Editor's Note: Nick Hanauer gave the following speech at Mayor Ed Murray's Income Inequality Symposium at Seattle University on March 27th, 2014. It is reprinted here in full.
Societies and their economies are shaped by the explanations we accept about how the world works. Let me give you a simple example: If you explain the solar system by putting Earth at the center of it, you will send a rocket in one direction to get to Mars. If you believe that the sun is the center of the solar system, you would send that rocket in a totally different direction.
People are of course entitled to their opinions. But only one of those explanations is going to actually get you from Earth to Mars. The other explanation leads to disaster.
Navigating an economy isn’t that much different. If we explain it the right way, we get where we want to go. If we explain it the wrong way, we end up adrift.
Today, our entire economy has been structured by a couple of incredibly simple, compelling and mistaken explanations. You may be familiar with them.
First, if taxes on the so-called rich “Job Creators” go up, employment will go down, and the economy will collapse.
And, its evil twin: If wages for workers go up, employment will go down, and the economy will collapse.
These paired ideas are really best understood as explanations for how the economy works. And at the root of these explanations is the assertion that the source of growth and general prosperity in capitalist economies are rich people and the profits of businesses. That the higher they go, the better off all of us will be.
These ideas define our economy. They were advanced by the right, but broadly accepted by the left. They are, in short, the anchor concepts of trickle-down economics.
But these explanations are totally wrong. As wrong as believing that the Earth is the center of the solar system. And the reason our economy is struggling — the reason the middle class is shrinking — is because we have accepted these explanations and allowed them to direct our politics and economic policy.
My goal this morning is to show you why these explanations are wrong, and to advance a different and better explanation which shows why increasing the minimum wage isn’t bad for the economy.
In fact, it’s good for the economy and for business.
If the trickle-down economics explanation for how to create jobs were true, then our economy would be in very, very, good shape. But here is where we actually are: Since 1980, the share of income for the richest Americans has more than tripled — from about 8 percent to 24 percent in 2007 — while their effective tax rates have declined by close to 50 percent.
If it was true that lower tax rates and more wealth for the wealthy would lead to more job creation, then today we would be drowning in jobs. And yet unemployment and under-employment are at record highs.
Corporate profits have gone from 8 to 12.6 percent of GDP since 1980. That’s almost an extra trillion dollars. If it were true that corporate profits led to hiring, then today shouldn’t we have 50 percent more jobs?
Since 1980, CEO pay has gone up 700 percent; median income only 5.7 percent. If the rich getting richer benefitted everyone, what happened to the middle class?
One of the central claims of trickle-down advocates is, “Yes, inequality is getting worse, but think of the growth!” So, growth in the USA, with its leading amounts of inequality must be much, much higher, right?
Not so much.
In fact, growth in the USA is comparable to Socialist hell-holes like Canada, New Zealand and Australia, Germany and Scandinavia.
But crucially, these comparative growth numbers hide something far more important: The relative advancement of the lived experience of the typical family.
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