The TED Talk That You Weren’t Supposed to See

Nick Hanauer

On March 1, Nick Hanauer–Amazon’s first nonfamily investor–delivered a speech at a TED University talk about income inequality in the United States. According to National Journal:

You can’t find that speech online. TED officials told Hanauer initially they were eager to distribute it. “I want to put this talk out into the world!” one of them wrote him in an e-mail in late April. But early this month they changed course, telling Hanauer that his remarks were too “political” and too controversial for posting…. In early May [TED curator Chris] Anderson followed up with Hanauer to inform him he’d decided not to post his talk.

Anderson noted that Nick Hanauer’s talk was in his own words to take issue with “an article of faith for Republicans”: namely, that “if taxes on the rich go up, job creation will go down.” TED can have whatever standard they want, but the video has been made public, and I want to respond briefly. Hanauer begins with the observation that “anyone who has ever run a business knows that hiring more people is a course of last resort of capitalists. It’s what we do if, and only if, rising consumer demand requires it, and in this sense, calling ourselves job creators isn’t just inaccurate–it’s disingenuous.”

Everything he says here is absolutely correct. Labor is just another business expense that capitalists would like to eliminate. That’s because businesses don’t exist to create jobs–that is, to create work–but to eliminate it. As the great French economist Frederic Bastiat put it:

Wealth is the result of labor. It increases proportionately to the increase to the ratio of result to effort. Absolute perfection, whose archetype is God, consists in the widest possible distance between the two terms, that is, a situation in which no effort at all yields infinite results.

In other words, if you can produce goods or services that people demand with less effort, you have made the world wealthier. But it doesn’t make you a “job creator,” so tagging yourself with this label is a little disingenuous. But rather than giving business owners and producers the credit for creating wealth–rather than jobs for people–Hanauer instead claims the consumers are the real heroes.

“Jobs are a consequence,” he says, “of a circle of life-like feedback loop between customers and businesses.” This is true. Businesses respond to consumers’ demands, producing what they want when they want it, all this insight leads to a false conclusion. “Only consumers can set in motion this virtuous cycle of increasing demand and hiring,” he says. Consumers don’t “increase demand”–consumers demands are infinite. Their demands expand as their ability to consume expands, and the only way for that to happen is to produce more. This means what actually increases demand is production. Production sets in motion the virtuous cycle.

As the ratio of production to consumption within a business increases–that is, as it uses resources more efficiently–it makes human effort more valuable, and workers are able to demand higher wages. Workers then go out and become consumers, and demand more production from producers who then provide it. This is the virtuous cycle of the economy, and it is always led by producers, not consumers as Hanauer claims.

“There can never be enough rich people to power a great economy,” Hanauer continues. “Somebody like me makes hundreds or even thousands of times more than the median American, but I don’t buy hundreds or thousands of times more stuff.” Except that’s good! Consumption is when the rich enjoy their wealth. They take resources for their own personal pleasure, which are then denied to others. We shouldn’t want them to spend it. We should want them to save it (or at least, it would be better for us if they did).

If all the capitalists went and spent all their money tomorrow, that would be an economic disaster. Why? Because they would deprive the entire world of capital. Assuming Hanauer isn’t Scrooge McDuck and he puts his money in a bank or invests it, his money is providing the foundation for the next virtuous cycle of production by funding the next set of entrepreneurs and “wealth creators”  to build our economy. Whether he notices that this is what happens is irrelevant.

Hanauer points to graphs of top income tax brackets going down while income inequality has grown. Never mind whether or not anyone actually paid those top brackets, what is interesting about the last thirty years is that government involvement in the economy has grown, not shrunk. Libertarians have been pointing out for years that the real measure of government’s size is spending, not taxation. So it might be worth wondering whether the market hasn’t intelligently responded to the incentives the government has created. That the top one percent make more money because they are more valuable in a government-run world, where who you know and what political access you have matters as much as what you produce.