The end of the rise of the super-rich?

How to direct Western economies to stability and prosperity? Austerity or spending? One American billionaire proposes a different solution and predicts the end of the rise of the super-rich.

Since the start of the financial crisis in 2008, experts all over the world have discussed ways to get the economies in effected countries out of stagnation and into financial stability and growth. The key debate has mainly been between two schools of thought: austerity vs. spending in order to stimulate growth.

American billionaire and entrepreneur Nick Hanauer has a different approach altogether. In a recent article written by Hanauer for Politico Magazine, he warns fellow plutocrats that the good times may soon come to an end.

Whilst the majority of people in the middle and lower class section of Western populations have been hit hard by recession, it has actually been a few good years for millionaires and billionaires. In the United States alone, the top 1 percent control 20% of the country’s wealth, in contrast to the bottom 50 percent controlling just 12%.

For decades, western governments and societies have believed in the neoclassical approach. They assumed that wealth creates jobs and more wealth creates even more jobs. This hypothesis has been an unshaken pillar of Western economics and capitalism. Hanauer’s challenge of the idea is summarised in two key points: It is not the super-rich that create jobs through a method of trickle down economy, but that economic growth can only come from the ‘the middle’. The middle class is fundamentally the heart of the economic body that keeps pumping the blood through the entire system.

The main focus of this debate revolves around the issue of the minimum wage. Hanauer, a Seattle resident, has proposed (and achieved) the rise of the minimum wage in his own city to $15. In contrast, the average American minimum wage currently marks around $7.25.

Wealth inequality in America

Wealth inequality in America

The maths is simple. Employees that earn more will spend more. This results in economic growth. Billionaires can only buy so much, with the majority of their wealth invested in savings and off shore accounts. More importantly, in a society where work does not pay, the taxpayer forfeits the difference in the form of social subsidising, such as housing benefits and food banks.

Increasingly, people all over the world are under the impression that capitalism in itself is the problem. But capitalism can also mean a distribution of capital, contrasting to the fluctuation of wealth at the top that we have seen over the past years.

The idea of the minimum wage, even though thought out with good intentions, has created problems in itself. Many companies might be legally obliged to pay a minimum, but this has led to an ideology where the minimum is just enough. Never mind that a minimum is always relative e.g. to inflation, something that is currently not taken care of by a rise in wages but by an increased social benefits budget, hence the taxpayer in general.

Conservative economists will put forward the argument that businesses simply cannot afford to pay their staff higher wages and that it will cripple them, potentially even leading to unemployment. There is no statistical proof of this and has actually been proven wrong after the same argument was used when women first demanded equal pay or when child labour laws were introduced.

Let’s take the case of Wal-Mart, which pays its staff one of the lowest wages in the U.S. Employees of the company often need assistance in the form of food stamps or health insurance. Increasing the wages of the lowest paid employees by $10,000 a year would give Wal-Mart an annual profit of $17 billion, instead of the current $27 billion. It certainly would not go bankrupt.

Clearly Hanauer is onto something. Giving back the collective power of consumption to the middle class seems like a sensible idea. It is time that economic solutions were aimed at the many, not the few. History has taught us that economic discontent among the masses is one of the most dangerous threats to society and anger is usually directed towards the top.

By Frederike Dammé

Tags: , , , , , , , ,

Categories: North America

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