A Wealthy Capitalist on Why Money Doesn’t Trickle Down

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This post first appeared at YES! Magazine.

A worker in McDonald near Wall St. hands a hash brown to a customer. (Credit: Charina Nadura)
A McDonalds in New York's Financial District. (Credit: Charina Nadura/Moyers & Company)

The fundamental law of capitalism is: When workers have more money, businesses have more customers. Which makes middle-class consumers — not rich businesspeople — the true job creators. A thriving middle class isn’t a consequence of growth — which is what the trickle-down advocates would tell you. A thriving middle class is the source of growth and prosperity in capitalist economies.

Our economy has changed, lest you think that the minimum wage is for teenagers. The average age of a fast-food worker is 28. And minimum wage jobs aren’t confined to a small corner of the economy. By 2040, it is estimated that 48 percent of all American jobs will be low-wage service jobs. We need to reckon with this. What will our economy be like when it’s dominated by low paying service jobs? What proportion of the population do we want to live on food stamps? 50 percent? Does this matter? Should we care?

Business people tell me they cannot afford higher wages. Not true. They can adjust to all sorts of higher costs. The minimum wage is much higher here in Seattle than in Alabama, and McDonald’s thrives in both places. Businesses adjust to higher costs, even when they say they can’t.

Our economy can be safe and effective only if it is governed by rules. Some capitalists actually don’t care about other people, their communities or the future. Their behavior, if left unchecked, has a massive effect on everyone else. When Wal-Mart or McDonald’s or any other guy like me pays workers the minimum wage, that’s our way of saying, “I would pay you less, except then I’d go to prison.”

A thriving middle class is the source of growth and prosperity in capitalist economies.

Which brings us to the civic dimension of what the campaign to raise the minimum wage to $15 is really about. We’re undeniably becoming a more unequal society—in incomes and in opportunity. The danger is that economic inequality always begets political inequality, which always begets more economic inequality. Low-wage workers stuck on a path to poverty are not only weak customers; they’re also anemic taxpayers, absent citizens and inattentive neighbors.

Economic prosperity doesn’t trickle down, and neither does civic prosperity. Both are middle-out phenomena. When workers earn enough from one job to live on, they are far more likely to be contributors to civic prosperity — in your community. Parents who need only one job, not two or three to get by, can be available to help their kids with homework and keep them out of trouble — in your school. They can look out for you and your neighbors, volunteer, and contribute — in your school and church. Our prosperity does not all come home in our paycheck. Living in a community of people who are paid enough to contribute to your community, rather than require its help, may be more important than your salary. Prosperity and poverty are like viruses. They infect us all — for good or ill.

An economic arrangement that pays a Wall Street worker tens of millions of dollars per year to do high-frequency trading and pays just tens of thousands to workers who grow or serve our food, build our homes, educate our children, or risk their lives to protect us isn’t an expression of the true value or economic necessity of these jobs. It simply reflects a difference in bargaining power and status.

We’re undeniably becoming a more unequal society — in incomes and in opportunity.

Inclusive economies always outperform and outlast plutocracies. That’s why investments in the middle class work, and tax breaks for the rich don’t. The oldest and most important conflict in human societies is the battle over the concentration of wealth and power. Those at the top will forever tell 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.

The trickle-down explanation for economic growth holds that the richer the rich get, the better our economy does. But it also clearly implies that if the poor get poorer, that must be good for our economy. Nonsense.

Some of the people who benefit most from that explanation are desperate for you to believe this is the only way a capitalist economy can work. At the end of the day, raising the minimum wage to $15 isn’t about just rejecting their version of capitalism. It’s about replacing it with one that works for every American.

The views expressed in this post are the author’s alone, and presented here to offer a variety of perspectives to our readers.

Nick Hanauer is an American entrepreneur and venture capitalist. He is a co-author of the book called The True Patriot and speaks and writes nationally on inequality, the economy and democracy. He wrote this article for The End of Poverty, the Fall 2014 issue of YES! Magazine.
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