Do rich people create jobs?

One multimillionaire gives a controversial speech saying that only consumer demand, and not the wealthy class, will help jobs grow.

By MSN Money Partner May 17, 2012 2:21PM
Image: Wealthy couple (© Digital Vision/Getty Images)Updated 3:30 p.m. ET

By Jonathan Berr


Sorry, Republicans, but rich people are not "job creators." They never have been and never will be. No one ever invests in anything to create jobs. Employing people is a by-product of capitalism.

Those are the views of the venture capitalist Nick Hanauer, a multimillionaire who was recently invited to speak at a TED conference. The conferences are well-known gatherings featuring talks on a variety of topics and can be viewed online.

Update: Initially, Hanauer's speech was not posted online, which spurred a controversy that TED reacted to Thursday. The speech appeared on YouTube Thursday, and you can see it here.

Rich people don't create jobs, nor do businesses, large or small. What does lead to more employment is a "circle of life" like feedback loop between customers and businesses. And only consumers can set in motion this virtuous cycle of increasing demand and hiring. In this sense, an ordinary middle-class consumer is far more of a job creator than a capitalist like me.

Hanauer added this little zinger as well: "So when businesspeople take credit for creating jobs, it's a little like squirrels taking credit for creating evolution. In fact, it's the other way around."

The views of Hanauer, who made his fortune as an early investor in Amazon (AMZN), are not that radical.

The Republican focus on cutting taxes for millionaires and billionaires is all wrong. For one thing, wealthy people -- ones with smart investment advisers -- know to put a good chunk of money in tax-free investments such as municipal bonds. Some also minimize their tax burden by putting their money in off-shore tax havens. If those people paid less in taxes, odds are that the windfall would wind up in those accounts. Few, if any, jobs would be created.

Another flaw in the Republican argument is the idea that the rich have an onerous tax burden. As The New York Times noted earlier this year, the tax burden paid by the wealthiest Americans has fallen significantly over the past few decades. Warren Buffett, among others, has made similar points.
 
"Between 1985 and 2008, the wealthiest 400 Americans saw the percentage of their income paid in federal income taxes drop from 29% to 18%," the paper reported, citing data from the Internal Revenue Service.

Income inequality should become the central issue of the presidential campaign. Heck, it should be the most important issue of the 21st century. I am not holding my breath for that to happen.

After deeming Hanauer's talk too political, perhaps TED organizers should change the conference motto from "Ideas worth spreading" to "Guardians of conventional wisdom."

TED curator Chris Anderson wrote a long response to the controversy Thursday, saying essentially that the speech just wasn't very good. The audience at TED that heard it gave it mediocre ratings, Anderson said. "Our policy is to post only talks that are truly special," he added. "And we try to steer clear of talks that are bound to descend into the same dismal partisan head-butting people can find every day elsewhere in the media."

-- Follow Jonathan Berr on Twitter @jdberr.

248Comments
May 17, 2012 3:12PM
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Could someone PLEASE tell this to that lunatic loud-mouth Rick Santelli over at CNBC?!

 

Finally, a true capitalist decides it's time to tell it like it is. Thank you Mr. Hanauer!

 

Ok all you lasse-faire, free-market, Ayn Rand, economic hacks - just try to explain to me why this is wrong, and I'll show you emperical evidence why this is 100% accurate.

 

I dare you. And don't simply call me a "Socialist" or "wealth redistributing Commie" or what ever the insult du jour is that you label people who don't agree with you. Give me logical progression from conceptual ideology to actual measurable outcomes with examples and we can discuss. But please save your childish, narcissistic insults. I promise I love this country just as much as you do. I also promise that I believe that hard work is the only true way to success, wealth and happiness, so don't call me "lazy" or imply that I "just want a handout" because I'm not and I don't.

 

In the words of the late, great Rodney Dangerfield...."Well.....we're waiting...."

 

May 17, 2012 3:29PM
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How is this even remotely controversial or a surprise to anyone. Rich people don't start employing people out of the kindness of their hearts, they want something or want something done - just like everyone else...so they pay for it. And there's a hell of a lot more middle-class and poor than there are rich...therefore, the middle-class and poor are the true job creators.
May 17, 2012 7:18PM
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As an economics teacher I can see why so many Americans are confused by this issue.  The explanation is right there in black and white.  So for those that want to know the truth (very few in our country) and don't want the dogmatic explanations it's right there.  So here it is:  He's absolutely correct and it's been proven over and over again.  Consumption, if you want to use that word is what creates jobs; making the rich richer does not.  The greatest boom is U.S. history was after WWII.  Why, because returning vets were empowered with enough money to go to school, buy homes, or get jobs and raise families.  The tax rates then:  at least double of that of today's.  You cannot call government help socialism and then give the richest corporations in the world, big oil, tax subsidies, then say that, well, that's different.  Any one with an open mind willing to look at the facts can plainly see that the truth is regular people create jobs, not the wealthy.  If you can't see this then you're living in a fantasy world unwilling to face your ill-conceived philosophy.
May 17, 2012 6:26PM
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Well, hurray! HANAUER is 100% right in his assertions that consumer demand is the driving force in driving the economy. If no money is being spent by consumers, the rich won't be getting richer. Without jobs, consumers have no money to spend. By reducing government spending, there will be no jobs created (repairing roads, bridges, dams; doing the jobs created by the CCC and other government programs to get us out of the Great Depression; more teachers, firemen, law enforcement, etc.) If these jobs were created or expanded, more people would be working, paying taxes, buying products produced by working citizens, EVERYBODY would be better off, including the rich. And there would be more tax money to drive down the deficit...especially if there was a "tax" system in place that was fair (an even playing field with the rich paying their fair share). 
May 17, 2012 3:33PM
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Temo2, you're an idiot. Producing a product doesn't create demand for it. Demand for a product creates supply - that is if the producer wants more money...which they always do.
May 17, 2012 5:04PM
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"produce the products that consumers will demand that create jobs "

 

And if consumers do not have jobs how will they purchase these new products that someone is producing. Please walk me throught the logic.

May 17, 2012 4:14PM
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Once again, there's no point in debating the question if it's the wrong question. Innovators and practically creative people do create new products and/or new ways of making existing products better or cheaper. These people create the products that drive consumers, without which there is relatively little to drive further consumption. These people are sometimes rich, sometimes not, so it's the wrong question.

 

And even if consumers drive the economy--which I won't argue with--consumers who have no job are likely to be extremely frugal. So their argument is like pointing to a spot on a circle and saying "that's where the circle begins!".

May 17, 2012 3:59PM
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  Telling the truth wont get him on Fox news. High tax rates for the rich in the past gave them the choice of investing in business to grow their wealth or paying it in taxes. Low tax rates encourage them to take the money and shelter it however they can. Building more widgets doesn't create demand, hiring more people gives those who want them more ability to buy them.
May 25, 2012 9:52AM
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The 1% I know are the stingiest people on earth. They hire illegal aliens so they can pay them below minumum wage and work them like slaves. They know they will not complain for fear of deportation.

 The rich are the ones spreading the fairy tale about being the job creators.
Wealthy people want to keep it all for themselves. 
May 22, 2012 8:04PM
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Many on this board have commented that lowering the tax rate on business will increase jobs.  One problem - it's simply not true.  Also, remember that many businesses, including very large companies like GE, pay NOTHING in taxes.  (The tax rate is a sham because of the many loopholes.)  They leech off the rest of us.  I'm a strong supporter of capitalism.  Our problem is that we have socialism for the rich and business and capitalism for everyone else.  Let the rich and business stand all on their own, just like they advocate for the rest of us.
May 23, 2012 5:30PM
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Mr. Hanauer is correct and anyone with basic economics training will know this.  As long as we continue the way we are, only the rich will get richer while the country will loose democracy and poverty will spread among the majority of the population.

We must change the way government works, because now the rich control the government and they have no reason to make changes.  Both major political parties cater to the rich and neither one care what happens to anyone else. 

Constitutional amendments' that allow only public funding of campaigns with no outside financing and term limits on federal and state elected officials, including judges will help give more control to the average person. If we do as our forefathers wanted to do in the first place and elect House members to 3  year terms, then we can have elections each year where one third of the House and one sixth of the Senate is elected each year.  Also we need to allow publicly proposed laws on major issues with public votes each year so that the people can express their opinion rather than just those who can afford large donations to political parties and individual law makers.

May 22, 2012 3:57PM
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Why is it assumed that rich people start businesses. Small business hires 70-80% of the employed in this country. That small business is the guy who runs the local card shop, pizza business, 7-11, gas station, etc. THEY are not rich. They are the ones making 35-60K. Is that rich? They are taking a chance because they want to work for themself. If there is NO DEMAND for there product or service i dont give a dam how much capitol you invest your business will fail.

 

Folks this is a DEMAND and supply world not a supply and demand world.

 

May 22, 2012 7:47AM
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A traitor to his class. A disgruntled one-percenter. Finally someone who speaks the truth! All these ceo's that pat themselves on the back are really at the top by happenstance. Tax the rich. Grow the middle class. Increase aggregate demand. 
May 17, 2012 5:29PM
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If I am a Canadian energ company that can only sell my oil to the midwest it will create an over supply of my product driving the price down. If I can get a pipeline to a port free refinery zone in Texas I can refine for less and sell to Europe where I will get a higher margin.

 

Conservative spin is that this will increase world supply and drive the price of oil down. One hundred gallons of water being sold in Chicago and now being sold in Paris does not increase the supply of oil.

 

 It is unfortunate that political spin is so easily lapped up. Even my dog smells his water before he drinks.

May 17, 2012 8:48PM
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Okay, we need to get some terminology straight.  There is no one type of socialism and one type of capitalism.  Since our inception as a country, we have had parts of what we today call "socialism."  The reason early founders did not use the term because it wasn't used then.  Next, just about every economist has supported the Keynesian idea on the subject of government complimenting private capital.  This idea that you can have one without the other is absurd.  And then there's Supply Side or sometimes called "trickle down."  This is just a way of trying to get people to believe corporations need even more power and wealth and that they therefore will supply jobs, etc...for the lower classes.  One problem, and listen very carefully here:  It has never, ever worked.  Eventually in every cycle of more corporate power greed takes over and you can see what has happened in the past.  For the non-historians, these events are called The Great Depression and The Great Recession which we are currently in.  This is a simple explanation but true.  It's not socialism or communism.  People, please get educated so that at least you have a fighting chance when you walk into the voting booth.
May 17, 2012 4:43PM
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No.  This is a lie the Rich want you to believe. Currently, the wealthy/rich are getting richer by the minute, and there are no Jobs being created by them.  Small business creates jobs - don't be fooled by the rich-job-creators hype.
May 17, 2012 5:10PM
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"Raising taxes on businesses will just drive them overseas"

 

The small local business will move overseas? What percentage of business will move overseas? I thought that small business were the job creators according to conservatives. These individuals will go overseas? Raising the taxes of a CEO will drive business overseas?

 

Yes, life is about the pursuit of small bright shiney trinkets in this God fearing nation.

 

 

May 19, 2012 5:52PM
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im missing something then. How is lowering labor cost by exporting american jobs somehow creating jobs here.if demand is what fuels profits and consumption we should be doing exactly the opposite of free trade. Unions force a corporation to part with a fair share of the profits which in turn fuels consumption and more profits. Tariffs protect a unions leverage to negotiate a living wage. Why is our government doing all it can to destroying labor. There are too many pieces missing here.somethings going on behind the seans.the people running our government are highly intelligent so if theyre pushing destructive policies theres a reason.i dont know what it is.but there is a reason
May 18, 2012 1:28AM
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Damn, so many dumbs literal peoples fighting the article in claiming they the riches create jobs.  The article is right.  It  said the demands/consumers create jobs.  And if you study the consumers, most of them are the middle class, which is  the majority of the population.  Do you think your business would last if there is no consumer for your products or services?  If there are demands/consumers, anyone, even poor people can create jobs too by taking loan!  To spawn consumers, people must have money to spend.  So you give them a chance to make money by having factories here.   Then people made money from woking in shoes factory can buy shirt, and people made money from shirt factory can buy shoes.  If all the factories are in China, all the money will end up in China, unless we print more money.
May 18, 2012 4:49PM
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Job Creators.... trickle down economics....   buzzwords with no meaning. 

 

Republicans do have SOME good ideas but they are so extreme it makes them look like whack jobs.

 

Until america calls their bluff and votes them out across the board they will keep making the rich richer.

 

If they wanted to be smart and truly have everyone's best interest at heart they would (1) let bush era cuts expire on the top two tiers.   Then ask for a law that says you can't get back what you don't put in.  Hence if you only put in $1,000 in taxes that's all you're getting back. No more 3 kids $7,500 checks to the person who doesn't work. (EIC /Child Tax Credit) 

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