How to get through the eye of the needle

Yesterday, on Learning from Dogs, Paul Handover published his thoughts on the 6-minute video of a presentation by a remarkably altruistic venture Capitalist, Nick Hanauer, which you can now view here (below). However, firstly, here are some words of introduction to provide necessary context: Paul has published his thoughts under the title Inequality, a rich man speaks and, in doing so, has provided an excellent summary of Hanauer’s spectacularly-successful business career (e.g. being one of the first to invest in a new fledgling Internet-based sales idea called Amazon in 1995). The core of Hanauer’s message is this: Venture Capitalists do not create jobs. Jobs are created in response to demand for a product; and demand for a product (i.e. sales) requires people to have a disposable income. That being the case (and ignoring for a moment that all growth in sales is perpetuated by the manufactured discontent peddled by advertisers), Hanauer argues that lowering taxes on the rich does not promote job creation; it perpetuates and exacerbates social inequality. History is on Hanauer’s side so, I hope you will watch the brief video and see what you think but, for the record, my thoughts are appended below it. http://www.youtube.com/watch?feature=player_embedded&v=bBx2Y5HhplI Mr Hanauer needs to have a quiet word with George Osborne and David Cameron in the UK; because one of the few things that the Liberal Democrats are not challenging the Conservative-led coalition government on is their well-publicised and enacted policy of lowering Corporation Tax to the lowest level of any country in Europe – if not the World. They have also lowered personal tax on the wealthy – on advice from those trying to collect the taxes who say so much money is spent on tax avoidance that it is not economic to try and collect it all… Next stop for the UK may be Greece – where so little tax is collected from anybody that it is only good for cheap summer holidays, fine-sounding literature and philosophy, and ancient monuments. Mr Hanauer’s appeal for the wealthy to shoulder more of the tax burden (not less) is welcome evidence of altruism sadly absent from the pronouncements and behaviours exhibited by most of the super-rich. It is somewhat reminiscent of the refreshing demand of the owner of a peat-extraction business calling for carbon to be taxed or even banned… in order to encourage demand for – and investment in – alternatives. With people like Mr. Hanauer around, there may yet be hope for humanity to avert the catastrophe awaiting us all if we choose to ignore science, history and economics.

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About Rick Altman

Possibly just another 'Climate Cassandra' crying 'Wolf' in cyberspace. However, the moral of the old children's story is that the Wolf eventually turned up!
This entry was posted in Capitalism, Consumerism, Economics, Ethics, Growthmania, Money Fetishism, Politics and tagged . Bookmark the permalink.

11 Responses to How to get through the eye of the needle

  1. Guess I’m not going to argue with any of the above! Seriously, thank you Rick for promoting that piece, Paul

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  2. pendantry says:

    With people like Mr. Hanauer around, there may yet be hope for humanity to avert the catastrophe awaiting us all if we choose to ignore science, history and economics.” Agreed, we definitely need more people like Mr Hanauer… but alongside that, we also need more people who are willing to consider this view of economic behaviour as a plausible version of reality — and, clearly, such people are in short supply, especially where it matters, as you quite rightly point out. The problem I have with this video clip is that one is led to believe that it will have received the same high profile as the many other noteworthy TED talks: I think that the controversy surrounding how this didn’t, in fact, come about is important context for your theme (wherever the truth lies, in this particular case. And, it seems that increasingly these days, the truth always lies…)

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    • Rick Altman says:

      Thanks for providing intriguing context to the way this talk was both given and received. I think it is a shame that people people must go on the offensive and denounce Hanauer as somehow anti-progress (which is what they appear to do) but, unfortunately, they are bound to attack the messenger because the alternative would be to admit that BAU is indeed wrong-headed. [Thanks also for typo alert.]

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  3. Schalk says:

    Hmm… I’m afraid I’m going to have to disagree on this one. Check out the following arguments and tell me what you think. Firstly, I’m strongly against anyone who advocates more consumer spending as a solution for any economic problem. Governments have been trying that for a long time through inflationary monetary policy and artificially low interest rates. This, combined with excessive government spending, encourages people to borrow and consume way beyond their means and lies at the very basis of the economic crisis we face today. It is also the primary driver of our environmental crisis and, interestingly enough, a major driver of inequality. You see, becoming a millionaire over the course of a career is not hard. An average American citizen earning the median income who began investing 10% of each paycheck in the stockmarket in 1970 would be worth $600000 today. A 17% savings rate would have allowed him/her to retire a millionaire. Really, the only reason why the world is not awash with millionaires is because people do not save and invest. And yes, the efforts of government (and the totally out of control advertising industry) to encourage consumer spending has a lot to do with this. Also, forced income equality (such as massive taxation of the rich) does nothing to improve the distribution of wealth. Take Sweden for example. Sweden is generally seen as a socialist paradise due to its idyllic income distribution (Gini = 0.3). However, Sweden has a wealth Gini coefficient of 0.75 – very close to the USA at 0.8. In effect, disposable income has very little to do with the distribution of wealth. Spending habits, on the other hand, have everything to do with the distribution of wealth. People who consistently save and invest throughout their careers become wealthy. People who spend everything and a little bit more besides do not. What Mr Hanauer is advocating is to tax the rich a lot more and the poor a lot less. In the big picture, this means that you will be taking disposable income from people who would have invested it and giving it to people who will spend it, thereby effectively increasing consumer spending and decreasing investment within the nation as a whole. It is true that this can create jobs in the short term, but in the long term, it is a different story. Such a reduction in total investment combined with forced income equality makes an economy less competitive in the long run. It hampers further innovation, penalizes productive workers and encourages mediocrity. As a natural result, it soon becomes cheaper to import goods and services than it is to manufacture them locally and jobs are lost to countries who continuously invest large percentages of their disposable income in improved production methods and give their citizens great financial incentives to increase their productivity. Rising unemployment in the developed world is a simple result of lost competitiveness in relation to developing countries. America for example has used decades of deficit spending to become expert consumers, while allowing China to become expert producers. Thus, China is now producing for the entire world (and therefore has work for 96% of its massive population), while America has a huge trade deficit, a huge budget deficit and an economy steadily falling in competitiveness. The unemployment problems in developed countries is a very natural result of our consumer economies coming back to haunt us now that our unsustainable debt binge is coming to a close. Just take a look at the labor market of any developed country to see this for yourself. We produce almost nothing and the vast majority of the labor market is geared towards consumption (bringing goods produced by other nations to local consumers as efficiently as possible). Now that we cannot sustain the consumption needed to maintain such a highly skewed labor market distribution through further unsustainable borrowing, people naturally need to be laid off. In the end, it is very simple: We have consumed way beyond our means for far too long. Nature simply demands that we now pay our dues. The longer we keep on fighting this fundamental truth, the harder the eventual fall will be.

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    • Rick Altman says:

      Thanks for these not entirely unexpected comments. I was aware of the conflict between the false god of Consumerism and the problematic nature of Growthmania to which we all seem enslaved. However, you reduce Hanauer’s solution to one of “taking disposable income from people who would have invested it and giving it to people who will spend it”, which appears to come tantalizingly close to labeling poor people as profligate, stupid and lazy. I am currently unemployed so am saving nothing at present but, even when I have been working, I have saved very little in my entire life because I have never had a significant excess of disposable income. To further compound the illusiory nature of what wealth may I have, my only asset is the equity I have in the property in which I live. However, I am not profligate, stupid or lazy, I just chose a career that did/does not offer good financial rewards, but this was not based on poor judgement; it was the consequence of an altruistic goal (to find some way to use my knowledge to help others) that I have never achieved. However, be that as it may, I agree with you that consumption and growthmania are the problem; and the longer we deny it the greater the coming calamity will be. http://www.greatchange.org/ophuls,ecological_scarcity.html

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      • Schalk says:

        I like that link you just posted. Those graphs really are pretty enlightening. Don’t worry, I am definitely not labeling poor people as profligate, stupid and lazy 🙂 What I am saying, however, is that they do not save and invest and this will remain so even as their income is increased by socialist wealth redistribution. This is the natural result of something called Parkinson’s law (expenses always rise to meet disposable income). This is a purely macro-economic statement and I accept that there are many individuals within the population who will indeed start saving more if their disposable income is increased. History has shown, however, that the vast majority will not. The principle reason for this is the consumerist environment within which we live. People do not neglect saving and investment because they are stupid or any other derogatory term, they simply neglect saving because it is the natural thing to do within our over-consuming society. Over-consumption within our modern society truly is as natural as breathing and, well, you cannot really blame people for breathing… I harp on about the massive effect of environment in the One in a Billion project quite a lot and see this as the root cause for all our problems. As you will see in the document, I advocate the creation of micro-environments which effectively shield people from this self-destructive macro-environment within which we live as the primary route towards a natural and lasting reduction in consumption. It will be interesting to get your thoughts on that.

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      • Rick Altman says:

        Not sure how to address you? Schalk seems so impersonal but, I will understand if you wish to remain anonymous. (If I ever re-gain employment I may have to stop blogging; and some people have suggested one will not happen unless I first do the other.) However, as if you did not have enough to do already, you will probably enjoy reading through one of the 5000-word essays I did for my MA (entitled ‘Can Modernisation ever be Ecological?’). I condensed it to about 3000 words and posted it on this blog in three parts back in , starting here. It was in doing the research for this essay that I think I learnt the most. In essence, I think we are very much on the same page (and I am not a socialist either). See: https://anthropocenereality.wordpress.com/2012/03/12/a-brief-history-of-mine/

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      • Schalk says:

        Hehe… Well, Schalk is my real name so I’d say just calling me “Schalk” would be sufficiently personal 🙂 Yes, I have heard about this dark power of blogging to just make time vanish. I’m quickly finding out that this dark power is very real… I’ve read through your 3000 word summary, and yes, we are definitely on the same page. One thing I would like to add, however, is that it is fully possible for the economy to grow (in nominal dollar terms) for many more years. However, it is essential that value be added in sectors that actually serve to reduce resource consumption and waste production instead of increasing it. For example, the potential for nominal dollar growth in the green industry is truly humongous and will afford our growth-dependent economy sufficient time to reduce debt to a sufficient degree to be able to reach steady state. If we, by some magical mechanism, enforce steady state today, however, everything will crash because many people and countries would be unable to pay back their massive debts. Climate change denial (as discussed in the other link you provided) is another interesting topic. As a research scientist, I would never dare utter a word against the scientific consensus on AGW simply because this is not my field. At the moment the scientific consensus is 97% for AGW, so for me that is case closed. I have looked a little bit into the science though and found that climate change extremism arises from human psychology in a very interesting way. Since climate change is so incredibly complex, it is possible to find all kinds of “facts” if you look for them long enough. Naturally, AGW proponents spend most of their time looking for confirmation of AGW and AGW detractors spend their time looking for evidence to the contrary. The result is that both camps just become more and more convinced that they are right and the divide becomes ever greater. This is not good for the world, but hey, at least it is interesting 😉

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      • Rick Altman says:

        Well, please forgive me, “Schalk” [is that Germanic in origin? :-)]. I am amazed you have read my 3 or 4 posts already (are you having a day off work?)… As you will be aware if you have read my About page, I believe I understand climate science but I do not claim to be a climate scientist. On this basis, I assumed the validity of the scientific consensus in order to do social science research into the arguments used by those that dispute it. Although the scope of my dissertation did not include validating that consensus, I also put forward compelling psychological and political arguments for the reasons why people choose not to accept it. Unfortunately it would not appear possible for me to turn this conviction into a vocation; so it is back to the grindstone I must go… However, if you ever find yourself trying to convince so-called “sceptics” they are not being rational, rather than quoting the 97% of climate scientists study (which is easily dismissable), I would point them in the direction of 4.6 billion years of Earth History (because climate models only confirm our understanding of climate science as deduced from palaeoclimatology). See Climate science in a nut fragment (6 February 2012). You suggest that recent history has seen climate realists and deniers becoming increasingly entrenched in polar opposite positions but, in fact, one-by-one the six pillars of climate change denial are being demolished: Previously “sceptical” scientists and economists are admitting they were wrong; and the predictions of climate scientists (such as increasing frequency of extreme weather of all kinds) are being validated by unfolding events. Therefore, the only question that remains is how much more evidence will be necessary (i.e. how much worse must things get) before everyone admits that the Emperor is actually naked?

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      • Schalk says:

        Yes, Schalk is Germanic in origin. Actually I’m South African (from Dutch ancestry). Thanks for the links. Those 6 pillars of climate skepticism is a nice summary which I was not aware of before. Some fun reading – especially today when I am grinding out the super-boring finishing touches on a journal paper I’m writing 🙂 Glad to hear that the pillars are being broken down. Let’s all hope they can be demolished in time.

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