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 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.
So if you demand a slurpee a 7-11 will magically pop up on the corner?
Demand = Opportunity
Opportunity = Chance for Capital to rush in
Capital = Job
More taxes = Less Capital
Less Capital = Less Jobs
Obama = More taxes
Obama = Less Jobs
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.
Thanks for your comment. Yes, I am very familiar with ROI. In my business, I am the Capital Investor, so I am the one who has to determine whether the expected return is worth the risk. And to determine the true return, I have to look at the after tax return. I'm sure you would agree that taxes do, in fact, influence where capital goes. Muni's, for example, are hugely popular because of their tax treatment. Sophisticated investors seek out dividends and long term capital gains because of their tax treatment. I'm sure you are aware of this. So if we agree that tax policy influences capital, doesn't it make sense to encourage capital to flow into business, rather than taxing it at ever increasing rates and thereby discouraging it? Keep in mind, my point is that small businesses, not GM & Exxon, are the economic engine, and small business owners are the ones who are under threat of a growing tax burden. Every time the tax burden is increased on me, it raises the bar on the yield a particular investment has to achieve, and therefore investments on the margin don't get done. That means I don't hire more people, or expand. This clearly reduces the potential for available jobs.
Regarding your comment on market studies to determine demand: Oh, I wish it were that simple. Just do a market study and voila you create a job. A market study is only one factor in helping to determine risk and therefore the return required. Unfortunately, they are not foolproof, or otherwise, why would any product/investment fail? "Hey, I did a market study and it said I'd make a million, so why did my company fail?" To a reiterate a point I made on another post, the demand (market study verified or not) only created the OPPORTUNITY for someone to fill the demand and therefore create a job. This is the critical point - the demand, by itself, only created opportunity - not a job. Someone has to risk their capital to actually create the job. Of course, if the demand is misjudged, then the job won't last long and the risk taker will lose his capital. But what we are talking about is how do we CREATE jobs. We need to have an economic policy that encourages the risk takers, not one that penalizes them.
Wonder what his "SPIN" would be if he had not been "LUCKY" investing on AMAZON and made a lot of money. What if AMAZON had gone down the tubes and he had lost his money. I would bet this man would have been a "WALL STREET OCCUPIER". I would also bet this man is not very charitable with his money. Sort of like that ranting Biden guy, who made over $400K last year and only give a little over $5K to donations/charity.
As I have always said - "A PERSON'S ACTIONS SPEAK LOUDER THAN THEIR WORDS" - look at Biden as an example!
These people need to get out into the real world and see how many people are struggling with life these days.
Far to many people in this country are out of touch with the "REAL REALITY".
This has been the central issue for collectivists/socialists for nearly two centuries. It's good to see that you are still carrying that torch.
I'm sure you believe that you're creating jobs by crying about how rich people supposedly don't. I'm sure there are lots of people out there demanding your inane writings, too. Did they create your job? Or was it MSN that created it by putting out a job ad for political hacks?
it makes total sense to me. Just seems like you guys don't like it when someone calls you out on your BS. When it's a policy designed to help the working class or the poor(god forbid we actually help them, cuz we all know they are just lazy bums that are looking for handouts!?!) it's considered socialism and a handout. But when it's for "job creators" it's just so damn important to make it easier for them to make money and "create" more jobs, yet no one wants to use capitalism then. If these small business owners can't create a successful business it's 100% their own fault, and it's because they are lazy and just don't want to work hard or because they are stupid or have a bad business model. They want to hire people to do all the "work" and just do nothing and sit back and collect the paycheck. Then if when they aren't making enough money(becaue they are paying themselves a big salary and not really working for it) they cry that there are too many regulations and it's too hard for them to be "successful" so you have to give us tax breaks(handouts if it was for jane doe). Why when a business takes advantage of every single government assitance/program, tax loophole it's considered "smart business", but if an individual citizen does it he/she is a lazy bum who just wants something for nothing and is a drain on our society?
Oh yea, if these tax breaks are needed to "create jobs", then where are all these jobs since the upper tax rate has been steadily declining over the past 9 years?? WHERE? Or can you at least point to some statistical research that can show a correlation between the tax rate of "job creators" and actual jobs being created...anyone, anyone?
President Zero has "created" hundreds of millions of jobs by his imagination,
Vice president Bobo Biden declared that the recession is over,
Senate majority leader Harry "Poindexter" Reid says that "old people love junk mail"...!!!
Yeah Jonathan Berr, keep on drinking the liberal kool-aid...
Supply side economics are exactly what the first President Bush described them as VOO
DOO economics...cutting taxes results in deficits...dick cheney believed and advised his
boss W..that deficits don't matter...well we have found out the hard way that they do.....and
its hard to believe that republicans who call themselves conservative believe that in order to
put our fiscal house in order both the revenue side of the equation and the spending side have
to be dealt with...entitlements have to be modified so that those who do not need the money
in various degrees don't get all of it...and that includes medicare and social security both
of which must be means tested..it also means that the bush tax cuts must be allowed to expire
on everyone....those tax cuts were done while at the same time two foreign multi billion dollar
wars were started and not paid for...hardly conservative...Simpson Bowles understands the math
the current group of GOP congressman the 218 frogs in a wheelbarrow that John Boehner referred
to this past sunday doesn't get the math...in order to get back to where the US belongs we need
to come to an agreement on the fundamental proposition that you don't spend more than you
have ...but you have to spend on critical things that underpin any economic recovery including
infrastructure and education...that means that those of us who are in the top end of the food chain
have to pay a little more and get a little less
Consumer demand creates a market and then jobs are needed to fill the demand. But who finances the capital structure, and working capital and upfront wages to satisfy demand. No bank will give a loan to a poor or even middle class person. Have you tried to get a mortgage for second home or investment property or business these days? I am an acocutnant and have clients who are doing well and can't get loans. Because the government and their rules and their debt requirements monopolized that. So the financing is left to the venture capitalists who will require a certain rate of return for the risk on the investment. if the ultimate tax rate is above 50%, as it is now, money does not flow so well. What will it be when it reaches as high as 66%? The answer is that it won't flow. The money will sit on the sidelines, be in HY bonds that support existing, tired businesses that consoilidate, merge and eliminate duplicate jobs inorder to maintain their ROI. If these miliionaries want to pay more tax, donate to the government.
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