"The pitchforks are coming" - a billionaire talks about class war

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"When employers stop thinking about employees as costs to cut, but instead as customers, they see it is in their self interest to raise the minimum wage. We need to change their concept of self interest."

Nick Hanauer, a venture capitalist who was one of the first investors in Amazon, has the distinction of being one of America's few progressive billionaires. We spoke to him about the class war—which he is busily fighting.

Hanauer drew attention last year for writing an op-ed in warning his "fellow zillionaires" that "the pitchforks are coming" if something is not done to address America's growing economic inequality. Since then, he has been producing a steady stream of blog posts and essays calling for higher pay for low-wage workers and other measures designed to boost the fortunes of the declining lower and middle classes.

Yesterday, the Seattle-based investor was in New York testifying in favor of a $15 per hour minimum wage for fast food workers. He stopped by our office afterwards to talk.

Gawker: Why did you decide to speak at the fast food wage hearing today?

Nick Hanauer: I flew out to do testimony obviously because they asked me to, but [also] because I was at the forefront of the effort to pass $15 minimum wage in Seattle, and have been collaborating with the people who are trying to make that happen across the country.

Gawker: And your message is: it worked in Seattle, and it can work here?

NH: Yeah. My message is that the counterclaim—which is that if wages go up, employment will go down—is a scam. It's a con job. It's an intimidation tactic. There is absolutely no evidence anywhere that it's true. On the contrary, where you find high wages you usually find low unemployment.

Gawker: It's a bit of a chicken and egg situation though, isn't it? Which came first, the high wages, or the strong economy in the place that has the high wages? The typical rejoinder is, "higher wages drive down employment."

NH: Show me an example. Show me an example of where high wages drove down employment. You show me a high wage place, I'll show you a low unemployment place. And this is because the fundamental law of capitalism is: when workers have more money, businesses have more customers, and need more workers. The idea that high wages equals low employment, it's absurd. And you have to understand that when somebody like me tells somebody like you that [high wages equals low employment] is the case, the only thing that's true about that statement is that if I can get you to believe it, it would be very good for me. Which is why people like me have been saying it, again and again and again, and why people like me have said it at every point at which workers' rights have been advanced. You can go back 150 years and literally find the same people saying the same thing in the same way. "If we have to pay you more, it will be bad for you." And that's because saying that is a much more polite way of saying, "I'm rich, you're poor, and I would prefer to keep it what way."

Gawker: It's just the fast food industry up for discussion in New York right now, but do you think the minimum wage across the board everywhere should be $15 an hour?

NH: Of course. Fast food workers are all the governor has power to enact. Your state legislature is held hostage by the same nitwits that hold hostage the federal [government]. People who have confused suffocating collectivism, which is bad, for a necessity to solve collective action problems, which is what all human endeavor is based on.

Gawker: Is raising minimum wages the best approach to tackling economic inequality in America today?

NH: Raising the minimum wage a lot across the board would make a big difference. It's not the only thing, but it's an indispensable part of solving the problem. Raising the minimum wage is very efficient. Everybody's on the same playing field, it's a very simple rule, it doesn't require a lot of administration, you don't have to negotiate anything. It just is what it is. And Americans today spend a minimum of $150 billion a year in tax subsidies that go to people not who don't have jobs, but who have jobs, and are in poverty. There is no earthly reason why Walmart and McDonald's and Walgreens and these other giant, profitable institutions should have one worker in need of public assistance. It's ridiculous. And it's not just getting them out from under the need for public assistance; it's like, that's what drives the economy! The person earning the federal minimum wage of $7.25 isn't going out to eat at restaurants. They're not taking piano lessons. They're not going to the gym or the yoga studio. They're not sending mom flowers on Mother's day. What good is this person ? If you raise it to $15 an hour, they're doing all of those things. And all of a sudden, not just business thrives, but business thrives.

Gawker: What else is part of the package of addressing inequality, besides raising the minimum wage?

NH: Raising the overtime threshold—something that is about to happen. This is more complex so not as many people understand it, but it's equally consequential. The overtime threshold is to the middle class as the minimum wage is to low-wage workers. What the overtime threshold is is the salary level below which your employer is required to pay you overtime if you work more than 40 hours a week. When we had a thriving middle class 40 years ago, two thirds of salaried workers were entitled to overtime if they worked more than 40 hours a week. As a consequence, we had relatively low unemployment, and people went home at a reasonable hour and could take care of their families and their kids.

Today, the average full time worker works 47 hours a week. And they work those [extra] seven hours mostly for free, because today, less than 10% of salaried workers are entitled to overtime. If you earn more than $23,600 a year—if your employer pitches you a fake title like "assistant manager," they don't have to pay you overtime. And as a consequence, all over the country people are working for $27,000 a year and working 70 hours a week doing basically: one person doing the job of one and a half. So as an employer I can get two people to do the work of three, and think about what that does for profits... what I've done effectively is not just increase my profits, but I've taken a job out of the economy, and in so doing I've softened the labor market. And the softer the labor market is, the more leverage I have in my wage negotiations. And as a consequence we have this relatively high persistent unemployment. But if employers have to pay people overtime, they're not going to want to do that. So now I'm going to have to get three people to do the job where two were doing it before. I add a person to the work force. I reduce the level of unemployment. I increase the level of demand in the economy. And I put upward pressure on wages.

The president has unilateral ability to raise that threshold through a rule through the Labor Department. And within two weeks, the Labor Department will announce what that rule is, what that new threshold is. And I can tell you that the shit is going to hit the fan.

Gawker: What is the new threshold going to be?

NH: I cannot tell you. I'm telling you, the shit's gonna hit the fan.

Gawker: Let's touch on taxes too. Where do you think the tax rate for high earners should be?

NH: I think there's about a 41% federal tax rate on income above a few hundred thousand bucks right now. If that rate applied to income greater than $500,000, I think you'd solve the problem.

Gawker: Including capital gains [currently taxed at a lower rate than regular income]?

NH: Yeah, everything. You make a capital gain of a few hundred thousand dollars? Congratulations. But why should you have this ridiculously low cap gains rate on a $500 million windfall? You're gonna be fine no matter what that tax rate is. It's ridiculous to think that people won't want to create those gains if the tax rate's a little bit higher. Of course they will. In fact they'll want to work harder to get it, because they get to keep less of it.

Gawker: Did your politics change when you got very wealthy? Or at a certain point did you just decide you had to speak out more?

NH: I was more conservative when I was younger. But I don't think that I've moved left—I think the country has moved right. I think the idea that giant profitable corporations should pay their workers enough so that they don't need food stamps—since when is that left wing? How did that become "leftie?" That doesn't seem leftie to me. That seems common sense.

Gawker: You wrote that op-ed in warning that the pitchforks could come for the rich. Do you think there's a tipping point of inequality where parts of society start to break down, and what is it?

NH: Yes. If you understand what the words "tipping point" mean, if you understand the mathematics of complex systems, then you recognize that the challenge is that you never know where that tipping point is. You only know that if things continue as they are, it will come. And it's extraordinarily difficult to predict when and where that tipping point will occur, which is what makes it so very very dangerous. If we knew where the tipping point was, we could very comfortably ride right up to the edge of it. But you don't know. What was the tipping point in Ferguson? You know? It takes just one thing, and all of a sudden everything is burning.

Gawker: What have you found the reaction to be among other very wealthy people to your positions on these issues?

NH: It's changed. At first people got very angry, because it wasn't that long ago that talking about economic inequality was not a legitimate part of civil discourse. It sounded to people like "class warfare," or just an attack on perfectly nice rich people... [but] it has changed a lot from anger into acceptance. I wouldn't say enthusiasm. But in general people understand that this is an issue we have to face.

Gawker: For the members of the top 0.1% who believe this is a real issue, what's the best way for them to attack it? Is it just to give more money to charity, or to get involved in politics?

NH: It's about political leadership. If you care about real change, deep structural change, that involves politics, and all politics is friction. It takes leadership, and the willingness to create that friction, that leads to social change. When I first started talking about this stuff it made my peers angry. There's much more acceptance today. But if I'm realistic, it's not getting me invited to the country club, either. This is not a way to endear yourself to your rich friends.