"The Pitchforks Are Coming . . ."

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"The Pitchforks Are Coming . . ."

Post by Amskeptic » Tue Jul 01, 2014 11:55 am

" . . . For Us Plutocrats."

Article in Politico July/August 2014
(Nick Hanauer is an entrepreneur in Seattle)
Memo: From Nick Hanauer
To: My Fellow Zillionaires

You probably don’t know me, but like you I am one of those .01%ers, a proud and unapologetic capitalist. I have founded, co-founded and funded more than 30 companies across a range of industries—from itsy-bitsy ones like the night club I started in my 20s to giant ones like Amazon.com, for which I was the first nonfamily investor. Then I founded aQuantive, an Internet advertising company that was sold to Microsoft in 2007 for $6.4 billion. In cash. My friends and I own a bank. I tell you all this to demonstrate that in many ways I’m no different from you. Like you, I have a broad perspective on business and capitalism. And also like you, I have been rewarded obscenely for my success, with a life that the other 99.99 percent of Americans can’t even imagine. Multiple homes, my own plane, etc., etc. You know what I’m talking about. In 1992, I was selling pillows made by my family’s business, Pacific Coast Feather Co., to retail stores across the country, and the Internet was a clunky novelty to which one hooked up with a loud squawk at 300 baud. But I saw pretty quickly, even back then, that many of my customers, the big department store chains, were already doomed. I knew that as soon as the Internet became fast and trustworthy enough—and that time wasn’t far off—people were going to shop online like crazy. Goodbye, Caldor. And Filene’s. And Borders. And on and on.

Realizing that, seeing 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.
But let’s speak frankly to each other. I’m not the smartest guy you’ve ever met, or the hardest-working. I was a mediocre student. I’m not technical at all—I can’t write a word of code. What sets me apart, I think, is a tolerance for risk and an intuition about what will happen in the future. Seeing where things are headed is the essence of entrepreneurship. And what do I see in our future now?
I see pitchforks.
At the same time that people like you and me are thriving beyond the dreams of any plutocrats in history, the rest of the country—the 99.99 percent—is lagging far behind. The divide between the haves and have-nots is getting worse really, really fast. In 1980, the top 1 percent controlled about 8 percent of U.S. national income. The bottom 50 percent shared about 18 percent. Today the top 1 percent share about 20 percent; the bottom 50 percent, just 12 percent.
But the problem isn’t that we have inequality. Some inequality is intrinsic to any high-functioning capitalist economy. The problem is that inequality is at historically high levels and getting worse every day. Our country is rapidly becoming less a capitalist society and more a feudal society. Unless our policies change dramatically, the middle class will disappear, and we will be back to late 18th-century France. Before the revolution.
And so 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.

Many of us think we’re special because “this is America.” We think we’re immune to the same forces that started the Arab Spring—or the French and Russian revolutions, for that matter. I know you fellow .01%ers tend to dismiss this kind of argument; I’ve had many of you tell me to my face I’m completely bonkers. And yes, I know there are many of you who are convinced that because you saw a poor kid with an iPhone that one time, inequality is a fiction.

Here’s what I say to you: You’re living in a dream world. What everyone wants to believe is that when things reach a tipping point and go from being merely crappy for the masses to dangerous and socially destabilizing, that we’re somehow going to know about that shift ahead of time. Any student of history knows that’s not the way it happens. Revolutions, like bankruptcies, come gradually, and then suddenly. One day, somebody sets himself on fire, then thousands of people are in the streets, and before you know it, the country is burning. And then there’s no time for us to get to the airport and jump on our Gulfstream Vs and fly to New Zealand. That’s the way it always happens. If inequality keeps rising as it has been, eventually it will happen. We will not be able to predict when, and it will be terrible—for everybody. But especially for us.
***
The most ironic thing about rising inequality 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.


The model for us rich guys here should be Henry Ford, who realized that all his autoworkers in Michigan weren’t only cheap labor to be exploited; they were consumers, too. Ford figured that if he raised their wages, to a then-exorbitant $5 a day, they’d be able to afford his Model Ts.
What a great idea. My suggestion to you is: Let’s do it all over again. We’ve got to try something. These idiotic trickle-down policies are destroying my customer base. And yours too.
It’s when I realized this that I decided I had to leave my insulated world of the super-rich and get involved in politics. Not directly, by running for office or becoming one of the big-money billionaires who back candidates in an election. Instead, I wanted to try to change the conversation with ideas—by advancing what my co-author, Eric Liu, and I call “middle-out” economics. It’s the long-overdue rebuttal to the trickle-down economics worldview that has become economic orthodoxy across party lines—and has so screwed the American middle class and our economy generally. Middle-out economics rejects the old misconception that an economy is a perfectly efficient, mechanistic system and embraces the much more accurate idea of an economy as a complex ecosystem made up of real people who are dependent on one another.
Which is why 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.
On June 19, 2013, Bloomberg published an article I wrote called “The Capitalist’s Case for a $15 Minimum Wage.” Forbes labeled it “Nick Hanauer’s near insane” proposal. And yet, just weeks after it was published, my friend David Rolf, a Service Employees International Union organizer, roused fast-food workers to go on strike around the country for a $15 living wage. Nearly a year later, the city of Seattle passed a $15 minimum wage. And just 350 days after my article was published, Seattle Mayor Ed Murray signed that ordinance into law. How could this happen, you ask?
It happened because we reminded the masses that they are the source of growth and prosperity, not us rich guys. We reminded them that when workers have more money, businesses have more customers—and need more employees. We reminded them that if businesses paid workers a living wage rather than poverty wages, taxpayers wouldn’t have to make up the difference. And when we got done, 74 percent of likely Seattle voters in a recent poll agreed that a $15 minimum wage was a swell idea.
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.
Most of you probably think that the $15 minimum wage in Seattle is an insane departure from rational policy that puts our economy at great risk. But in Seattle, our current minimum wage of $9.32 is already nearly 30 percent higher than the federal minimum wage. And has it ruined our economy yet? Well, trickle-downers, look at the data here: The two cities in the nation with the highest rate of job growth by small businesses are San Francisco and Seattle. Guess which cities have the highest minimum wage? San Francisco and Seattle. The fastest-growing big city in America? Seattle. Fifteen dollars isn’t a risky untried policy for us. It’s doubling down on the strategy that’s already allowing our city to kick your city’s ass.

It makes perfect sense if you think about it: If a worker earns $7.25 an hour, which is now the national minimum wage, what proportion of that person’s income do you think ends up in the cash registers of local small businesses? Hardly any. That person is paying rent, ideally going out to get subsistence groceries at Safeway, and, if really lucky, has a bus pass. But she’s not going out to eat at restaurants. Not browsing for new clothes. Not buying flowers on Mother’s Day.
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.
I know that virtually all of you feel that compelling our businesses to pay workers more is somehow unfair, or is too much government interference. Most of you think that we should just let good examples like Costco or Gap lead the way. Or let the market set the price. But here’s the thing. When those who set bad examples, like the owners of Wal-Mart or McDonald’s, pay their workers close to the minimum wage, what they’re really saying is that they’d pay even less if it weren’t illegal. (Thankfully both companies have recently said they would not oppose a hike in the minimum wage.) In any large group, some people absolutely will not do the right thing. That’s why our economy can only be safe and effective if it is governed by the same kinds of rules as, say, the transportation system, with its speed limits and stop signs.
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.
We rich people have been falsely persuaded by our schooling and the affirmation of society, and have convinced ourselves, that we are the main job creators. It’s simply not true. There can never be enough super-rich Americans to power a great economy. 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.
So forget all that rhetoric about how America is great because of people like you and me and Steve Jobs. You know the truth even if you won’t admit it: If any of us had been born in Somalia or the Congo, all we’d be is some guy standing barefoot next to a dirt road selling fruit. It’s not that Somalia and Congo don’t have good entrepreneurs. It’s just that the best ones are selling their wares off crates by the side of the road because that’s all their customers can afford.
So why not talk about a different kind of New Deal for the American people, one that could appeal to the right as well as left—to libertarians as well as liberals? First, I’d ask my Republican friends to get real about reducing the size of government. Yes, yes and yes, you guys are all correct: The federal government is too big in some ways. But no way can you cut government substantially, not the way things are now. Ronald Reagan and George W. Bush each had eight years to do it, and they failed miserably.
Republicans and Democrats in Congress can’t shrink government with wishful thinking. The only way to slash government for real is to go back to basic economic principles: You have to reduce the demand for government. If people are getting $15 an hour or more, they don’t need food stamps. They don’t need rent assistance. They don’t need you and me to pay for their medical care. If the consumer middle class is back, buying and shopping, then it stands to reason you won’t need as large a welfare state. And at the same time, revenues from payroll and sales taxes would rise, reducing the deficit.

This is, in other words, an economic approach that can unite left and right. Perhaps that’s one reason the right is beginning, inexorably, to wake up to this reality as well. Even Republicans as diverse as Mitt Romney and Rick Santorum recently came out in favor of raising the minimum wage, in defiance of the Republicans in Congress.
***
One thing we can agree on—I’m sure of this—is that the change isn’t going to start in Washington. Thinking is stale, arguments even more so. On both sides.
But the way I see it, that’s all right. Most major social movements have seen their earliest victories at the state and municipal levels. The fight over the eight-hour workday, which ended in Washington, D.C., in 1938, began in places like Illinois and Massachusetts in the late 1800s. The movement for social security began in California in the 1930s. Even the Affordable Health Care Act—Obamacare—would have been hard to imagine without Mitt Romney’s model in Massachusetts to lead the way.
Sadly, no Republicans and few Democrats get this. President Obama doesn’t seem to either, though his heart is in the right place. In his State of the Union speech this year, he mentioned the need for a higher minimum wage but failed to make the case that less inequality and a renewed middle class would promote faster economic growth. Instead, the arguments we hear from most Democrats are the same old social-justice claims. The only reason to help workers is because we feel sorry for them. These fairness arguments feed right into every stereotype of Obama and the Democrats as bleeding hearts. Republicans say growth. Democrats say fairness—and lose every time.
But just because the two parties in Washington haven’t figured it out yet doesn’t mean we rich folks can just keep going. The conversation is already changing, even if the billionaires aren’t onto it. I know what you think: You think that Occupy Wall Street and all the other capitalism-is-the-problem protesters disappeared without a trace. But that’s not true. Of course, it’s hard to get people to sleep in a park in the cause of social justice. But the protests we had in the wake of the 2008 financial crisis really did help to change the debate in this country from death panels and debt ceilings to inequality.
It’s just that so many of you plutocrats didn’t get the message.
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.
The oldest and most important conflict in human societies is the battle over the concentration of wealth and power. The folks like us at the top have always told those at the bottom that our respective positions are righteous and good for all. Historically, we called that divine right. Today we have trickle-down economics.
What nonsense this is. Am I really such a superior person? Do I belong at the center of the moral as well as economic universe? Do you?
My family, the Hanauers, started in Germany selling feathers and pillows. They got chased out of Germany by Hitler and ended up in Seattle owning another pillow company. Three generations later, I benefited from that. Then I got as lucky as a person could possibly get in the Internet age by having a buddy in Seattle named Bezos. I look at the average Joe on the street, and I say, “There but for the grace of Jeff go I.” Even the best of us, in the worst of circumstances, are barefoot, standing by a dirt road, selling fruit. We should never forget that, or forget that the United States of America and its middle class made us, rather than the other way around.

Or we could sit back, do nothing, enjoy our yachts. And wait for the pitchforks.
BobD - 78 Bus . . . 112,730 miles
Chloe - 70 bus . . . 217,593 miles
Naranja - 77 Westy . . . 142,970 miles
Pluck - 1973 Squareback . . . . . . 55,600 miles
Alexus - 91 Lexus LS400 . . . 96,675 miles

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glasseye
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Re: "The Pitchforks Are Coming . . ."

Post by glasseye » Tue Jul 01, 2014 12:39 pm

The term "must read" is over-used, but it certainly applies here. So...

MUST READ
"This war will pay for itself."
Paul Wolfowitz, speaking of Iraq.

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Re: "The Pitchforks Are Coming . . ."

Post by glasseye » Tue Jul 01, 2014 12:40 pm

And by the way, Happy Canada Day, ay? :cheers:
"This war will pay for itself."
Paul Wolfowitz, speaking of Iraq.

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Re: "The Pitchforks Are Coming . . ."

Post by pj » Tue Jul 01, 2014 2:22 pm

Happy Canada day or Dominion Day for the oldsters. 147 years free from our British cousins is a fine damn start and each time I have visited, I come back home thinking how lucky you are to have such a beautiful place to call home.

As for Colin's original post, below I have pasted a rebuttal from Forbes magazine on Mr. Hanauer's screed. For the life of me I have a hard time understanding the guilt these people have on attaining their wealth. He seems to have come by it fair and square and for whatever reason he wants those that are striving to attain a small percentage of what he has, to share their money with others through higher wages,etc.

Before we start hoping on a replay of Madame Defarge and Bastille Day (July 14), we should ask Mr. Hanuer if we will be the masses Robespierre? I bet he will demure from that honor, it's good to be the man of the people till the people tire of you, for a new man of the people.



Nick Hanauer has gone public with another stage of his plan for the US economy. Essentially, raise wages for everyone and she’ll be fine. The problem with this is that Hanauer is simply factually wrong in a major example that he uses to bolster his case and then remarkably uninformed about the economics of the situation. So much so that it’s entirely fair of me to call this latest iteration of his plan “near insane”, as I did an earlier version of it. As Hanauer himself points out:

On June 19, 2013, Bloomberg published an article I wrote called “The Capitalist’s Case for a $15 Minimum Wage.” Forbes labeled it “Nick Hanauer’s near insane” proposal.

He then goes on to point out that Seattle has gone ahead with that $15 minimum wage but I’m afraid that politicians doing something is not in fact proof that that thing is a wise thing to do. We would be blessedly free of many things if government only ever did sensible things.

One major error is that he uses Henry Ford’s $5 a day wages as a central plank of his insistence that higher wages will increase the sales of those who pay those higher wages:

The model for us rich guys here should be Henry Ford, who realized that all his autoworkers in Michigan weren’t only cheap labor to be exploited; they were consumers, too. Ford figured that if he raised their wages, to a then-exorbitant $5 a day, they’d be able to afford his Model Ts.

The problem is that that isn’t why Ford raised those wages. Rather, he wanted to reduce the turnover of staff and thus to reduce his training and recruitment bill. He was cycling through 50,000 off people a year in order to keep a permanent establishment of some 14,000. Doubling wages pretty much stopped that turnover and thus made him money in that manner.

We can go further too, as I’ve explained before. And Hanauer should be able to grasp this point for it’s obvious that he’s numerate, even if not all that economically well informed. For we can show with some very simple mathematics that Ford could not have raised wages so as to enable his workers to afford his cars. If he did do that he would have lost money:

Car production in the year before the pay rise was 170,000, in the year of it 202,000. As we can see above the total labour establishment was only 14,000 anyway. Even if all of his workers bought a car every year it wasn’t going to make any but a marginal difference to the sales of the firm.

We can go further too. As we’ve seen the rise in the daily wage was from $2.25 to $5 (including the bonuses etc). Say 240 working days in the year and 14,000 workers and we get a rise in the pay bill of $9 1/4 million over the year. A Model T cost between $550 and $450 (depends on which year we’re talking about). 14,000 cars sold at that price gives us $7 3/4 million to $6 1/4 million in income to the company.

It should be obvious that paying the workforce an extra $9 million so that they can then buy $7 million’s worth of company production just isn’t a way to increase your profits. It’s a great way to increase your losses though.

Do note that this point is central to Hanauer’s argument. The workers earning more will be good for the business because the workers will purchase more from that business. And he directly uses Ford as his example: but the Ford example doesn’t work. And thus the argument itself fails: for the increase in wages being paid out is going to be greater than the margin made (and in the Ford case, greater than any possible revenue, let alone margin) from any extra sales.

We also get a little comparison of Costco and WalMart in his piece. The one pays higher wages than the other leading Hanauer to call Costco one of the good guys. Fair enough, if that’s how you want to judge moral worthiness then you go right ahead and do so. But we’ve also got an insistence that higher wages will not lead to employers employing less labour. Which is problematic if we look at Costco and WalMart. Agreed, these numbers are now near a decade old but still relevant:

Costco has sales of $51 billion, 110,000 employees (45% part time, similar to WalMart isn’t it?) and WalMart has sales (in North America) of $191 billion and 1.3 million associates. So Costco has sales of some $465,000 per employee and WalMart $147,000 per employee. That sounds about right to me, it’s been a number of years since I lived in the US but Costco is the place where you drag that 50lb bag of rice to the door yourself, right? WalMart is the one where cheery souls are employed solely to bid you good day as you enter? So, in theory, we could in fact get WalMart to pay the same as Costco by making similarly efficient use of labor: that is, firing between two thirds and three quarters of their staff.

The very example that Hanauer himself is using refutes the point that Hanauer is trying to make. People who employ more expensive labour use it more sparingly. Economics 101 is actually correct: he has not discovered some grand new theory.

Finally we get this piece of nonsense:

We rich people have been falsely persuaded by our schooling and the affirmation of society, and have convinced ourselves, that we are the main job creators. It’s simply not true. There can never be enough super-rich Americans to power a great economy. 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.

Savings don’t do the economy much good? I’m sorry but which planet did this gentleman learn his economics on?

Going right back to basics there’s a number of things that we know about wages. The first being, and this is so simple that even Karl Marx got it right, that wages are determined by what someone else is willing to offer that same worker. If company A is willing to offer $30k a year then company B is going to find it pretty tough to find people to work at $15k. This is where Marx’s reserve army of the unemployed comes in. If there are unemployed people then company B is going to be just fine it can always recruit at those low wages. But if there’s full employment then the two companies are in competition with each other for that limited amount of labour. Thus company B’s wages will be bid up to try and retain any workforce at all. Full employment is therefore the thing that raises wages. As I say, this is so simple that even Marx got it right.

We also know that in general large firms destroy jobs over time. Job growth comes from small and new companies in the economy, not from the old dinosaurs. Which brings us to savings: how do new companies get financed? Well, they get financed from investments of savings: as Hanauer tells us he was the first non-family investor in Amazon. So, savings do indeed benefit the economy for they’re the thing that creates new jobs by their being invested. Those new jobs then increasing the level of employment generally and thus raising the general level of pay. Yes, this is Economics 101 and it is also correct.

All of which leads to something of a proposal from this quarter. Nick Hanauer is obviously a savvy businessman. So he could do well by both himself and the economy by deploying his (as he himself points out, considerable) capital resources in the funding of new firms. Rather than telling everyone else they should be paying more in wages why not create some jobs and thus force everyone else to pay higher wages? At least we know that the second method actually works.

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Re: "The Pitchforks Are Coming . . ."

Post by Amskeptic » Tue Jul 01, 2014 11:15 pm

pj wrote:Happy Canada day or Dominion Day for the oldsters.

As for Colin's original post, below I have pasted a rebuttal from Forbes Magazine on Mr. Hanauer's screed. For the life of me I have a hard time understanding the guilt these people have on attaining their wealth.
You read "guilt", pj, I read prescience. I don't see "guilt". I see insight.

I have bolded some salient points that show the Forbes rebuttal is over-focusing to desperately discredit Hanauer's argument, then I make commentary at a full SHOUT.
COLin
Nick Hanauer has gone public with another stage of his plan for the US economy. Essentially, raise wages for everyone and she’ll be fine. The problem with this is that Hanauer is simply factually wrong in a major example that he uses to bolster his case and then remarkably uninformed about the economics of the situation. So much so that it’s entirely fair of me to call this latest iteration of his plan “near insane”, as I did an earlier version of it. As Hanauer himself points out:

On June 19, 2013, Bloomberg published an article I wrote called “The Capitalist’s Case for a $15 Minimum Wage.” Forbes labeled it “Nick Hanauer’s near insane” proposal.

He then goes on to point out that Seattle has gone ahead with that $15 minimum wage but I’m afraid that politicians doing something is not in fact proof that that thing is a wise thing to do. We would be blessedly free of many things if government only ever did sensible things.

One major error is that he uses Henry Ford’s $5 a day wages as a central plank of his insistence that higher wages will increase the sales of those who pay those higher wages:

" The model for us rich guys here should be Henry Ford, who realized that all his autoworkers in Michigan weren’t only cheap labor to be exploited; they were consumers, too. Ford figured that if he raised their wages, to a then-exorbitant $5 a day, they’d be able to afford his Model Ts."

The problem is that that isn’t why Ford raised those wages. Rather, he wanted to reduce the turnover of staff and thus to reduce his training and recruitment bill. He was cycling through 50,000 off people a year in order to keep a permanent establishment of some 14,000. Doubling wages pretty much stopped that turnover and thus made him money in that manner. (NICK POINTED OUT THAT FORD'S INSIGHT WAS THAT HIS WORKERS WERE CONSUMERS, NOT JUST PROSPECTIVE CAR BUYERS)

We can go further too, as I’ve explained before. And Hanauer should be able to grasp this point for it’s obvious that he’s numerate, even if not all that economically well informed. For we can show with some very simple mathematics that Ford could not have raised wages so as to enable his workers to afford his cars. If he did do that he would have lost money:

Car production in the year before the pay rise was 170,000, in the year of it 202,000. As we can see above the total labour establishment was only 14,000 anyway. Even if all of his workers bought a car every year it wasn’t going to make any but a marginal difference to the sales of the firm. (IT ISN'T ABOUT THE SALES OF THE FIRM! IT IS ABOUT A HEALTHY CONSUMER ECONOMY)

We can go further too. As we’ve seen the rise in the daily wage was from $2.25 to $5 (including the bonuses etc). Say 240 working days in the year and 14,000 workers and we get a rise in the pay bill of $9 1/4 million over the year. A Model T cost between $550 and $450 (depends on which year we’re talking about). 14,000 cars sold at that price gives us $7 3/4 million to $6 1/4 million in income to the company.

It should be obvious that paying the workforce an extra $9 million so that they can then buy $7 million’s worth of company production just isn’t a way to increase your profits. It’s a great way to increase your losses though. (NOBODY CLAIMED THAT ALL OF FORD'S EMPLOYEES WERE GOING TO GO BUY FORDS! YOU ARE BEATING A STRAW HORSE TO DEATH)

Do note that this point is central to Hanauer’s argument. (NO, IT ISN'T) The workers earning more will be good for the business because the workers will purchase more from that business. And he directly uses Ford as his example: but the Ford example doesn’t work. And thus the argument itself fails (OH YOU WISH): for the increase in wages being paid out is going to be greater than the margin made (and in the Ford case, greater than any possible revenue, let alone margin) from any extra sales. (THIS IS OBFUSCATORY NONSENSE TO HIDE FROM THE FACT THAT WE ARE A CONSUMER ECONOMY. FORD'S WAGES REDUCED TURNOVER EXPENSES, YES, BUT THEY ALLOWED FORD EMPLOYEES TO PURCHASE CONSUMER GOODS, NOT JUST FORD CARS LIKE THIS FORBES GUY IS TRYING TO STUFF THE ARGUMENT INTO)

We also get a little comparison of Costco and WalMart in his piece. The one pays higher wages than the other leading Hanauer to call Costco one of the good guys. Fair enough, if that’s how you want to judge moral worthiness then you go right ahead and do so. But we’ve also got an insistence that higher wages will not lead to employers employing less labour. Which is problematic if we look at Costco and WalMart. Agreed, these numbers are now near a decade old but still relevant:

Costco has sales of $51 billion, 110,000 employees (45% part time, similar to WalMart isn’t it?) and WalMart has sales (in North America) of $191 billion and 1.3 million associates. So Costco has sales of some $465,000 per employee and WalMart $147,000 per employee. That sounds about right to me, it’s been a number of years since I lived in the US but Costco is the place where you drag that 50lb bag of rice to the door yourself, right? WalMart is the one where cheery souls are employed solely to bid you good day as you enter? So, in theory, we could in fact get WalMart to pay the same as Costco by making similarly efficient use of labor: that is, firing between two thirds and three quarters of their staff.

The very example that Hanauer himself is using refutes the point that Hanauer is trying to make. People who employ more expensive labour use it more sparingly. Economics 101 is actually correct: he has not discovered some grand new theory.

Finally we get this piece of nonsense:

We rich people have been falsely persuaded by our schooling and the affirmation of society, and have convinced ourselves, that we are the main job creators. It’s simply not true. There can never be enough super-rich Americans to power a great economy. 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.

Savings don’t do the economy much good? I’m sorry but which planet did this gentleman learn his economics on? (THE SAVINGS OF THE RICH DO NOT GO BACK INTO THE ECONOMY. WE HAVE 1.6 TRILLION DOLLARS LOCKED IN CORPORATE ACCOUNTS - IT IS INDEED USELESS AT PRIMING THE ECONOMY.
LESS SNOTTY PLANET TALK AND MORE HONESTY, PLEASE)

Going right back to basics there’s a number of things that we know about wages. The first being, and this is so simple that even Karl Marx got it right, that wages are determined by what someone else is willing to offer that same worker. If company A is willing to offer $30k a year then company B is going to find it pretty tough to find people to work at $15k. This is where Marx’s reserve army of the unemployed comes in. If there are unemployed people then company B is going to be just fine it can always recruit at those low wages. But if there’s full employment then the two companies are in competition with each other for that limited amount of labour. Thus company B’s wages will be bid up to try and retain any workforce at all. Full employment is therefore the thing that raises wages. As I say, this is so simple that even Marx got it right.(I THINK MARX HAD A SUBSTANTIAL ADVANTAGE IN INTELLECT, CAREFUL WITH YOUR CONDESCENSION)

We also know that in general large firms destroy jobs over time. Job growth comes from small and new companies in the economy, not from the old dinosaurs. Which brings us to savings: how do new companies get financed? Well, they get financed from investments of savings: as Hanauer tells us he was the first non-family investor in Amazon. So, savings do indeed benefit the economy for they’re the thing that creates new jobs by their being invested. Those new jobs then increasing the level of employment generally and thus raising the general level of pay. Yes, this is Economics 101 and it is also correct.
(AND IT IS NOT HAPPENING AFTER THIS LATEST RECESSION - THE JOB CREATORS HAVE DECIDED TO 'OVER-UTILIZE' EXISTING LABOR)

All of which leads to something of a proposal from this quarter. Nick Hanauer is obviously a savvy businessman. So he could do well by both himself and the economy by deploying his (as he himself points out, considerable) capital resources in the funding of new firms. Rather than telling everyone else they should be paying more in wages why not create some jobs and thus force everyone else to pay higher wages? At least we know that the second method actually works.
This critic is a master of snark. This critic masterfully side-stepped the real concepts brought forth by Hanauer. This critic is why it is going to take pitchforks.
Colin
BobD - 78 Bus . . . 112,730 miles
Chloe - 70 bus . . . 217,593 miles
Naranja - 77 Westy . . . 142,970 miles
Pluck - 1973 Squareback . . . . . . 55,600 miles
Alexus - 91 Lexus LS400 . . . 96,675 miles

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Bleyseng
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Re: "The Pitchforks Are Coming . . ."

Post by Bleyseng » Wed Jul 02, 2014 7:49 am

The Forbes article misses what nearly economist is saying why the economy is lagging "Not enough buying by consumers". The poor and middle classes don't have enough cash to fuel the economy. The "Rich" are socking away their record profits in the stock market (all time record highs) and in savings accounts as Colin pointed out. The mega Banks are still hoarding this "cash" as loans are still difficult to get creating a another bottleneck from the economy.
We now know that "Trickle down" economics doesn't work so let's go back to a consumer driven economy by raising the wages of the bulk of the consumers so that they can buy goods and add to the cash in the banks (savings accounts). Excessive CEO wages IMHO are a drag on the economy as Mr Hanauer has pointed out as they can't or don't buy 1000 pairs of pants or shoes or widgets fast enough to fuel the economy. So one way to tap into that money would be to Tax the hell out of it even if it's those bonuses of shares of stock worth millions. Taxing at a 90% rate would at least add more money to the government budget so we could fund food stamps, vet benefits and education etc again.
Geoff
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Amskeptic
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Re: "The Pitchforks Are Coming . . ."

Post by Amskeptic » Wed Jul 02, 2014 9:50 am

Bleyseng wrote:The Forbes article misses what nearly economist is saying why the economy is lagging "Not enough buying by consumers". The poor and middle classes don't have enough cash to fuel the economy. The "Rich" are socking away their record profits in the stock market (all time record highs) and in savings accounts as Colin pointed out. The mega Banks are still hoarding this "cash" as loans are still difficult to get creating a another bottleneck from the economy.
We now know that "Trickle down" economics doesn't work so let's go back to a consumer driven economy by raising the wages of the bulk of the consumers so that they can buy goods and add to the cash in the banks (savings accounts). Excessive CEO wages IMHO are a drag on the economy as Mr Hanauer has pointed out as they can't or don't buy 1000 pairs of pants or shoes or widgets fast enough to fuel the economy. So one way to tap into that money would be to Tax the hell out of it even if it's those bonuses of shares of stock worth millions. Taxing at a 90% rate would at least add more money to the government budget so we could fund food stamps, vet benefits and education etc again.
It is fascinating to watch the rationalizations and arguements of those who defend/protect the status-quo. I see them trot out old truisms and *expect* that the listener will demur, like the sycophants in the boardroom always do. Does the Forbes critic state any statistics to back his claim that raising the minimum wage *actually* cost jobs in Seattle and San Francisco? He can't. It didn't. One truism shot down, a thousand to go.
Colin
BobD - 78 Bus . . . 112,730 miles
Chloe - 70 bus . . . 217,593 miles
Naranja - 77 Westy . . . 142,970 miles
Pluck - 1973 Squareback . . . . . . 55,600 miles
Alexus - 91 Lexus LS400 . . . 96,675 miles

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