A couple of weeks ago, Politico Magazine published an article by billionaire Nick Hanauer, who – amongst other things – was one of the founders of Amazon. In it he argues that inequality has risen to such an extent that he thinks serious social unrest is inevitable unless something is done to address it. He is advancing ideas he has coined as “middle-out” economics as a rebuttal to the “trickle-down” variety. His approach is more pragmatic than ideological I think, a kind of self-preservation strategy for the top 0.1% if you like, but there’s little doubt what he is proposing would improve things for the great majority of people (while keeping the economic system fundamentally in tact). He argues the fundamental law of capitalism must be:
“If workers have more money, businesses have more customers. Which makes middle-class consumers, not rich businesspeople like us, the true job creators. Which means a thriving middle class is the source of American prosperity, not a consequence of it. The middle class creates us rich people, not the other way around.”
Hanauer’s key proposals in the article is for a $15 an hour minimum wage in the States (the Federal Minimum Wage is currently $7.25, which is about £4.20 an hour). Hanauer says the following about the minimum wage:
“The standard response in the minimum-wage debate, made by Republicans and their business backers and plenty of Democrats as well, is that 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, then you literally were taught that if wages go up, employment must go down. The law of supply and demand and all that. That’s why you’ve got John Boehner and other Republicans in Congress insisting that if you price employment higher, you get less of it. Really?
Because here’s an odd thing. During the past three decades, compensation for CEOs grew 127 times faster than it did for workers. Since 1950, the CEO-to-worker pay ratio has increased 1,000 percent, and that is not a typo. CEOs used to earn 30 times the median wage; now they rake in 500 times. Yet no company I know of has eliminated its senior managers, or outsourced them to China or automated their jobs. Instead, we now have more CEOs and senior executives than ever before. So, too, for financial services workers and technology workers. These folks earn multiples of the median wage, yet we somehow have more and more of them.
The thing about us businesspeople is that we love our customers rich and our employees poor. So for as long as there has been capitalism, capitalists have said the same thing about any effort to raise wages. We’ve had 75 years of complaints from big business—when the minimum wage was instituted, when women had to be paid equitable amounts, when child labor laws were created. Every time the capitalists said exactly the same thing in the same way: We’re all going to go bankrupt. I’ll have to close. I’ll have to lay everyone off. It hasn’t happened. In fact, the data show that when workers are better treated, business gets better. The naysayers are just wrong.
Is this issue more complicated than I’m making out? Of course. Are there many factors at play determining the dynamics of employment? Yup. But please, please stop insisting that if we pay low-wage workers more, unemployment will skyrocket and it will destroy the economy. It’s utter nonsense. The most insidious thing about trickle-down economics isn’t believing that if the rich get richer, it’s good for the economy. It’s believing that if the poor get richer, it’s bad for the economy.”
UK politicians have made noises recently about raising the minimum wage, but all seem convinced it will cause unemployment. Hanauer demonstrates why it needn’t. The whole article is worth reading, and here’s a TED talk Hanauer did a couple of years ago that I’ve posted here before: