Why Income Inequality is Bad for Business

There's a very good, straightforward and powerful explanation of the importance of economic fairness in today's StarTribune, written by David Morris.

Income inequality as it exists in the U.S. today, an extreme inequality which the Republican Party is sworn to continue and increase, is bad economics, very bad for business, bad for the future of private enterprise, bad for our health, bad for our children and grandchildren, downright stupid when you measure its effects on education, and (today being Sunday, maybe we should consider this) it turns Christianity on its head. Why do these "super-Christian" and supposedly pro-business Republicans support policies which undermine everything they stand for? My explanation? It's a shell game, a trick, a sham, a con game. To use a phrase popular in the South "They'd climb a tree to tell a lie." They don't give a damn about the things they trumpet in speeches and commercials. Their loyalty is to money in their own pockets and power in their own hands.

One of the chief lies they tell is this: Democrats who favor greater income equality want everyone to earn the same. This is untrue. What we want is a return to the system which functioned well during the longest prosperity in American history, the period between the New Deal and the inauguration of Reagan, a period when workers' earnings rose as a companies profits rose. Since Reagan it's all been taken apart. Since 1980, the American Dream has been narrowed to the upper classes, to people who own stock for a living rather than working for a paycheck. They forget, and would like Americans to forget, that prosperous working people are the engine of a strong economy. Republicans treat them like the enemy.

Rich People Are Not Job Creators Sez Business Week

Taxes on the rich stimulate economies. If you don't believe me, maybe you'll believe a non-communist billionaire entrepreneur who's started several successful companies, writing in the certifiably non-socialist magazine Bloomberg Business Week.

Hanauer has this to say: "I’ve never been a “job creator.” I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.

"That’s why I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be."

Not only is the term Job Creators a lie, it is a lie that kills jobs. It protects and rewards the idleness of capital and impoverishes the average consumers who actually do create jobs in their millions by buying stuff and paying for services. Impoverish the average consumer and you put capital to sleep in the pockets and closets and jewelry drawers of the very rich. By lowering the taxes on the rich, especially the rich heirs who've never worked or created a job in their lives, and you incentivize the idleness of wealth and penalize the hiring and paying of workers.

Henry Blodget does a great job of explaining the dynamics of what Hanauer is talking about on the website Business Insider, another non-anarchistic non-socialist business publication.

Blodget: "For a specific example, Hanauer points out that his family owns 3 cars, not the 3,000 that might be bought if his $9+ million were taken home by a few thousand families.

"If that $9+ million had gone to 9,000 families instead of Hanauer, it would almost certainly have been pumped right back into the economy via consumption (i.e., demand). And, in so doing, it would have created more jobs.

"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."

As I've pointed out before a multi-millionaire CEO who justifies his raises by lowering his employees' pay and benefits doesn't take his five million or hundred million dollar paycheck and buy a thousand refrigerators or a hundred cars as his employees would do. He buys another company and makes it leaner and meaner, or he buys his wife or mistress a $50,000 tennis bracelet. Tax cuts to rich people do not create jobs because lower taxes disincentivizes investment in the factory or the employees. Rewarding up and taxing down kills economies. It rewards rich people pocketing their gains, what I prefer to call hoarding. It certainly ain't job creating.

If you prefer, I first heard Hanauer's story on NPR. Consider this, if taxes are lowered on rich people they have less incentive to give money to public radio.

The Gingrich World of Aristocrats and Serfs

There's a very cynical calculation that goes through every Republican mind, a dollar calculation. If you're a rich Republican it's how long and hard you can get people to work for how little and how little you can get away with paying in Lincoln's hated income taxes on the earnings your underlings are sweating out for you. If you're a poor Republican you obviously can't do calculations.

John Nichols of The Nation magazine converted Gingrich's calculation about poor children and "overpaid" school janitors to a simple equation using Gingrich's income as a metric. What it boils down to is plain fat ugly rich man's greed and prejudice.

Nichols summation of Gingrich Mathematics is worth posting wherever you post things: "Even in a party where cruelty is now considered a political virtue, there is something unsettling about a man who collected $30,000 each month to offer an hour of historical counsel to Freddie Mac administrators attacking elementary and secondary school janitors who, according to fresh Bureau of Labor Statistics data, earn a mean wage of $13.74 an hour, or $28,570 per year."

So Newt, who earns $30,000 an hour to "advise" bankers and financiers about history thinks school janitors are overpaid. In the old way of things Newt imagines he would have been one of the overseers on a horse watching his peasants till his land, and his peasants' children too, preferably peasants of a different color and owned instead of paid.

In Gingrich's world of aristocrats and serfs with government regulations and taxes happily out of the way, we get back to the world that our Founding Fathers fought the revolution to overturn. The nasty brutish world of European aristocracies and poor people who fled in ships to these savage shores. This country wasn't founded to evade taxes or to "liberate" the rich. Those who think taxes are evil actually think society is evil, or are rich enough to think society is unnecessary. George Washington thought otherwise when he mounted an army to collect taxes from recalcitrant citizens in western Pennsylvania. Education? Jefferson left his presidency off his tombstone but included his founding of the University of Virginia. (He had no grand plans for making poor students work as janitors.)

Thomas Paine had this to say about citizens' obligations to the public good. He took a dim view of the very rich, of people like Gingrich and his clientele:

"All accumulation, therefore, of personal property, beyond what a man's own hands produce, is derived to him by living in society; and he owes on every principle of justice, of gratitude, and of civilization, a part of that accumulation back again to society from whence the whole came."

Lizz Winstead (the creator of the Daily Show, who by the way grew up in my neighborhood) takes a shot at laughing Gingrich out of the race. Which may be unwise. He's such a monster we could do worse than keeping him around.

From INC. Magazine: High Tax Norway is an Entrepreneur's Paradise

Today's must read. Share this INC. magazine article with a small business person you know.

"Only two countries in the OECD—Chile and Mexico—pay a lower percentage of their gross domestic product in taxes than we Americans do.

"But there is precious little evidence to suggest that our low taxes have done much for entrepreneurs—or even for the economy as a whole. "It's actually quite hard to say how tax policy affects the economy," says Joel Slemrod, a University of Michigan professor who served on the Council of Economic Advisers under Ronald Reagan. Slemrod says there is no statistical evidence to prove that low taxes result in economic prosperity. Some of the most prosperous countries—for instance, Denmark, Sweden, Belgium, and, yes, Norway—also have some of the highest taxes. Norway, which in 2009 had the world's highest per-capita income, avoided the brunt of the financial crisis: From 2006 to 2009, its economy grew nearly 3 percent. The American economy grew less than one-tenth of a percent during the same period. Meanwhile, countries with some of the lowest taxes in Europe, like Ireland, Iceland, and Estonia, have suffered profoundly. The first two nearly went bankrupt; Estonia, the darling of antitax groups like the Cato Institute, currently has an unemployment rate of 16 percent. Its economy shrank 14 percent in 2009."

Why did these "high tax" countries weather the recession better? Because their citizens didn't have the bottom drop out of their world. They didn't panic about their retirement accounts because they have a government that insures that. Safety nets are there to guard against the uncertainty problem. The Right in this country thinks the only ones entitled to safety nets are large corporations. That's what's holding us back.

INC. is the international magazine of entrepreneurship. It's the small business bible. It isn't aimed at or written by Wall Street or corporate types. And this article makes perfect sense. America isn't falling behind because of high taxes. We'd be much better off, less worried, more stable, more secure if our tax rate was higher and fairer. If the government took care of the things individuals and companies shouldn't have to worry about. Consumers would be freer to spend. Entrepreneurs would be freer to innovate. Think how productive we could be. Look at how entrepreneurs thrive in Norway. All they have to focus on is what they do best.

A fairer system with Eisenhower era tax rates could remove the healthcare burden from small business and from everyone. That is a major source of uncertainty today. Imagine not having to worry about it. Imagine being able to concentrate on what you do best. (I'm a small businessman, have been for 35 years. I know I would like this.)

America Isn't Broke, Just the Middle Class

AMERICA ISN'T BROKE. So there's no reason to kill Social Security or Medicare.

We CAN and should repair our infrastructure. It would put people to work, which would pay for groceries and clothes and rent and mortgages and healthcare and pay taxes.

Our middle class is dying because their incomes have been starved for the past thirty years, as all the productivity and increased profitability was funneled into the pockets of the people at the top.

Whether we allow the middle class to die, and the American economy with it, depends on choices we make. It's a perverse strategy to tax the people who are out of money and leave the rich alone.

Ask Americans and you won't find many who know this. You will find millions who feel strained, insecure, frightened, pessimistic about the future, but you won't find many who know why this is or what to do about it.

It is easy to get frightened people to do as they're told. First you make people less secure, then you drop the safety net. It brings a lot of people into line very quickly. Lies are essential.

Backed up by 24 hour talking heads repeating the old joke that tax cuts and endless pay raises to rich people will feed and clothe and house the rest of us. That strategy is what got us here. Ten years of tax cuts to the rich bankrupted the country.

Some are happy with the failed GOP strategy and Republicans in the House of Representatives are comfortably in the pocket of a rich minority who pay for their seats.

People need to start shouting back. Call the radio programs that push the falsehoods. Complain to the advertisers who sponsor the lies. Applaud the media sources that tell the truth. Write your congressperson. Give the Democrats some courage. And vote the GOP out.

Be clever. Surprise people. Talk back. Like this.

We Could Afford To Be More Scandinavian

Some of our parents think very highly of their Scandinavian ancestors and friends. They go there when they can and like to show us their photos afterwards. They admire all things Norwegian/Danish/Swedish, the neatness of the landscape, how well kept everything looks, the good repair of the infrastructure, the modesty and decorum of the people, also of course the blonde hair and the cheekbones. We sometimes hear them wishing America could be more like the old country.

There are a number of ways we could be more like Scandinavia, and it would make us a better society and a fairer one. Raise taxes on the very rich, for instance. Scandinavia is full of rich people who live very very well, who pay very high taxes on the upper end of their incomes and in this way help the less fortunate, less successful, the less healthy, take care of themselves. These rich Scandinavians haven't moved away in droves. They haven't shut their businesses and moved to Mexico or Malaysia or some other low tax/low wage country. Employment is robust (Norwegian friends of ours have noted that a lot of Swedes now work in Norway where there are more jobs than people), national debt is low compared to the U.S., contentedness is high, the sense of economic freedom is equal to ours.

And the Scandinavian economy has functioned just as well as our own, possibly better during this economic crisis. In Scandinavia the basic security of the population hasn't made them too afraid to buy goods and services they need.

Anyway, an excellent analysis can be found at Lane Kenworthy's blog. Worth reading and sharing with your Scandinophile friends and relatives. Kenworthy did his comparisons with Denmark and Sweden. Norway being a very rich oil exporting nation makes the comparison less apt; oil wealth subsidizes a lot more there. We could learn a lot from Scandinavia. How to be a better and fairer, a more efficient society. It's actually wasteful to throw too much money at people who already have too much.