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To My Fellow Plutocrats: You Can Cure Trumpism

Pay your workers a decent wage and maybe you can stave off the pitchforks that are still coming for us.

By NICK HANAUER </span

A letter from one rich American to fellow rich Americans with the message: A Strong middle class is a strong America and wealth inequality is bad for the country and could lead to civil unrest.Since Election Day, I’ve been overwhelmed by anguished calls, emails and conversations from you, my wealthy friends, who, for the first time, are confronting the real possibility that our cozy utopian, urban, pluralistic lifestyles may be in peril. I share your fear. And with good reason.

Three years ago, in these pages, I warned you that the pitchforks were coming. I argued that 30 years of rising and accelerating inequality would inevitably lead to some sort of populist revolt that would disrupt the fantastic lives we elites enjoy. I cautioned that any society which allows itself to become radically and indefensibly unequal eventually faces either an uprising or a police state—or both.

And here we are.

Once we’ve dismissed with trickle-down nonsense, the way forward becomes clear. …but there’s no getting around the trillion-dollar elephant in the room: the 5 percent of GDP that used to go to wages but now goes to executive pay and record corporate profits.Our new president was swept into power through exactly the kind of populist anger I predicted. He was an historically terrible candidate, and his behavior and actions as President have confirmed my worst fears. There is a thuggish, violent undercurrent to everything he says, tweets and does. Even scarier, his supporters relentlessly attack our democratic norms and institutions. The free press (and reality itself) is under assault. But given the stunningly insufficient way in which Hillary Clinton spoke to the economic and status concerns of so many voters, it shouldn’t have surprised us that Trump won. People are hurting, and they lashed out—by voting for the guy who was lashing out too.

a new American civil war arriving as soon as 2021 (and in a highly-armed nation already suffering from an epidemic of gun violence, he doesn’t mean “civil war” metaphorically).Don’t say I didn’t warn you. And don’t console yourself for a minute that in electing a fellow plutocrat, our side won. President Trump isn’t on any side but his own. And his strategy to make America great again by bringing back an old industrial economy that no longer exists is as substantive as his early morning tweets about Cable news hosts. After his trickle-down policies—like ripping away heath care from tens of millions of Americans so plutocrats like us can get giant tax cuts, or just enacting giant tax cuts for us, and calling it tax reform—inevitably exacerbate the already extreme inequality that helped sweep him into office, those pitchforks will be angrier than ever.

The truth is that over the span of decades, American lawmakers (at the behest of economic elites like us!) have enacted policies that have depressed wages, stoked economic insecurity and exacerbated cultural angst and social dislocation. At the same time, a tiny minority of mostly urban elite (again, us!) have benefitted obscenely from our growing economic, political and legal power.My own ideas about the effect of inequality on social instability align with the work of social scientist Peter Turchin. He and his collaborators use mathematical models to study the rise and fall of societies—an analysis that postulates a new American civil war arriving as soon as 2021 (and in a highly-armed nation already suffering from an epidemic of gun violence, he doesn’t mean “civil war” metaphorically). For the first time in history, polls show that most Democrats and Republicans identify Americans from the opposing party as the biggest threat to our country. So yes—if you have a deep sense that something is very wrong with our nation, you are almost certainly correct.

Yet, I find myself in deep disagreement with almost everyone I talk to about Trump and Trumpism. I firmly believe that Trump, by himself, is not the problem. Indeed, the left’s maniacal focus on Trump confuses cause with effect. Yes, Trump is a manifestation of a serious civic sickness. But treating the symptom by removing Trump won’t cure the disease, even if it temporarily makes us feel better. No, to heal the body politic we must confront the disease itself.

The real threat to our republic is an alarming breakdown in social cohesion, and the cause of this breakdown is obvious: radical, rising economic inequality, and the anger and anxiety it engenders. The truth is that over the span of decades, American lawmakers (at the behest of economic elites like us!) have enacted policies that have depressed wages, stoked economic insecurity and exacerbated cultural angst and social dislocation. At the same time, a tiny minority of mostly urban elite (again, us!) have benefitted obscenely from our growing economic, political and legal power.

Our lives of ostentatious luxury might be forgiven if all boats were rising as fast as our 200-foot yachts. But they’re not. In fact, as we few continue to capture the benefits of almost all of our nation’s economic growth via a trillion dollar a year transfer of wealth from wages to profits, millions of American families are sinking out of the middle class. It is this winner-take-all economy, and the indefensible and obvious injustice it represents, that creates the justifiable anger that threatens our civility, our national cohesion and our democracy itself. A century ago, as communism and fascism threatened to overrun Europe, our nation struck a grand bargain: We plutocrats would continue to be tolerated—even celebrated—as long as broadly rising incomes meant that each new generation of Americans continued to do better than the last. But through the policies we championed in the corridors of power and through the longstanding social norms we violated in the corporate boardroom, we broke our end of that bargain. And now the pitchforks are coming for us, my friends, from both the right and the left.

I believe that we in the American political and economic elite face an extraordinarily inconvenient but undeniable truth: Our country will not getbetter until our fellow citizens feel better; and they will not feel better until they actually do better. And this is the hard part for many of you: The American people will not do better until they are actually paid more.

And they won’t be paid more until we change the way we manage our economy. This is the stark, simple fact at the heart of our ailing political system. Nothing is going to get better until we enact laws and standards that persuade or oblige every business to pay every worker a fair, dignified and livable wage. Everything else, from Trump on down, is a distraction or a lie.

 

***

Bullshit. It simply isn’t true that reasonable wages, decent labor protections and higher taxes on the rich would destroy the economy. Such were the norms back in the 1950s and 1960s when America’s growth rates were much higher—and there’s no empirical evidence to suggest that we couldn’t support similar norms today.Yet, when I make this case to my wealthy friends, even the progressive ones, the reaction is almost universal: You look down at your shoes, or start talking about “messaging” or “narrative”—or charter schools. When I urge you to focus your energy and resources on the kinds of direct action that can actually make a real difference to working people—like, for instance, a state or city minimum wage campaign—you roll your eyes, or prevaricate. You insist that the only way to fight Trumpism is to fight Trump. But you couldn’t be more wrong. The only effective way to fight Trumpism is to address its cause by ensuring that the middle and working class do better.

Trumpism poses a threat to all Americans, but to the superrich most of all—because we have the most to lose. Sure, estate tax repeal might at first sound like win, but permanently creating a class of entitled aristocrats out of our own kids isn’t likely to improve our democracy, Meantime, if you aren’t already planning to give away the bulk of your fortune, you’re kind of a selfish jerk. That’s why, as counterintuitive as it might sound, the single best way to advance our own interests is to put more energy and money into advancing the economic interests of others. For example: by fighting to pass a $15 an hour minimum wage.

$15? Crazy. I know.

“That’s impossible,” one retail executive told me, “you can’t pay people that much.”

“A $15 minimum wage is a job-killer,” sputtered the CEO of a large restaurant chain.

“That will destroy the economy,” a manufacturing executive tut-tutted.

Bullshit. It simply isn’t true that reasonable wages, decent labor protections and higher taxes on the rich would destroy the economy. Such were the norms back in the 1950s and 1960s when America’s growth rates were much higher—and there’s no empirical evidence to suggest that we couldn’t support similar norms today. The truth is that when economic elites like us say “We can’t afford to adopt these higher standards,” what we really mean is, “We’d prefer not to.” We like to frame our claims as objective truths, like the so-called “law” of supply and demand, but what we’re really asserting is a moral preference. We are simply defending the status quo.

In my circles, few seem to want to confront the reality that our political environment won’t improve until the actual economic circumstances of our fellow Americans improve. We rich folks crave the variety and stimulation of progressive blue cities, yet we’re often not willing to fight for basic progressive policies like higher wages and the right to organize. We pound the table, ranting about diversity and inclusion without recognizing that the 43.7 percent of Americans earning less than $15 an hour, mostly white and rural, simply cannot afford to be included in our pricey, progressive, pluralistic enclaves. We smugly #resist when an airline beats a passenger bloody, but we do so from the safety and comfort of our own private planes, literally looking down on the shuttered factories and struggling small towns of middle America as we luxuriously jet from coast to coast.

Today in America, tens of millions of lower- and middle-class workers are routinely subject to poverty wages, unpaid overtime, wage theft, dehumanizing scheduling practices and the constant threat of automation or off-shoring. But the plight of these workers rarely comes up in conversations with my peers. Maybe the problem isn’t sexy enough. Maybe it seems too big. Maybe it requires the uncomfortable admission that some of our outsized profits are coming at their expense. But whatever the reason, we’ve let the problem grow too large to ignore.

Many of my peers prefer to hide behind the enduring myth that today’s crisis of economic inequality and insecurity is the result of forces unleashed by unstoppable trends in technology and globalization. “It’s not my fault I have so much while others have so little,” we comfort ourselves, “it’s the economy.” That is nonsense. There’s no intrinsic reason why the social and political changes delivered by technological advances and globalization have to massively concentrate wealth in the hands of the few. We simply exploited changing circumstances to take advantage of people with less power than us.

Over the last 40 years, corporate profits as a percentage of GDP have increased from about six percent to about 11 percent, while wages as a percentage of GDP have fallen by about the same amount. That represents about a trillion dollars a year that used to go to wages, but now goes to shareholders and executives. One trick we use to keep profits high and labor costs low is to refuse to schedule workers for the 30-plus hours a week they would need to qualify for benefits. Today, an astonishing 6.4 million involuntary part-time workers are denied the full-time work they seek in order to keep our profit margins high. You can call that “the market” or you can call that “stealing,” but from the point of view of a disgruntled worker it amounts to the same thing. How could they not be angry?

Another elite excuse for inequality is “education.” If everyone had a Harvard MBA, the argument goes, then we’d all be fine. Don’t get me wrong; the better educated our citizens, the better off we all will be. But someone is still going to need to clean the hotel rooms, flip the burgers, pour the coffee, assemble the cars, cut the hair, etc. But if that job doesn’t provide a decent and dignified life, then we have made little collective progress. And while it’s true that college graduates earn more on average than those without college degrees, wages for young college graduates have stagnated since 2000, with wages for young female graduates falling 6.8 percent. Churning out more college graduates can’t close the inequality gap if wages are stagnating or falling across the board.

 

***

In 2014, when I last checked in with you all, my home city of Seattle had just passed a $15 minimum wage ordinance. The derision thrown my way for supporting this initiative was predictable. Pundits from the Chamber of Commerce, Forbes and AEI went crazy. “Job killer” they screamed. When wages rise, they said, employment plummets. Seattle we were told, would slide into the ocean. Restaurant closures. Epic job losses. Poverty. Economic Armageddon!

Over the last three years we have implemented the policy in stages. Today, all large employers—those with more than 500 workers on their payroll—pay their workers $15 an hour (or $13.50 for those that provide medical benefits). Small employers pay between $11 and $13. Let me remind you that this minimum wage includes tipped workers, who now earn a remarkable 700 percent more than the federal tipped minimum of $2.13—as stark an experiment in whether higher wages kills jobs as has ever been attempted. So how is Seattle doing?

When the ordinance passed in June of 2014, Seattle’s unemployment rate already stood at a healthy 4.5 percent; in April 2017, it hit a record low of 2.6 percent (basically a labor shortage). Seattle is now the fastest growing big city in America. Our restaurant industry is booming, second only to San Francisco in the number of eateries per capita, with food service industry job growth far outpacing the nation. Restaurateurs who once warned against raising wages are now complaining about how hard it is to fill the positions they have. Around the corner from my office, the sandwich chain Jimmy Johns is paying drivers $20 an hour plus tips, well above the mandated minimum rate. Are there many factors at play? Of course. But our city has proven that raising wages does not automatically kill jobs. In fact, of the 10 largest counties in the nation, King County, Washington had the largest year over year job growth in 2016 (3.8 percent), and was the only one of the 10 counties to see over-the-year growth in wages (3.5 percent).

How can this be? Because that is how capitalism works. Because when workers earn more money, businesses have more customers and hire more workers. Because a thriving middle class is the source and cause of growth in capitalist economies. Because when restaurants pay restaurant workers enough so that even they can afford to eat in restaurants, it’s great for restaurants!

But old economic prejudices die hard. A new working paper from researchers at the University of Washington recently generated gloating headlines from conservative news outlets eager to confirm their “job killer” mantra, whatever the self-evident reality is on the ground. The UW researchers analyzed payroll data at single-location employers—mostly small businesses held to the slower implementation schedule ($10.50 to $12.00 in 2016)—concluding that low-wage workers are actually worse off than workers in a hypothetical “Synthetic Seattle” where the minimum wage was never increased. But it’s hard to take these findings seriously. The UW researchers report a 30-percent decline in low-wage employment for every 10 percent increase in the minimum wage—a finding 10 times higher than the average reported in 942 published studies. It’s an extreme outlier that raises serious questions about the limitations of the UW team’s data and methodology.

For example, by studying only single location employers, the UW study excludes 48 percent of Seattle’s low-wage workers, while introducing an unavoidable bias into the results: When a worker moves from a single location employer to a multiple location employer (where the minimum wage was up to 24-percent higher in 2016), the study counts that as a low-wage job loss. When a successful single-location employer expands to a second location, the study counts all of its current workers as low-wage job losses. When a low-wage worker sees her wages climb over $19, the study counts that as a low-wage job loss. When a low-wage employee moves to contract or gig economy work (Uber alone estimates it has 10,000 drivers in the Seattle area), the study counts that as a low-wage job loss.

These findings are also totally at odds with a recent report from economists at the University of California at Berkeley who are studying the impact of the minimum wage on restaurants—the industry with the largest number of low-wage jobs. The Berkeley researchers found that wages increased at rates “in line with the lion’s share of results in previous credible minimum wage studies,” without affecting food service employment. Wages went up, jobs did not go down. In short, the researchers conclude: “the policy achieved its goal.”

Given the obvious limitations of the UW study and the contradictory results from the economists at Berkeley, it is too soon to reach a firm conclusion on the theoretical impact of Seattle’s minimum wage. On the other hand, in practice, in real life here on planet earth, Seattle’s economy is kicking ass.

 

***

Trump cannot restore the middle class with empty promises to bring manufacturing jobs back from the dead.President Trump promises to restore the middle class to its former glory by bringing back old industrial-era jobs—as if slashing environmental regulations could somehow make coal competitive again with plummeting solar prices, let alone our fracking-induced glut of cheap natural gas. This is magical thinking. Manufacturing as a percentage of the overall economy, and of jobs, has been declining globally for decades. This trend will not reverse. Trump cannot restore the middle class with empty promises to bring manufacturing jobs back from the dead.

No, the only realistic near term way to insure Americans do better is to make existing jobs into good jobs by requiring they be paid adequately. There is no earthly reason why an entry-level job at low-wage employers like Walmart or McDonalds could not pay $15 or even $20 per hour with full benefits, the way an old factory job used to. There is nothing “unskilled” about a barista or a home health care worker, and no economic principle that prevents these workers from earning a living wage. The only difference between today’s service workers and yesterday’s manufacturing workers is that most service workers have no union, and thus have no power. People have never been paid what they are worth, despite what the trickle-downer’s will tell you. They are paid what they negotiate. And working people have lost their ability to negotiate decent wages.

Union jobs that used to pay people middle-class wages and that delivered the job security and benefits that enabled a dignified, stable and secure life have been eliminated and replaced with minimum-wage jobs. Low-wage employers tell us that this is all they can afford. That, too, is a lie. When Starbucks and Walmart and McDonalds say they cannot provide their workers with middle class wages and benefits like General Motors and IBM used to, they really mean they’d prefer not to do so. Why? Because if wages are low, profits and bonuses are high.

I want to underscore that I do not think it reasonable for any company, even the size of Walmart, to be expected to unilaterally raise the wages of their workers to double the national minimum wage. In a viciously competitive market, such an action is unrealistic. What is unforgivable (and in a sense, inexplicable) is the failure of Walmart’s leaders to lead the charge to level the playing field by raising the federal minimum wage, so that every company is required to pay their workers fairly. After all, who would get the biggest share of these extra consumer dollars? Our nation’s largest retailer: Walmart.

To be clear: raising wages simply does not kill jobs. Raising wages will no more kill jobs than eliminating slavery killed jobs, or giving women the right to vote killed democracy (both of which arguments were made at the time). In fact, the opposite is true. Despite what our good friends at the Chamber of Commerce and the National Restaurant Association (the other NRA) may tell you. If raising wages really killed jobs, the empirical evidence would be abundant. We’ve raised the federal minimum wage 22 times since 1938, and unless the economy was already in or heading into recession, employment always increased. And if you look further into the data by sector, the results are even more dramatic. The more effected the industry sector by the increase, the better it did. The lowest wage sectors had better employment effects than higher wage sectors.

The self-serving claims that if wages go up, jobs go down, aren’t a description of reality. They are a negotiating strategy, a con job, an intimidation tactic masquerading as economic theory. Threatening people’s jobs when they ask for a raise is the oldest trick in the businessperson’s wage suppression handbook—it is simply an effective way for rich people like us to negotiate wages at scale. The Chamber of Commerce doesn’t say higher wages kills jobs because it is true; they say it because it works.

Once we’ve dismissed with trickle-down nonsense, the way forward becomes clear. I’ll save a detailed policy agenda for another forum, but there’s no getting around the trillion-dollar elephant in the room: the 5 percent of GDP that used to go to wages but now goes to executive pay and record corporate profits. This isn’t money we’re shipping overseas or feeding to robots or burying in holes. The most obvious way to address our crisis of growing inequality is to reverse the policies that undermined the older, more equitable norms. This means raising the minimum wage and the overtime threshold to their inflation-adjusted peaks, and indexing them to the appropriate economic metric. This means restricting the stock buybacks that have propped up executive pay through share price manipulation. This means rethinking our benefits systems and social safety nets to meet the needs of our modern economy. And this means substantially raising taxes on plutocrats like us who continue to capture the bulk of our nation’s economic gains. And yes, by all means let’s increase the Earned Income Tax Credit, even though it effectively socializes the cost of wages onto taxpayers. But keep in mind: the EITC currently costs $60 billion’ish per year. If we want to fill the trillion dollar per year hole in workers’ pockets, we’d need to raise it by about $940 billion per year. Good luck with that.

 

***

Many of us wealthy folks are laudably philanthropic; we feel like we are already doing our part to improve the lives of our fellow citizens. And this is true, to some extent. But if my thesis is correct—if the only cure for what truly threatens our democracy and our capitalist economy is to enact laws and standards that ensure that businesses pay people enough to lead secure, dignified lives—then some of our effort may be misdirected. Philanthropy is useful, but only about $100 billion per year is spent on helping disadvantaged folks. Raising the minimum wage to $15 would increase income for the bottom 60 percent of Americans by about $450 billion per year. No philanthropy comes close to the scale of that one policy.

Plenty of opportunities exist for wealthy folks to get involved in state based efforts like minimum wage campaigns, the fight to increase the overtime threshold upon which so many middle-class people depend, or the fight for portable, pro-rated and universal benefits. If just 10 percent of you, my fellow plutocrats, got behind these campaigns, the anger and resentment that nurtures Trumpism would quickly dissipate as standards were raised, people’s lives improved, and inequality diminished. When you’re filthy rich like us, donating a million bucks to a minimum wage campaign is chump change. I do it. So should you.

Many smug, wealthy, highly educated liberals like myself (and let’s be honest, like many of you who have been blowing up my phone since the election) have taken to soothing ourselves with the notion that Trump was elected by stupid, racist people. And to some degree, this may be true. But like it or not, in America, even stupid racists have an equal claim to the prosperity, dignity, status and happiness that we urban economic elites hold so dear. Also, they vote. So while we should never pander to their racism, we must face the fact that if our greed prevents them from having their fair shot at happiness, they will most certainly take it from us by force. Parenthetically, I want to make clear that I am not so naïve as to believe that prosperity eliminates racism. It does not. But, it is one hell of a distraction. People who are thriving and hopeful may still be filled with hate, but they don’t have nearly as much reason to act on it.

It is true that the American experiment has proven remarkably resilient, even through periods of wrenching political realignment. During the mid-1850s, one of our two major parties, the Whigs—representing issues including high tariffs and anti-Catholic nativism—collapsed and disappeared. Examine the political climate of that time and you’ll find some startling similarities with our own. Much of the North’s popular resistance to the inequality issue of that age, the expansion of slavery, had little to do with empathy for slaves; rather, the “free labor” movement was grounded in a deep sense of economic anxiety amongst the working poor who saw both slavery and immigration as a threat to their own jobs and wages. Sound familiar? Eventually we got ourselves back on track—but only after a long and bloody Civil War.

Source:To My Fellow Plutocrats You Can Cure Trumpism

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