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The debate over income inequality might just be the hottest development in economics in decades. Take French economist Thomas Piketty’s recent book on wealth and inequality. After flying off the shelves in France, it became a best-seller in the U.S. this spring. Politico magazine ran a piece on income inequality by Seattle-based entrepreneur Nick Hanauer two weeks ago. It quickly became one of the most shared stories in Politico’s history. Hanauer is a passionate advocate for raising the minimum wage. He warns that mega-millionaires like him must help close the gap between America’s haves and have nots. If they don’t, everyone will lose. A conversation with Nick Hanauer.
- Nick Hanauer a Seattle-based entrepreneur who has founded, co-founded and funded more than 30 companies; he is co-author with Eric Liu of "The Gardens of Democracy" and "The True Patriot."
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Last month, Seattle raised its minimum wage to the highest level of any city in the nation. A major supporter of the hike is Seattle entrepreneur, Nick Hanauer. The venture capitalist has also emerged as a major voice in the national debate over income inequality. In public appearances and opinion pieces, Hanauer rebuts what he calls idiotic trickle-down policies. He argues that orthodox economic thinking is at the root of a dangerously wide wealth gap in the U.S. Nick Hanauer joins me to answer his critics and explain why he thinks a social rebellion is inevitable if more one-percenters don't wake up.
MS. DIANE REHMI hope you'll join this conversation. 800-433-8850. Send us your email to email@example.com. Follow us on Facebook or send us a tweet. Nick Hanauer, it's good to meet you.
MR. NICK HANAUERIt's so nice to meet you. Thank you for having me.
REHMThank you. You are clearly one of the one-percenters. You flew your own plane...
REHM...here into Washington. Why is it that you, as a one-percenter, are advocating for a higher minimum wage?
HANAUERWell, I mean, a variety of reasons. Diane, there's an old saying from the investment business, which is that pigs get fat and hogs get slaughtered. And by that I mean that some economic inequality is a natural and useful part of any high-functioning capitalist economy. But run-away economic inequality will end badly for everybody, in particular for people like me. And so, you know, it's quite clear that it's not -- the problem isn't that it's -- we have it. The problem is that it's getting worse every day. And that eventually that will end in catastrophe.
REHMIt's interesting. You talk about catastrophe and pitchforks in your article...
REHM...in Politico magazine. Spell out what you mean.
HANAUERWell, you know, in 1980, the share of income for the top 1 percent was about 8 percent, while the bottom 50 percent of Americans shared approximately 18 percent. Today the top 1 percent -- their share of income, our share of income has reached, you know, someplace between 21, 22 percent, depending on how you measure it. In 2007, it had reached 24 percent. But the share of income for the bottom 50 percent of Americans had fallen from 18 to 12. If the current trend continues for another 30 years, the top 1 percent will have about 35 or 36 percent of national income and the bottom 50 percent of Americans will share just 6 percent of national income.
HANAUERAnd the problem with that is that that is no longer a balanced capitalist economy. That much more resembles the feudal economy or the sort of "Downton Abbey" economy of old Europe. And I believe that Americans simply will not stand for that. And I think that that -- that we will see, you know, terrible social unrest before we get there, not to mention just a terrible economy. You know, the fundamental law of capitalism is that if workers have more money, businesses have more customers. It is a thriving middle class and wage growth of the median worker that drives the feedback loop, which is a successful capitalist economy.
HANAUERAnd a set of economic policies which structurally impoverish the middle class is just an economic catastrophe, to say nothing of a civic catastrophe.
REHMYou've been writing about these things for quite a while.
REHMHow has the reaction to what you've been writing changed over time?
HANAUERWell, you know, I have been talking about economic inequality for some time and was working on it for a couple of years at least before Occupy broke. And what's been interesting is that even among my closest friends, when I was taking about economic inequality in the beginning, people got very angry and very threatened by that, and felt like it was unfair and that, you know, just sort of an illegitimate civic or economic conversation.
HANAUERAnd over the period of, whatever it is, five, six years, that has changed dramatically as people -- intelligent, thoughtful, open-minded people -- have come sort of to the conclusion that the facts are relatively irrefutable, that it has gotten much worse than it was, and that it is continuing to get worse. And that a reasonable -- that reasonable people can agree that eventually that won't work out for anybody.
HANAUERBut, you know, what's important to remember is that we, you know, our politics and policy are prisoner of orthodox economic views and the trickle-down instantiation of those views, which holds that rich people like me are job creators and the more money you pour into us, like an ingredient, the more jobs we create. As if jobs and prosperity sort of squirted out of us like donuts. And if there was a shred of truth to these arguments, of course, given how rich the rich have become and how low our taxes have become, we would be drowning in jobs.
HANAUERBut clearly we're not. Unemployment and underemployment are at record highs. And this is because the trickle-down rules of thumb that so many people in politics and policy use to judge policy absolutely make no sense. They're just dead wrong. Prosperity doesn't trickle down from the top, it is built from the middle out. And it always has.
REHMSo what do you see in terms of taxes, for example?
HANAUERWell, you know, taxes are an essential element of being able to invest in the people and in the infrastructure that sustain a capitalist economy. And the best place to tax is the place where there's money, which is at the top. And most people believe that we have progressive taxation in this country, but we actually do not. You know, people who work for a living do pay a rate up to 39 percent. But people like me who do not work for a living -- who clip coupons, get dividends, sell large enterprises and get capital gains or carried interest or whatever it is -- pay taxes at a rate of approximately 50 percent of what working people pay.
HANAUERAnd that's a silly and ridiculous arrangement. What's important to remember is that that arrangement, which came to us through our democracy, is a consequence of a kind of, you know, it's essentially the trickle-down justification. Because, of course, if I am a job creator and the more money I have the more jobs I create, then a 15 percent capital gains tax is the righteous instantiation of smart economics. If the true job creators in a capitalist economy are middle-class consumers, then that 15 percent tax rate is a con job. And that, of course, is the truth, in my opinion.
REHMAnd let's talk about your home city, Seattle...
HANAUER...which has just raised its minimum wage to $15 an hour.
REHMIt's going to come in, in stages...
REHM...starting next year.
REHMBut you acknowledge that that couldn't be done in every city, even in the State of Washington.
HANAUERYeah. So I published a piece in Bloomberg approximately a year ago, called "The Capitalist Case for a $15 Minimum Wage," which laid out the argument basically that, you know, when workers have more money, businesses have more customers. And when workers are paid a living wage, you know, all Americans are spared from the necessity of funding poverty programs that low-wage workers depend on to get by. And because we are so certain that prosperity is built from the middle out, not the top down, things like the minimum wage aren't against capitalism.
HANAUERThey're not things which slow the economy down. They, in fact, speed it up, as...
REHM...those employers keep saying, if you insist that we raise the minimum wage, we're going to have to lay off employees and raise prices.
HANAUERYeah, it's a -- it would be end of days.
HANAUEREnd of days, yes. And so what's super interesting is that for as long as we have had capitalism, in every circumstance where steps were taken to make the lives of working people better, capitalists said the same thing in the same way. We'll lay people off. We'll have to close. We'll have to move, so on and so forth. And you can actually go back in history and just look at this trend. And what you find is that those claims, made by the same people in the same way, are always wrong. And in fact...
REHMGive me an example of how they're always wrong.
HANAUERWell, when we instituted the minimum wage in the first place in the country, you heard from the people who ran the manufacturing and the restaurants that it was...
REHMThere were screams.
HANAUER...it was the end of days.
HANAUERIt was the end of days. And here's, let me give you a concrete example. So Washington State -- most people look at the $15 minimum wage we passed and look at it as this, you know, insane departure from rational economic policy. But you have to remember that the minimum wage in Seattle and Washington State is already the highest in the country. Our minimum wage, at $9.32, is 28 percent higher than the $7.25 national wage. But more particularly, our tipped workers, who make up a big portion of low-wage workers, earn $9.32 plus tips, too. Not the $2.13 federal tipped minimum.
HANAUERThat's a 427 percent difference. If the people in the restaurant industry were right, that higher wages for restaurant workers would destroy small business, jobs in restaurant industries, then Washington State should have no restaurants. And yet, Washington State has the highest small-business job growth in the country. Seattle is the fastest growing metro in the country. The only city that has more small-business job growth than Seattle, in the country, is San Francisco -- major city -- is San Francisco. And they have a higher minimum wage than we have.
HANAUERSo to be clear, it is more complicated than that. But when restaurants pay restaurant workers enough to that they too can afford to eat in restaurants, that's not bad for the restaurant business. That's good for the restaurant business.
REHMNick Hanauer, he's a Seattle-based entrepreneur. He has founded, co-founded and funded more than 30 companies. He's co-author of "The Gardens of Democracy" and "The True Patriot." Short break. We'll be right back.
REHMAnd welcome back to a conversation with Nick Hanauer. He's written a piece in the current Politico magazine for July and August on capitalism and why the minimum wage should be raised to $15 an hour. Nick Hanauer, how'd you make your own money?
HANAUEROh well, I grew up in a family business, a family manufacturing business. It's called Pacific Coast Feather Company. My family still owns it and so I grew up there. But my father was very supportive of my ambitions. And I started starting other companies when I was 21 or 22 years old while working for the family business. And I had an extremely early interest in the internet . In '92, '93 I already could see it was big. And as luck would have it, I had a friend who agreed that it was going to be big and his name was Jeff Bezos.
HANAUERAnd he was in New York and I was in Seattle and he needed a place to start the company. And, you know, to make a long story short, he sent his stuff from New York to Seattle to my home and, you know, we got after it. And I became the first nonfamily investor in Amazone.com, which gave me both an enormous financial return but also a very early look at how the internet was going to unfold.
HANAUERAnd then I started another company called aQuantive which turned into one of the biggest internet advertising companies in the world. And I sold that -- we sold that in 2007 to Microsoft for $6.4 billion. But then I've started dozens of other companies in medical, you know, software, internet, robotics, you know, and so, you know, just gone on from there. So lots and lots and lots of companies.
REHMSo for you the idea of making money, having money came early on. You felt that you understood how capitalism worked.
REHMOne of our callers wants to know whether you pay your employees $15 an hour.
HANAUERYeah, okay. So capitalism is the greatest social technology ever invented for creating prosperity in human societies. I think that one of the foundational things we know about economics is that capitalism beats the alternatives, even if it's not that great. But capitalism can be managed to benefit the many in the long term or the few in the short term. And, you know, the work of democracies is to bend it to the latter.
HANAUERI want to make one note and that is that $15 an hour makes perfect sense in a very expensive fast-growing city like Seattle. It makes somewhat less sense in a tiny town in the middle of the country where the houses in -- $800,000 a house is $40,000. And I think that we should raise the minimum wage nationally but it should be scaled to the appropriateness of the place. $15 doesn't make sense everywhere.
HANAUERBut the question is, do we pay 15 and the answer is, well, I mean, with respect to all our technology companies, you know, everybody makes far more than that. But I do own a family manufacturing company. And in fact in some of the places we do not pay all the workers more than 15. That's because $15 probably isn't an appropriate amount in the small towns in which we operate these factories.
HANAUERBut even if it was, the point I want to make is that it's not the responsibility of individual business owners to unilaterally raise the wages of their workers and put themselves at a disadvantage. It is in everyone's interest to force a political dialogue which raises the wages for every worker. Because when every worker earns more money, every business has more customers and every taxpayer is relieved from the burden of paying for the poverty programs low-wage workers need.
REHMSo what you're arguing is, if you Nick Hanauer raised your employees' wages to $15 an hour in the factories you own, your competitors paying less...
REHM...to their employees would put you out of business...
REHM...unless you've got a government-dictated $15 an hour.
HANAUER...a mandate. Yeah, a mandate. And so here's the thing is that if I pay my employees 15 and my employers pay 7, well, my labor costs double but in particular my employees can now afford to buy products from their companies. But their employees cannot buy products from my companies. And my employees will now pay taxes to support the poverty program so that their employees require because their employers underpay them. So the only way to handle this is not for people to unilaterally, you know, put themselves out of business but for us all to work together to raise the standards so all of us benefit.
REHMHere's a posting on Facebook saying, "Those of us who are not among the super rich, have no tax shelters who view democracy as increasingly an oligarchy who have less and less of an effective voice and are totally frustrated, recent decisions by the Supreme Court are taking away our voice." And then underscored, "There's a boiling pot on the stove." Do you feel that way?
HANAUERI totally agree. And I think that there are all sorts of insidious things about rising economic inequality. But most particularly when you concentrate wealth in fewer and fewer hands, you concentrate political power in fewer and fewer hands. And that political power then allows you to concentrate legal power in fewer and fewer hands. And you create this unholy death spiral where concentrated economic wealth creates programs, policies and laws to insulate that concentrated economic power and wealth from competition and from disruption. And if the United States Supreme Court presently is not a perfect instantiation of that, I do not know what is.
REHMHere's a tweet, "A $15 minimum wage is a small business killer, especially restaurants. Servers will make less not more."
HANAUERYeah, so again, if you use Washington state as a great example, we currently pay our tipped workers 427 percent more as a base than neighboring states. But our restaurant density is higher than neighboring states. And this is because when restaurant workers earn enough to shop in restaurants, that's not bad for the restaurant business. It's good for it.
HANAUERSo -- but here's -- I do want to address this thing. So when I talk about this stuff, I hear from many, many small businesses that it's going to destroy their businesses and so on and so forth.
HANAUERLook, so, Diane, I have a 13-year-old boy. And so I can tell you, you learn a lot from life from 13-year-old boys -- actually just turned 14. And what you learn is that 99 percent of 13-year-old boys agree that homework is a useless and costly exercise and an obliteration of their liberties. And that's because 13-year-old boys can calculate the cost of doing homework but not the benefits, even though the benefits overwhelm the costs.
HANAUERAnd in the same way, any business person can instantaneously calculate the costs and the risks of higher wages but not the benefits, even though the benefits overwhelm the costs. The truth is that benefits are very hard to weigh, calculate and measure. And yet if you look around the world at the 205 countries running simultaneous experiments on how to create prosperity, it is not the low-wage places that attract fabulous businesses.
HANAUERThe Congo is a very low-wage place but it is a poverty stricken hellhole. Switzerland is a very high-wage place but their unemployment rate is one-third of ours and that's because high wages, up to a reasonable level, sustain the feedback loop between customers and businesses. And that is what drives prosperity.
REHMSo who is jumping on the bandwagon with you?
HANAUERWell, cities around the country. Our $15 win in Seattle catalyzed a huge amount of effort around the nation. You know, I think that Chicago is working on 13 to 15. San Francisco will vote on 15. L.A. is considering voting on 15. And I think in 35 states, cities or areas, there are separate local efforts to increase the minimum wage.
REHMAnd what happens when you talk about members of congress?
HANAUEROh, you know, it depends. Some are -- you know, obviously Speaker Boehner does not agree. You know, and he's fond of saying, you know, if you raise the price of employment, guess what happens? You get less of it. This is this classic trickle-down idea. And yet oddly, you know, the wages of CEOs have gone up, I don't know, something like 40 times over the last 30 years. And we have more CEOs than ever before. So too for high earning senior executives.
HANAUERAs far as I know, we have not outsourced those jobs to China or automated their jobs. So too for financial services workers and software workers and so on and so forth. So clearly there's other stuff going on.
REHMAll right. Two things I want you to explain. You've mentioned this a couple of times. How do you think your proposals would actually shrink the welfare state and reduce the deficit?
HANAUERWell, I mean, you know, our deficit is a consequence of all sorts of things. And surely raising the minimum wage will not, on its own, eliminate it. But of course, you know, if workers earn a living wage they do not require food stamps, they don't require Medicaid, they don't require rent assistance either the federal, state or local level.
HANAUERYou know, Wal-Mart is a marvelous example. This is a company that earns $27 billion pretax a year employing 1.4 million workers. And yet in every city in the country the biggest recipient -- groups of recipients for food stamps is Wal-Mart workers. And you just have to say to yourself, you know, if Wal-Mart took 10 billion of the 27 billion and spread it over the million lowest paid workers, $10,000 per worker per year, that raises all of the amount of poverty. None of them need food stamps anymore.
HANAUERAnd so you have a million families who are now middle class and reasonably prosperous. You have all the rest of the country not needing to fund the poverty programs that those people depend on. And every business associated with those people now has better customers, in a virtuous cycle that benefits everybody. Again, I do not expect Wal-Mart to unilaterally do that but I think it's shameful that they're not at the -- leading the charge to raise the minimum wage nationally, a thing that would benefit them and everyone else in the country.
REHMAnd talk about how high you believe taxes on the rich should be.
HANAUERSo I think as a starting point people who earn lots and lots of income should pay no less than working people. So I think it's ridiculous that somebody can make $100 million a year and pay a 20 percent tax rate when somebody who makes -- runs a small business and earns $300,000 a year is paying at the 39 percent level. I think it's just silly and ridiculous. I do think that maybe some small differential between regular taxes and long term capital gains make sense but in general what we need in this country is for giant profitable corporations to pay taxes at an appropriate rate and very, very rich people to pay taxes at an appropriate rate. And they don't have to be (unintelligible) .
REHMAnd you're listening to "The Diane Rehm Show." A Forbes Magazine contributor labeled your wage hike ideas near insane.
REHMAnd the Wall Street Journal has been very critical of your ideas.
REHMWhat do you think you have to do to get your ideas across to the people who make the decisions?
HANAUERYou know, look, so that's a terrific question. And people maintain these orthodoxies for all sorts of reasons. To be clear, there are some very rich people who actually do understand the dynamics but do not care, right. In any large group of people there are people who don't care about other people, don't care about their community, don't care of the long term health of the society and will insist that the richer they get the better off everyone else will be.
HANAUERI mean, you know, for thousands of years we had divine right. Now we have trickle-down economics. But, you know, honestly when I look into Speaker Boehner's eyes, I don't see evil. I see confusion. I think that he simply, you know, in his defense, thought that the orthodox economist who taught him his college Econ 101 course was speaking the truth when he told him these things. And they just simply turn out not to be true.
HANAUERAnd we have a long ways to go to evolve our understanding of economics into a more sensible and modern conception. I mean, the truth -- the best way to think about an economy as an ecosystem. It is literally an ecosystem. And we now know that with scientific certainty. And what that means is that prosperity has to be essentially a circle of life like feedback loop, a positive feedback loop between customers and businesses. This is why the true job creators in a capitalist economy are middle class consumers and the demand they create.
HANAUERAnd this is why a thriving middle class isn't a consequence of prosperity, which is what the trickle-down folks will tell you, that you get a thriving middle class from growth, from giving tax cuts to rich people. They've got it backwards. A thriving middle class in a capitalist economy is the source of prosperity in capitalist economies, which is why investments in the middle class work and tax cuts for rich people do not.
REHMDo you truly think the pitchforks are coming out and a revolution is around the corner?
HANAUERTo be clear, the pitchforks article I wrote partially tongue in cheek, I do not, as a practical matter, keep my jet fueled at all times ready to flee the country. But you don't have to have a deep understanding of history not to know that eventually concentrated power and wealth ends in collapse. And again, in particular, it ends badly for people like me at the top.
HANAUERAnd, you know, the thing -- there are two things I think we know irrefutably about economics. The first is that capitalism beats the alternatives, even though it's an imperfect system. And the second thing we know is that the more inclusive a capitalist system is, the better it works. And by inclusive I mean, the more people we include as innovators, producers, entrepreneurs on the one side and customers on the other, the role of government is to do just that, include as many people as possible in the economy. And when you get that you get this fantastic feedback loop between people inventing fabulous new things and products and consumers buying them.
REHMNick Hanauer. He is a Seattle-based entrepreneur. He's also plainly a billionaire calling for an absolute raise in the minimum wage and lots of other things. Stay with us.
REHMAnd before we go to the phones, here's an email for Nick Hanauer. He says, "Nick, I like what I hear from you. However, capitalist economies are relatively new. How can you be sure that prosperity has always been built from the middle out?"
HANAUERThat's a terrific question. And I'm going to -- at the risk of boring viewers -- I'm going to walk out a little bit here and say that, you know, I do a variety of things, but one of the things I do is work essentially with academic economists on reimagining capitalism. And, in fact, we have a piece that we published a little while ago called, "Capitalism Redefined." And in that piece we argue that the traditional definition of prosperity, which is essentially money, is just not true.
HANAUERMoney is a medium of exchange in a store of value, but it actually isn't prosperity. Prosperity is solutions to human problems. It's the accumulation of solutions to human problems. The difference between a poor society and a rich one is that in a poor society the only solutions you have are, you know, a mud hut and a hammock and bananas. But, you know, all -- you could be kind of the jungle, but all that money you have, so-called, wouldn't buy you antibiotics or air conditioning or a comfy bed, but even a poor American has access to those things.
HANAUERAnd when you see prosperity as the accumulation of solutions to human problems, then you can see quite clearly that growth has nothing to do with GDP, which is the amount of money that our enterprises produce. It's the rate at which we solve problems. And the reason that capitalism is the greatest social technology ever created, is that it is literally an evolutionary solution-creating system. The genius of capitalism is that it both permits and rewards people for solving other people's problems.
HANAUERRemember the economy is like a giant ecosystem. And market economies work by creating thousands and millions of opportunities for people to go solve other problems. And this is why capitalism has produced so much prosperity.
REHMBut then you'd have to look at capitalism as it currently operates and say it's not doing what you think it ought to be doing.
HANAUERWell, it's doing a lot of what I think it ought to be doing. Certainly, we are producing new solutions to human problems at a fantastic rate in our economy. Right? You can just see the rate at which new products and services are developed. But my argument is not that I want to destroy capitalism.
HANAUERMy argument is that I want to tune it, that the truth is that the more people we include, as entrepreneurs, right, by educating them, by investing the infrastructure necessary to enfranchise them, by making sure that people who want to go to college can and aren't saddled with $200,000 worth of debt, by making sure that wages are reasonable, that workers get a fair split of the value the enterprises create, you get this incredible virtuous cycle between the people who are inventing new solutions to human problems and turning them into products and people who want to buy those things.
HANAUERAnd all of the work that I have done, I think, is simply trying to show people that capitalism is awesome, but it needs to be sensibly organized and balanced.
HANAUERAnd that's what's gone off the rails.
REHMLet's go to John, who's in Irwin, Pa. Hi, you're on the air.
JOHNHow you doing?
JOHNI'm glad to finally get through. I wish I could talk as long as Nick has because I can just about tell you and comment on every part of his…
REHMOkay. But you can't. So…
JOHNI know. So the first thing is the top 1 percent capitalism. The truth it's -- this isn't something that is -- it's planned. It's been planned from ever. Capitalism is great with -- and it has to do with the free market, but our free market is advertised by defeat. And as far as the last thing he said about truth, there is the truth and that which is not. We don't want that. The government, which is 1 percent of the gas oil -- which we just had in the last show you had. These -- they don't want transparency. They don't want…
REHMOkay, John. I'm going to stop you right there. I think that the center of John's argument is that people on Capitol Hill, the people we have voted into office, represent -- for the most part…
REHM…not totally -- the 1 percent.
HANAUERAnd I agree completely with that. And it -- the problem is is that, again, in my own experience -- and I know a lot of the people on Capitol Hill. I work closely with them. It's not that they're full-on corrupt. It's that they have been corrupted by an economic ideology, which tells them that the sensible thing to do, the thing that will benefit everyone is to make rich people richer. This is the -- the core of the trickle-down thesis is that when you make rich people richer that's good for everybody.
HANAUERBut the other core argument, the thing that was -- is often -- is never stated explicitly, but is always implicit in what these folks say -- and the most insidious thing is that they also believe that when you make poor people richer that's bad for the economy.
HANAUERAnd that's the center of Speaker Boehner's argument.
HANAUERSpeaker Boehner is saying that if you make poor people richer that will be bad for the economy. And this is both, you know, more a moral abomination, but it's also economic idiocy. It's just not true.
REHMSo why is it that so many billionaires are acting like Marie Antoinette? Why are they so out of touch with the people?
HANAUERWell, you know, I think that, you know, you can take any group of 100 people and a large number of those people will be short-sighted, selfish and silly. And billionaires are no different. There are a ton of billionaires. And, you know, the truth be told, I think that, you know, we tend -- very, very rich people tend to be rich because they really, really, really want to be rich. And sometimes not being nice to other people is a great way to get there.
HANAUERAnd, you know, I think that they're not thinking clearly. I think that, you know, my message to my fellow plutocrats is simply that, you know, we should not kill the goose that laid the golden egg. That is the American middle class. That we should be sensible and try to stay in the economy that has benefitted us so much.
REHMAll right. Here's an email from John, who identifies himself as a business owner. He says, "I take issue with the proposal to increase minimum wage without setting a minimum standard for employee performance. Employees' skill levels have decreased, not increased, over the past 10 years. Many employees lack the necessary work ethic to justify increased wages."
HANAUERYeah, and, you know, I think that that's, you know, that's simply a ridiculous statement. You know, 80 percent of businesses fail within 18 months of starting, run by so-called business people. That failure rate must indicate that not only are employees often incompetent and lazy, but so are business owners like the emailer. And, you know, certainly, if you look at the track record of America's biggest companies and how awful and pathetic it often is, you would surely come to the conclusion that many of the best paid people in our country, you know, really don't have the ability even to run a lemonade stand.
HANAUERSo, you know, incompetence and laziness is everywhere. And applying some minimum standard to low-wage workers is simply another instantiation of, you know, trickle -- the trickle-down idea.
REHMAre you saying that our income inequality has developed because of our political inequality?
HANAUERYeah, I mean, so the thing that people have to remember about understanding the economy as an ecosystem, is that it's a kind -- it has a -- it's a complex adaptive system that does not tend towards equilibrium. It -- and these systems are what are called multiplicative in nature. And that means that advantages and disadvantages arithmetically compound over time. That is the natural state. And so look, in a game of Monopoly of five players of equal ability, at the end of some amount of time, one person will have all the money.
HANAUERIn an economy, in the absence of powerful counterforces, wealth and power will accumulate. This -- and the job of democracy is to make sure that people have enough incentive to work hard, but don't -- but we don't want to build moats around the most successful people, so no one else can succeed in the future. And that's where we have begun to go. It's not that success is bad, it's that success which insulates itself from the possibility that anyone else can be successful is bad.
REHMAll right. To Doug, in Fort Wayne, Ind. You're on the air.
DOUGGood morning, Diane. Good morning, Mr. Hanauer.
DOUGI hope everyone is well today.
HANAUERHow are you? Fabulous.
DOUGGood, thank you. I have a concern here I want to address briefly on the idea of raising the minimum wage across the board. If I'm in an area where the average wage is $12 an hour and I choose to pay my employees 15, they will be happier, they will be more productive, I'll get more work out of them, I'll save money on lower turnover rates compared to my competitors. But if the rate is up there at 15 for everyone, then my -- whatever I can afford to do extra is really kind of mitigated by government interference.
DOUGTo me it comes down to theory X versus theory Y management styles. And I want to see companies like Wal-Mart go out of business when they treat their employees poorly and companies like Costco -- who I think has an average of about $15 an hour -- to prosper. And that is also the free market and capitalism working as it should.
HANAUERYeah, so, I mean, I certainly agree that paying people above market wages can be an incredibly shrewd way to increase productivity, lower turnover, provide better services for customers, so on and so forth. And indeed, I've done it in many businesses that I own. But the standard can be set anywhere. And all I'm saying is let's raise the standard if the minimum wage is set at seven and you pay 10, then you get that advantage.
HANAUERIf the minimum wage is set at 11 and you pay 14, you get the same advantage. The difference is that people can't afford to live on $7 an hour in our country. And people begin to be able live in our country at $12 to $14 an hour. And we have to find a way to make wages pay enough so that a reasonable person would want to go out and make them because you can actually afford to live. And that's my point.
REHMAnd you're listening to "The Diane Rehm Show." To Jacksonville, Fla. Jivan, you're on the air.
JIVANOne of the things that I've noticed is that we, with our corporate-centered economy, more corporations are doing more business with less people. So there are essentially fewer jobs to go around. And I think one of the areas we see a change in this is in the restaurant industry, where people are more -- are turning more towards local restaurants, slow food, all that sort of thing. Can you talk about how the corporate model is kind of siphoning away jobs and concentrating wealth?
HANAUERWell, you know, there's no doubt that corporations are, you know, concentrating wealth. And, you know, here's something that most people don't know, is that corporate profits, as a percent of GDP, have doubled in our country over the last 50 years and gone up from about 8 percent of GDP to about 12.6 percent of GDP since 1980, while the percent of GDP devoted to wages has been falling like a rock.
HANAUERAnd, you know, what the orthodox economic view tells you, what trickle-down economics tells you, is that this rise in corporate profits as a percent is some law of nature that it's necessary. And nothing could be further from the truth. You know, the difference between 8 and 12, by the way, is almost an extra trillion dollars, as I recall. That trillion dollars isn't profit because it needs to be. That trillion dollars in profit is profit because powerful people prefer it to be and because working people have lost the power to negotiate a fair split of the value enterprises create.
HANAUERBut if you took that extra trillion dollars in profit and divided it equally among the 50 million lowest paid workers in our country, that's $20,000 more per worker per year. There's your middle class back. That's it.
REHMNick, do you think, as one of our earlier emailers implied, that the Supreme Court itself is making the divide between the rich and the poor even greater?
HANAUERYeah, so we definitely have a trickle-down Supreme Court, in my opinion. And to be clear, I'm not a legal scholar. But if you simply look at the way in which these folks have been making decisions over the last 10 or 20 years, and the number of times that they side with policies and laws which concentrate economic and political power, at the exclusion of, you know, ordinary working people or, you know, the rights of, you know, just sort of ordinary Americans, it really is quite breathtaking.
HANAUERAnd, you know, I think that, you know, trickle-down economics is a way of thinking which imbues every part of our society. It is the idea that the richer the rich get, the better off everyone will be. It's the idea that the bigger the big get, the better off everyone will be. And, you know, I think it's simply not true and Americans need to push back.
REHMNick Hanauer. He has written an article in the July/August issue of Politico Magazine. He hadn't even seen the magazine before this morning. So I'm going to give him…
HANAUERThat's true. I have to take it to my wife.
REHM…my copy. And I want you to know that this has become one of the most shared stories in Politico's history.
HANAUERThank you, Diane.
REHMNick Hanauer, I thank you for joining us. And I wish you all the best in getting your message out.
HANAUERThat's so kind of you. Thank you for having me.
REHMThank you. And thanks for listening all. I'm Diane Rehm.
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