YOU KNOW HOW I’M ALWAYS GOING ON ABOUT how the rising inequality of the last 30 years or so is ominous, given the tendency of situations like ours to end in tears for everyone? Well, it turns out that there is a genuine, certified billionaire entrepreneur who agrees with me.
His name is Nick Hanauer, and he was one of the earliest investors in a certain tech start-up named after a South American river. As he related in an article for Politico magazine about a year ago:
“(S)eeing over the horizon a little faster than the next guy … was the strategic part of my success. The lucky part was that I had two friends, both immensely talented, who also saw a lot of potential in the Web. One was a guy you’ve probably never heard of named Jeff Tauber, and the other was a fellow named Jeff Bezos. I was so excited by the potential of the Web that I told both Jeffs that I wanted to invest in whatever they launched, big time. It just happened that the second Jeff — Bezos — called me back first to take up my investment offer. So I helped underwrite his tiny start-up bookseller. The other Jeff started a Web department store called Cybershop, but at a time when trust in Internet sales was still low, it was too early for his high-end online idea; people just weren’t yet ready to buy expensive goods without personally checking them out (unlike a basic commodity like books, which don’t vary in quality — Bezos’ great insight). Cybershop didn’t make it, just another dot-com bust. Amazon did somewhat better. Now I own a very large yacht.”
In a column a couple years ago, I said that a better distribution of wealth actually benefits the rich, that “an economy where the wealthy have a smaller share of economic growth and the rest of us a larger share results in vastly richer rich people in absolute terms, since demand is higher, resulting in faster growth, resulting in the rich having a slightly smaller share of a much bigger economic pie. Everyone wins — workers, merchants, capital.
“But,” I continued, “that’s not the way the rich want it, for reasons that seem to be intrinsically human. Sociologists have run experiments in which they offer a subject one of two alternatives — a smaller portion of a more abundant good (usually pie, candy or some other treat) or a larger share of a smaller pie. Most people choose the latter, against their own objective self-interest.”
Now, that’s coming from a wild-eyed liberal commie radical (at least, that’s what some of my more intemperate critics seem to believe about me). But it turns out that Hanauer, prominent entrepreneur and Guy Who Probably Isn’t a Communist, actually agrees with me on that point:
“The most ironic thing about rising inequality,” he wrote, “is how completely unnecessary and self-defeating it is. If we do something about it, if we adjust our policies in the way that, say, Franklin D. Roosevelt did during the Great Depression — so that we help the 99 percent and preempt the revolutionaries and crazies, the ones with the pitchforks — that will be the best thing possible for us rich folks, too. It’s not just that we’ll escape with our lives; it’s that we’ll most certainly get even richer.”
Speaking of those pitchforks Hanauer mentioned, I have also mentioned before that as an economy gets further and further toward oligarchy, there is a growing risk of social unrest:
“History tells us these kinds of situations can either be reformed (see Teddy Roosevelt and the trust-busters, FDR and the New Deal, and so on), or, if the oligarchs have so tight a grip on the levers of power — including the means of mass communication — that they can prevent reform, then eventually the people will rise up.”
And again, it turns out that Hanauer, prominent entrepreneur and Guy Who Probably Isn’t a Communist, actually agrees with me on that point, too:
“… I have a message for my fellow filthy rich, for all of us who live in our gated bubble worlds: Wake up, people. It won’t last.
“If we don’t do something to fix the glaring inequities in this economy, the pitchforks are going to come for us. No society can sustain this kind of rising inequality. In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out. You show me a highly unequal society, and I will show you a police state. Or an uprising. There are no counterexamples. None. It’s not if, it’s when.”
Amazingly (if you believe that I’m some wild-eyed radical), Hanauer’s preferred remedy mirrors my own: some version of a New Deal between capital and labor:
“Dear 1%ers, many of our fellow citizens are starting to believe that capitalism itself is the problem. I disagree, and I’m sure you do too. Capitalism, when well-managed, is the greatest social technology ever invented to create prosperity in human societies. But capitalism left unchecked tends toward concentration and collapse. It can be managed either to benefit the few in the near term or the many in the long term. The work of democracies is to bend it to the latter. That is why investments in the middle class work. And tax breaks for rich people like us don’t. Balancing the power of workers and billionaires by raising the minimum wage isn’t bad for capitalism. It’s an indispensable tool smart capitalists use to make capitalism stable and sustainable. And no one has a bigger stake in that than zillionaires like us.”
Matt Talbot is a writer and poet, as well as an old Benicia hand. He works for a tech start-up in San Francisco.
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Matt –
In 2014 WalMart CEO’s total compensation was $25.6 million. If he was taxed at 90%, as you’ve suggested in other articles, his take home pay would have been $2.6 million. Would that keep the pitchfork wielding mob at bay?
If that $23 million were directly redistributed to WalMart’s 2.1 million employees worldwide, each employee would receive $11. That’s $11 total per year, not an additional $11/hour. Would an extra $11 per year satisfy those distraught over inequality?
But wait a minute, we care about US workers, right? If the CEO’s $23 million was redistributed to WalMart’s 1.4 million US workers, those folks would each receive a whopping $16 per year. Is that sufficient to gain them a home in the same gated community? Will $16 be enough to allow them to fly in a private jet instead of coach?
The problem with those that decry this inequality is that what they advocate for doesn’t raise the stature of the rest of us in any meaningful way. It only takes away from the rich.
And those that threaten the rich with an angry army armed with pitchforks are thugs. Thugs with a pen trying to incite thugs with pitchforks into action. By all means, kill those greedy b@$t##d$. Claim your $16. Who will you work for next year? Where will you shop?
Tom – Hanauer addressed the situation of Wal-Mart workers in his Politico piece:
“Wal-Mart is our nation’s largest employer with some 1.4 million employees in the United States and more than $25 billion in pre-tax profit. So why are Wal-Mart employees the largest group of Medicaid recipients in many states? Wal-Mart could, say, pay each of its 1 million lowest-paid workers an extra $10,000 per year, raise them all out of poverty and enable them to, of all things, afford to shop at Wal-Mart. Not only would this also save us all the expense of the food stamps, Medicaid and rent assistance that they currently require, but Wal-Mart would still earn more than $15 billion pre-tax per year. Wal-Mart won’t (and shouldn’t) volunteer to pay its workers more than their competitors. In order for us to have an economy that works for everyone, we should compel all retailers to pay living wages—not just ask politely.”
Matt just what is a living wage? Do you have that answer? Medicaid qualification has been raisded in those states you are talking about I assume. That would mean many folks that were never on Medicaid nor needed to be are now on Medicaid. It has everything to do with Obamacare. The federal, state and counties have made the folks that are in need help available to them. They take those low income jobs for many reasons. By the way just what states are you talking about. Matt you may be surprised how many folks qualify for medicaid because of Obamacare. It was a way to get more folks healthcare and it backfired big time. You pay someone 20,000 a year then add all the government subs and there is no reason to get a better paying job. I do believe that is not the case of all. The government giveaways takes away the incentive ti improvwe and create a better life for themselves and others. I grew up thinking you never wanted welfare you wanted to make it on your own. Matt what you write has nothing to do with equality in pay it has all to do with your Socialist thinking.
Matt –
Thanks for responding and thanks for pointing out Hanauer’s article. It’s an interesting read from someone with a unique perspective.
Regarding your suggestion of taking $10 billion out of WalMart’s earnings and giving a million people a $10,000 raise:
• That will reduce WalMart’s profits by 40%.
• WalMart’s current profit margin is 3.38%, a razor thin margin. Reducing that by 40% would put the profit margin at just 2%. That is unsustainable. Costs will be cut (most likely jobs) and / or prices will increase. No way around it.
• WalMart’s effective tax rate is 32.3%. Unless the people receiving that income redistribution pay an effective rate of at least 32%, government tax revenue will decrease. I would venture, that many of those folks pay 0% in taxes.
• WalMart paid $6.2 billion in dividends last year. Reducing that by 40% will mean $2.5 billion less in dividends. Thirty percent of WMT is owned by institutions, mainly mutual funds. Reducing dividends will mean less income for those few who are fortunate enough to have a defined pension or were smart enough to fund their 401(k) and IRA.
• WMT’s market cap is $233 billion. The Price/Earnings ratio is 14.5. Reducing the earnings by 40% will reduce the price by 40%, reducing the market cap by 40%, or $93 billion. More hits to retirees and investors. My guess is that Jeff Hanauer is not a WMT shareholder, given his ability to “see around the corner”.
Not every job can, or should, pay a living wage in my opinion. Entry level jobs for non-skilled workers are a vital part of the economy and of many people’s progression through life. The fact that a kid stocking shelves in WalMart can’t afford rent isn’t a bad thing. The fact that he’s learning to be responsible and gaining business and life experience is a great thing. If that young kid’s coworker is an adult that also receives public assistance, I don’t think that’s a bad thing either. Working is better than not working. The social safety net programs are in place to help people like that. That’s a good thing too.
Have middle class incomes stagnated? Statistics say yes. Have our standards of living increased with flat incomes? Absolutely.
How can we have a thriving middle class with high incomes when compared with the rest of the (competitive) world? We have a highly educated, highly productive workforce. A person is the US can make more widgets per hour than someone in China or Vietnam. Directionally that helps. What else can be done? Reduce other costs. What and how? By doing all of the things liberals despise. Reduce regulations. Make utilities cheap, plentiful and reliable, such as fuel, electricity and water.
To paraphrase Hanauer, we need less government and that is hard to do.
The problem is that the majority – the vast majority – of people shelving stuff at Walmart are not kids looking to make some extra money for a car or college. They are the real working poor. When the largest retail business in the world has to hand out food stamp and Medical info during worker orientation, there is something seriously wrong. I remember reading somewhere a few years ago that one month of dividends for the Waltons would provide enough money for healthcare for most of the US workers. If that is true, one has to ask: how much is enough for an individual? Sam Walton was a fine man. He would probably be horrified at what has happened to his dream of providing low cost goods and steady jobs to the folks in smaller communities across the country – an idea which was scoffed at by other retailers at the time.
That is exactly what Woolworths and JC Penney did. WalMart just does it better. Woolworths is gone and Penney upgraded as did Kohls. Those jobs at JC Penney and stores like them are stil;l; entry level minimum wage jobs and always will be. . Nothing has changed..
Jfurlong –
According to a December 3, 2014 article in the Washington Post, the average health care cost for each person in the US was $9,255 for 2013. The link for the article is below:
http://www.washingtonpost.com/blogs/wonkblog/wp/2014/12/03/heres-exactly-how-the-united-states-spends-2-9-trillion-on-health-care/
The cost for Walmart’s 1.4 million workers is then $13 billion per year. Do you really believe that the Walton’s make $13 billion per month in dividends? Dividends come from earnings. As has been stated above Walmart’s total annual profit is in the $25 billion dollar range. Those numbers just don’t add up.
How much income is enough for one person? I don’t know. Who gets to decide? You? Matt? Angry mobs with pitchforks?
Do the Walton’s make too much money from their investments? I don’t know. According to WMT financials, the total assets of the Walmart Corporation are slightly north of $200 billion. A 4% return on a $200 billion investment is $8 billion per year. Is that how much they make? I don’t know. Is that fair? It’s actually pretty low.
In 2014 WMT’s cost of revenue was $365 billion. Sales/General/Administrative expenses were $93 billion. Explanations of cost of revenue and SG&A can be found here:
http://www.investopedia.com/terms/c/cost-of-revenue.asp
https://en.wikipedia.org/wiki/SG%26A
If investors such as the Waltons and Nick Hanauer can’t make money they won’t invest. The more they invest, the more they risk losing. If they are bad investors they make nothing and lose everything. If they’re good investors and they reinvest their profits, they will make increasing amounts. If you want to limit an investor’s income you will limit their investments. Would you be happy if the Walton’s made half as much? Would you be okay if there were half of the Walmart stores? That would also mean that they bought $100 billion less in buildings, land, etc. It would also mean that they purchase $183 billion less per year is goods and other operating expenses. SG&A would fall by $47 billion per year. Less real estate taxes, fewer goods purchased, less truck drivers employed, fewer saleman…but those darn Waltons would be making less. That’s enough to keep the pitchforks in the barn!
Excellent points Tom. All well documented facts that will not be refuted but argued against anyway.
Very good Matter. Matt and his crowd will not understand your comment.
Sorry should be Tom.
Everyone – This is how to discuss things in a civil and rational way. Tom is making rational arguments that are on-topic and are supported by data.
Tom – you’ve left a couple things out.
Firstly, as Nick said, if not just Wal-Mart but everyone is paying workers a living wage, then there will be more aggregate demand in the economy, meaning more sales for Wal-Mart.
Secondly, you say that “Working is better than not working.” That’s true, but you’re presenting a false dilemma. What if there are other options?
Like this:
1. Not working is worst;
2. Working for poverty wages is marginally better;
3. Working for living wages is best.
I’m for doing everything we can to make that third option a reality.
Also worth mentioning: Looking at the economy as a whole, the profit share of income is at a record high, and the labor share of income is at a record low. Increasing labor’s share will mean a temporary hit to profits, but ultimately to more demand in the economy, which means that profits ultimately will be higher as an absolute number, but not as large a percentage of the total.
Which gets at what this is really about, in my view: relative status. My plan will result in richer rich people than your plan, in the long run, but it will also result in their lead over everyone else being decreased. That, I believe, is the real objection.
Finally, I would think that Nick would not want to invest in Wal-Mart because if nothing changes, it is not in his long-term, big-picture economic interest to do so. Investing in a company that obstinately pays its workers poverty wages is rewarding people who are depriving the economy of demand.
Matt Stated: Tom is making rational arguments that are on-topic and are supported by data.
Agreed Tom has made some excellent points. It would be nice if we could see the same from the author of the piece.
Case in point : “the labor share of income is at a record low.”
The statement implies (by following the anti-one percent approach taken) that this reduction in labor share is wholly attributable to labor being taken advantage of by evil capitalists. Since no reference is made, the reader is left to draw whichever conclusion they want, or the conclusion the author wishes (hopes?) for them to make.
Let’s consider that the number of people participating in the work force has decreased from 66.4 million to under 63 million. Given that fact, we would expect the share to have increased, so perhaps you point is valid. But without the data, that conclusion cannot be made.
I am sure that many of the 3.5 million people now not participating in the work force, may have a different opinion on this subject.
The truth of all this is, if the nation can be reinvigorated by reducing the unemployment rate we would see :
1) Salaries increasing due to demand for workers.
2) Tax revenue increasing.
3) Government assistance decreasing.
4) Budget deficits and national debt decreasing (if spending stays constant).
I have yet to see a suggestion on how increased spending is going accomplish the above points.
Labor force participation rate
Matt you got your weish in L A. Wagesd are now
Did not get chance to edit. Matt you got your wish. Minimum wage in L A is now $15.00 an hour. Guess what Matt nothing will change e=xcept less minimum wage jobs. Same folks but less of then working.. Will there now be a rush for better living conditions in housing? If so, there goes the prices on the rise and bye bye any chance of better conditions. Great comments have been made but sorry to say Matt you have made none of them. I will not stand by and be mister nice guy and listen to your Socialist views without making hard hitting comments. Sorry Matt no more Mr. Nice guy.. Matt everything you have written past and present is a futile attermpt to justify your Socialist views. Some will buy in but for sure not me. Your dream of this Utopia Empire is just that A Dream. Read what DDL and Tom say. They are right on target but for some reason you do not get it and it appears you never will. As I said no more Mr. Nice Guy.
Matt –
Thanks for the kind words and the civil conversation. You’ve made me think. And though I feel that neither of us will bring the other around to their side, thinking, researching and attempting to pose a well-reasoned argument is time well spent.
In Hanauer’s article he states, “…raising the minimum wage costs jobs. Businesses will have to lay off workers. This argument reflects the orthodox economics that most people had in college. If you took Econ 101…” My arguments are based on basic, as well as advanced, economic theory. Those that dismiss this body of knowledge are certainly free to do so. But I feel that their subsequent philosophies will be baseless. You and Nick made the statement there will be more demand when everyone is paid a “living wage”. My retort that more demand will raise prices eroding the purchasing power of the more highly paid workers is based on the basic economic principle of supply and demand. Nick has dismissed that out of hand.
Is his article, Hanauer discusses a “middle-out” economic approach. Raising the minimum wage is not a “middle-out” approach. It is a “bottom-up” approach.
You state that you are “for doing everything that will make” working for living wages “a reality”. Would you support rebuilding the middle class by rebuilding America’s manufacturing ability? Into the envy of the world? As we were after WWII?
We know how to do it. We just need the will. There will be costs associated with a manufacturing vs. a service based economy. Some factories stink. Some processes create waste that must be disposed of. Manufacturing typically is resource intensive including raw materials, energy and water, in addition to labor and capital.
Are you willing to support increasing the water supply in California? More dams? More hydroelectric plants providing cheap electricity? But a few fishies will die. There may be an endangered gnat habitat that will be flooded and gone forever. Are you willing to pay some environmental costs to make living wages a reality? Heaven forbid that we also feed those reservoirs from desalination plants. OMG, those desalination plants need to dump the removed salt somewhere. Dumping it back into the ocean will create a high salinity microenvironment in Mother Nature’s oceans. Clearly we will need an environmental impact report and a decade to cogitate over any such proposal. Or we could reduce regulatory requirements that would allow dams to be built in two years instead of being denied after twenty. De-sal plants to be operational in two years instead of never. Same could be said for more power plants, frac-ing, and crude-by-rail or the XL pipeline.
Who is willing to actually pay a price for more US manufacturing? Who is willing to actually tell the masses that they can’t have a better future without paying or sacrificing for it? Who is willing to point out that our forefathers sacrificed much to build the life that we now enjoy?
Because it is so much easier to practice the politics of division. To say that you have been taken advantage of. You are entitled to a better future. You don’t have to sacrifice anything. Just pick up a pitch fork and skewer the Waltons of the world.
Tom,Very well thought out comment. The kind words and civil comversation comment was very nice. But I do believe that has been tried before and no one will listen. Everything you said is being railed against as we write. Your comment is very true but will take a complete political make over. The one advantage we now have is other countries factories are very old. We buikl new ones and we are light years ahead. It is strange that the USA builds the finest Airplsanes and Cars but even those manufactures keep getting regulated out of business. You are correct, just who will stand up and do this. A political make over is the first job then m,oving forward could have some traction. I do not always like to harp on Matt and his Socialist views but that is what holds back progress. Thanks for the comment.
Tom asked: “Who is willing to….”
A very reasonable series of questions.
But one more question bears examination: How are the people of this nation to be prepared to accept less while also paying more?
Things will have to get a lot worse than they are today for the country to accept the type of controls required to attain the life envisioned in this piece.
Tom – you’re welcome for the discussion. I agree that we probably won’t have a lot of agreement on these questions, but I too appreciate the discussion.
To your points:
More demand will raise prices eroding the purchasing power of the more highly paid workers is based on the basic economic principle of supply and demand.
When unions were strong and wages were high during the 30 years after the war, real (inflation-adjusted) median wages maintained a steady climb – in other words, everyone shared in the good times. In the 35 years since 1980, wages have mostly moved sideways or declined, and the vast majority of the benefits of economic growth have gone to the top of the income scale.
Look at a chart of productivity and wages after the second world war. For 30 or so years, workers got raises in line with productivity. If they produced (say) 2% more per hour, then they would earn 2% more per hour. Other things being equal, that would produce no inflation and increase demand in the economy by 2% – and that’s what the economy looked like during those decades. There was lots of talk about a “rising standard of living.” You don’t hear that phrase much today, because it is no longer true. Even if you include total compensation – things like health care and other non-wage benefits – the pattern still holds: they closely tracked productivity for 30 years, and then became decoupled.
Would you support rebuilding the middle class by rebuilding America’s manufacturing ability? Into the envy of the world? As we were after WWII?
Yup – I’ve mentioned in a couple recent columns that our economy is severely lacking in jobs that fulfill all three of the requirements – 1. pay well 2. don’t require a college degree and 3. are plentiful. I don’t see a way to get us there that doesn’t involve a major shift back toward manufacturing in the United States.
Finally, American rightist economics gets us to a world where the strong do what they will and the weak suffer as they must.
Think about this, Tom: The time in our history when the market was closest to being “free” as righties would conceive it was the Gilded Age. The result was lots of capital formation, roaring markets, mansions going up one after the other in Newport and the Hamptons… and a Dickensian nightmare for workers.
Matt stated: The time in our history when the market was closest to being “free” as righties would conceive it was the Gilded Age.
Matt, I know quite a few righties and deal with many more on a daily basis through my work. and your statement lacks clarity.
Can you clear up, perhaps with a source, legislative example or a quote from a modern (alive today or within the last 25 years) rightie that advocates a return to the days of the Robber Barron’s?
Matt Stated: Hanauer’s preferred remedy mirrors my own: some version of a New Deal between capital and labor:
Barrack Obama July 3, 2008 ”Bush has … (driven)up our national debt from $5 trillion dollars for the first 42 presidents — number 43 added $4 trillion dollars by his lonesome, so that we now have over $9 trillion dollars of debt that we are going to have to pay back — $30,000 for every man, woman and child. That’s irresponsible. It’s unpatriotic.”
The National debt now stands at about 18.3 Trillion, $58,000 for every man, woman and child.
Matt, you propose spending more. Two questions:
1) Given the above comment from the President, would you classify him, as he did President Bush, as being both irresponsible and unpatriotic?
2) Why would you now propose a solution which has been defined as being both irresponsible and unpatriotic?
One answer to question 2 is that you are willing to be unpatriotic and irresponsible, just as President Obama has been. A second answer is that President Obama was not being honest with the voter’s, what a shock that would be.
Matt you are a very confused person. The middleclass is much better off now than it has ever been. Go ahead and up the hourly rate to $50.00 an hour. Those minimum jobs will still be the same except the burger will now cost $25.00 . You cannot change your so called inequality by upping the wages or changing the minimum wage. The big problen is there are now many more minimum wage jobs. Thise jobs offer many folks a start and were never meant to be permanent jobs. Just building blocks as they build their own future. What has happened is you have made those jobs as the only means for the lower educated to make a living. Personal responsibility and advanced training are always availible. It is up to all citizens to train themselves to be eligible for better paying jobs. You can never take someone out of poverty with increaces in minimum wages. They will still do those jobs and the economy just keeps going up and they are still right back as they were before. When are you ever going to figure it out Matt. You are a true Socialist. Socialism never works.
If you want higher wages, you need to organize, unionize, march and picket. ‘Ol Scrooge McDuck wants to wallow in his room full of money, he isn’t going to give anything up easily.
Ya gotta shake things up. The squeaky wheel gets the grease.
It is difficult to dig through Walmart ‘facts’ to get the truth, as most of the sites are attack jobs against Walmart and are the usual gang (Daily Kos, Salon, Mother Jones, Huffington Post). In trying to find an ‘acceptable’ source (obviously the Walmart site which has tons of info cannot be used) for the attackers, I came across some stats for consideration:
These numbers are a bit old, but likely the percentages have not changed:
** 1.2 million: The number of Wal-Mart associates in the U.S. Any full- or part-time Wal-Mart employee, up to and including the CEO, is considered an “associate,” in Wal-Mart parlance.
** 600,000: The number of new employees Wal-Mart hires each year. The company’s turnover rate is 44 percent — close to the retail industry average.
Let’s consider those numbers: Almost half the total number of people working at Walmart are entry level people.
Now let’s also consider:
How many of those people were on government assistance before being hired and then went off?
How many employees who leave Walmart then apply for government assistance?
How many employees who last more than a year (336,000), then work their way up to better paying jobs within the system?
Salon.com did a hit piece in which they claimed 80% of the Walmart employees are on food stamps. The piece contained a lot of fraudulent information and was rebuked by many people. Yet many still believe that bogus number.
Source for the numbers above
PBS: Walmart Secrets
Matt I think it would be better use of money to train folks for a trade and at the same time if necessary work for minimum wage untill prepared in the trade of their choice. What is wrong with being a butcher, carpenter, steam/pipe fitter, electrician and many other trades. All trades ARE open to both male and female. In many cases you work on the job untill you are trained and given certification.Taking from the rich and upping minimum wage does not accomplish a thing. It is pure take from the rich and give to the poor without any results for better opportunities. It will work.