resemble those of the poor.
These economic changes, which have increased the dominance of high-income men at the top, marginalized a large number of men at the bottom, and reduced the number of men in the middle, have unsettled the foundations of family life. To be sure, the family does not change with the stock market ticker or the seasonal adjustments in the unemployment rate. Instead, shifts in the economy change the way men and women match up, and, over time, they alter young people’s expectations about each other and about their prospects in newly reconstituted marriage markets. These expectations go to the core of what many see as a shift in values. The ambitious college students, who are said to have mastered the “hookup,” know that attending to their studies pays off in terms of both marriage and career prospects and that too early a commitment to a partner or to childbearing may derail both. Yet, they still largely believe that when they are ready, a suitable partner—male, female, or the product of a sperm bank—will be there for them.
Women who do not graduate from college are more likely to see childbearing as the event that will most give meaning to their lives, and they are more likely to respond to experiences with unreliable and unfaithful partners by giving up on men and investing in themselves and their children. These differing expectations, treated as the subject of moral failings, women’s liberation, and cultural clashes, are a predictable consequence of the remaking of marriage markets. At the top, there are more successful men seeking to pair with a smaller pool of similarly successful women. In the middle and the bottom, there are more competent and stable women seeking to pair with a shrinking pool of reliable men. What we are watching as the shift in marriage markets rewrites family scripts and increases gender distrust is the re-creation of class—of harder edged boundaries that separate the winners and losers in the new American economy.