“Rich people don’t create jobs, nor do businesses, large or small,” says venture capitalist Nick Hanauer in a recent TED talk. His speech has gone viral in social media because Hanauer is a hipper version of Warren Buffet—he’s saying the same things but he invests in Amazon.com not GEICO.
The speech is light on details, but it’s actually an abridged version of an editorial he penned late last year. Both versions focus on the “rich getting richer” and how the key to making America great again is to just siphon off a small piece of their wealth—heck they won’t even notice it—and invest in the middle class.
The middle class, he claims, are the “real” job creators in the economy. How’s that? Because they’re the largest and highest-spending consumers. Businesses, after all, can’t have any revenue unless someone gives it to them. And that someone is most likely to come from the middle class.
If the middle class could become wealthier (but not too wealthy) or grow in membership, that would “set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire.” Leaving aside for the moment the glaring contradiction wherein he says that business owners are the ones hiring, Hanauer would expand the middle class by levying a 3 percent surtax on incomes above $1 million and rolling back the Bush-era tax cuts to fund “rebuilding schools and infrastructure.”
Wait, what? I read his editorial over and over again, trying to find how he would set loose the “real job creators” but that’s all he’s got. Soak the rich, give the money to the federal government, and … it’ll all just work out?
This is the same tired argument put forth by Paul Krugman, John Maynard Keynes, and Karl Marx. The rich didn’t earn their money, the true source of wealth is labor, increase demand through government spending will boost the economy. These beliefs have held sway in various guises uninterrupted for 164 years now. To quote his TED talk, “it is astounding how significantly one idea can shape a society and its policies.”
That idea’s time has passed. It is time for a new idea to take hold. An idea that is the exact opposite of Hanauer et al’s: the idea that wealth comes from man’s mind.
Hanauer’s middle-class consumer has disposable income to spend for a product from a business. Where did he get that money? Most members of the American middle class are not self-employed (i.e., not business owners) so their money comes as wages from their employers. This illustrates the thing that Krugman and his ilk ignore: there can be no employee without the employer.
Every business ever was started by someone who had a vision and the drive to achieve it. From the smallest business where the owner is working by himself to the best-funded startup, that first person—the founder—was not the janitor, the line worker, or the cashier. They owe their jobs and their livelihoods to that ambitious owner.
That is not to say that a modern, substantial enterprise could exist without the janitor, the line worker, or the cashier. But it couldn’t continue with just them or without that founder. Read any business biography and take note of the hard work the founders put in.
The way to enlarge the middle class is not to penalize their employers but to make more of them want to be employers themselves. Removing the present sting that accompanies success will go a long way towards that end: the byzantine regulations that accompany hiring along with the substantial tax burden and the looming Obamacare rules are sufficient to dissuade the ambitious employee from making the leap.