The following article is an except form pages 275-281 of my book The Conscience of a Young Conservative. If you enjoy, free PDF copies are available through Liberty.me, and print copies are available on Amazon. 

Conservative writer Shelby Steel wrote an entire book on a phenomenon he calls “white guilt.” Nick Hanauer may be the first person to suffer from rich guilt. Hanauer plays a perfect role as a leftist activist – he’s both a self-made billionaire, and supports raising taxes on the rich. When liberal bloggers and pundits cite him, he isn’t “Nick Hanauer,” he’s “billionaire Nick Hanauer.”

Even more perfect is that Hanauer made his breakthrough to leftist advocacy as a victim.

It all started with a talk that Hanauer gave at a TED conference, where speakers present new ideas concerning technology, education, politics, science, and other fields. Hanauer’s talk dealt with the issue of income inequality. Controversy followed soon after, not due to the content of the talk itself, but because TED failed to upload the talk. It then spread like wildfire through the blogosphere that Hanauer’s talk was “too hot for TED” and “deemed too controversial” to be posted.

The problem that this entire narrative is that it doesn’t exist, and only does exist because Hanauer paid a PR firm to create it. TED only posts one talk a day to their YouTube channel – from a pool of around 250 talks recorded at their conferences, and over 10,000 from their worldwide TEDx conferences. In the past, TED posted a lengthy talk titled “How Income Inequality Harms Societies,” clearly contradicting the narrative the TED is somehow against posting talks related to income inequality. In fact, TED’s curator posted on his blog regarding the controversy noting regarding Hanauer that “[his] talk tapped into a really important and timely issue. But it framed the issue in a way that was explicitly partisan.” He continues that “The audience at TED who heard it live (and who are often accused of being overly enthusiastic about left-leaning ideas) gave it, on average, mediocre ratings – some enthusiastic, others critical.”[1]

Numerous blogs commenting on this issue seemed to never cease bringing up that the talk received a standing ovation, but after viewing a few other talks it seems that standing ovations aren’t all that uncommon at TED.

The great “revelation” of the speech is in Hanauer’s explanation of why the rich are not job creators. How could they be job creators after all, when they wouldn’t be able to sell their products without middle class consumers purchasing them? From this fact, Hanauer concludes that the rich aren’t job creators, middle class consumers are. All rich people aren’t job creators – some inherit wealth, some gain it by gambling, and others from rent seeking – but it seems absurd to conclude from this that the small business owner from the street isn’t a job creator because it’s his customers money paying his bills. Granted, if you have a bunch of entrepreneurs set up shop with no customers they won’t get very far, but if you have a bunch of middle class consumers running around with no entrepreneurs or producers, many jobs aren’t going to be created either. This form of argumentation is almost like the old question of whether or not the chicken or the egg came first – and in this case the answer is neither.

The rest of the talk gives a history on how we became so unequal, and the consequences that resulted. These sorts of arguments have already been debunked earlier in the book in the sections titled Income Inequality and Economic Freedom and Declining Real Wages within this book. All that would be truly left to debunk would be a bogus chart with Hanaeur created himself, which is posted below.

hanauer1

The unemployment rate is charted from 5.6% to 9.3%, while the effective tax rate on millionaires is charted as declining from 30.4% d to 22.4%. While a chart so poorly constructed should’ve received widespread criticism, the only source I could find dealing it criticism was written by Bruce Upbin in Forbes. As he comments, this is “leading us to parse how a 22.4% tax rate can fall below a 9.3% unemployment rate.”[2] When you actually look at unemployment during that period, the steady uptick in unemployment is nonexistent (until the recession of 08, obviously).

hanauer2

Further commenting on the chart, he notes that “Unemployment didn’t keep going up. It FELL twice (once from  1995-2001 and again from 2003-2007).” When Upbin had his data editor look at the chart, he commented that “it looks like Hanaeur just took the unemployment rate from 1995 and the unemployment rate in 2009 and drew a random squiggly line between them.”

Hanauer and Corporate Profits         

Hanauer seems so impressed by his own jokes that he feels a need to repeat and apply them to as many things as possible. Appearing on Thom Hartmann’s television show on Russia Today, he made the claim that “rich people taking credit for creating jobs are like squirrels taking credit fot evolution.” [3] He seemed so proud of that analogy that he repeated it in his TED Talk. He also made sure that Fareed Zakaria included that tidbit in an introduction to a segment which including him and former Bain Capital executive Ed Connard.[4]

In his TED talk, he mentioned that “had it been true that lower taxes on the rich and more wealth for the wealthy led to job creation we would be drowning in jobs today.” Speaking about corporate profits, he writes that “corporate profits are at a 50-year high while unemployment is also at a 50-year high. If it was true that the rich and business were the job creators, we’d be drowning in jobs today.” On his personal twitter account, he tweeted months after both prior statements that “if high corporate profits led to growth and jobs, today we would be drowning in jobs.”[5] This is a fairly decent amount of attention to bring to a statement that isn’t witty in any way, let alone insightful.

The “50-year high” statement is true but misleading. Corporate profits were also at “50-year highs” in the mid-2000s before the crash – then they rebounded after bottoming out.[6] I don’t exactly understand what Hanauer is trying to prove here, as he seems to be assuming that if you believe that entrepreneurs create jobs you must also believe that corporate profits should translate to more jobs. Unemployment is high, but hardly at 50-year highs considering that he made the statement in February of 2012, a time when the unemployment rate was at 8.3% and falling. The only recent time that unemployment had topped 8% was in the early 1980s recession, which was thirty years ago, not fifty.

The Green Energy Charade

The failure of Solyndra, and a handful of other investments that the government made into green energy are now well known. But maybe we should look at other countries in case we did something wrong. Hanauer notes that as he’s writing, “the Chinese government is making massive, determined, strategic investments in their renewable energy industry.”[7] He’s referring to a five year plan that China made in 2010 to give state support to solar and wind power, and electric automobiles.

A mere two years later we can measure the results.

Two years seems to be an unusually small time to do any kind of economic measurement on a policies success or failure, but not when a policy’s intent crashes and burns. As The Wall Street Journal reported, “State subsidies have spawned dozens of Chinese Solyndras that are now on the verge of collapse.” LDK Solar, the second largest polysilicon solar water producer in the world defaulted in $95 million. The company also lost $589 million in the forth quarter of 2011, and $185 million in the first quarter of 2012, which cost around 10,000 jobs. China’s top wind manufacturers saw their earnings tank as well. Goldwind say their earnings tank 83%, while Sinovel’s dropped 96%.[8]

 

 

For some more criticism of Hanauer, see my piece The Myth of Corporate Profits in National Review.

[1] Anderson, Chris. “TED and Inequality: The Real Story.” TEDChris, 17 May 2012. <http://tedchris.posterous.com/131417405>.

[2] Upbin, Bruce. “The Real Reason That TED Talk Was ‘Censored’? It’s Shoddy And Dumb.” Forbes, 17 May 2012. <http://www.forbes.com/sites/bruceupbin/2012/05/17/the-real-reason-that-ted-talk-was-censored-its-shoddy-and-dumb/>.

[3] The Big Picture, Russia Today, Aired December 6th 2011.

[4] Fareed Zakaria Global Public Square, July 8th 2012.

[5] Hanauer, Nick. Twitter, 3 Oct 2010 at 10:47pm. Viewable at

<https://twitter.com/NickHanauer/status/253733044370948096>.

[6] Eby, Eli. “Debunking Nick Hanauer, Profits, and Unemployment.” Daily Eli, 4 July 2012. <http://dailyeli.blogspot.com/2012/07/debunking-nick-hanauer-profits-and.html>.

[7] Hanauer, “Gardens of Democracy,” p. 86.

[8] Chovanec, Patrick. “China’s Solyndra Economy.” The Wall Street Journal, September 11th, 2012, p. A16.