Up this week in listener questions: How much should you tip when you’re using a company credit card? What’s the difference between democratic socialism and the ideas we talk about? Who holds our national debt, and what does that even mean? And more!
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Nick Hanauer: Hey there, this is Nick Hanauer. You’ve reached the magic voicemail box, where you can leave me a question for my Ask Me Anything episode. All you have to do is state your name, where you’re calling from and your question.
Speaker 2: From the offices of Civic Ventures in downtown Seattle, this is Pitchfork Economics with Nick Hanauer. One American capitalist’s take on how we got into this mess and how we can get out.
Nick Hanauer: I’m Nick Hanauer, founder of Civic Ventures.
David Goldstein: I’m David Goldstein, Senior Fellow at Civic Ventures. One of the ways we got to the situation we’re in, Nick, is that people didn’t think a lot about how the economy worked; they just sort of accepted the graphs that were in their econ 101 textbook and the memes and narratives that were passed on in the political sphere. And what makes this so exciting and really, what drives us in doing this is actually getting people to challenge those orthodox assumptions and think through the economy again, in a creative and innovative way.
Nick Hanauer: That’s right. And economics affects everyone’s life so much. Part of the point of the podcast is to democratize the discussion of it.
David Goldstein: Right.
Nick Hanauer: To give more people more facility for understanding it, challenging orthodoxy and helping think it through.
David Goldstein: Yeah. Letting people confidently embrace the idea that economics is a choice.
Nick Hanauer: Yeah.
David Goldstein: And we get to choose the kind of economy we want. And if you want to help us in that, listeners, one of the best ways you can do is not just talk about our podcast, but get your friends and families and coworkers to tune in and subscribe to Pitchfork Economics.
Nick Hanauer: And again, if you do have questions, please call our number and leave a message: 731-388-9334. That’s 731-388-9334
David Goldstein: So we’re really excited to answer your questions.
JJ Keller: Hey everyone, this is JJ Keller. I’m coming from [inaudible 00:02:35] Washington, just about 20 minutes north of Seattle. My question is [inaudible 00:02:40] a little bit about how you think about the democratic socialist movement going on. Obviously, you share some things in common in terms of universal health care and higher taxes and things like that. But do you want a fundamental shift in the economy, or do you want it just to work better for people? I guess kind of the Bernie Sanders versus Elizabeth Warren; tear it down versus tweak it to make sure it’s working for people. How do you think about that debate going on in the party? Thanks.
David Goldstein: So since I’m the one who sometimes hangs out with socialists …
Nick Hanauer: Yes.
David Goldstein: Let me start trying to answer your question, JJ. I would say that clearly, we end up in the same policy place as some of the DSAers. We support some of the same policy objectives, but we get to that place from a different theoretical frame. While a lot of the policies are the same, we’re not socialists.
Nick Hanauer: Yes.
David Goldstein: We’re not starting from a socialist position in how we get to things like universal healthcare. We think there’s a market argument for universal healthcare.
Nick Hanauer: Yeah.
David Goldstein: We think there’s a market argument for free or affordable higher education.
Nick Hanauer: Yeah.
David Goldstein: We think there’s a market argument for higher wages, stronger unions, stronger overtime protections, a higher minimum wage.
Nick Hanauer: Correct. We don’t think these things are against markets and capitalism, we think they’re for it.
David Goldstein: Yeah.
Nick Hanauer: Right.
David Goldstein: So the difference is really, philosophically and theoretical, we view classical Marxism somewhat in the same way that we view neoclassical economics; there’s some truth there.
Nick Hanauer: Yeah.
David Goldstein: And they both make important contributions, but the models are wrong.
Nick Hanauer: The underlying assumptions are wrong, and so on and so forth. And so, I mean, I really have never seen anything in Bernie Sanders’ or Elizabeth Warren’s policy agendas that are, in any material way, tearing down capitalism or the economy. On the contrary, virtually all of the things they propose will make the overall economy stronger.
Now, very rich people are squealing a lot about these proposals because-
David Goldstein: And that’s a good thing.
Nick Hanauer: That’s a good thing, because those peoples’ narrow material interests may be compromised by these policies. But that, in no way implies that that’s bad for the overall economy. As we’ve said many times on the pod, confusing what’s good for capitalism generally with what’s good for a few capitalists narrowly is where we’re essentially neoclassical economics, and neo-liberalism went wrong.
David Goldstein: Right.
Bill: Hey everybody, my name is Bill [inaudible 00:05:39]. I’m calling from Richmond, Virginia. Wondering if you could please explain the relationship between MMT and debt. If we print money into existence, why does the debt grow? And other than inflation, what concerns should we have about increased debt for ourselves, for our children and our grandchildren? And maybe, part of the explanation here could include who holds the debt and what does that mean for us as a country. Thank you very much.
Nick Hanauer: So Bill from Richmond in Virginia with a question about MMT and debt and so on and so forth. First, let me say that we did do an entire episode devoted to MMT with Dr. Stephanie Kelton, who’s one of the leading thinkers on this subject. But I think the place to start on this issue of modern monetary theory and debt and the impacts of it on the future and on our children and so on and so forth, is to recognize that we already are doing MMT.
David Goldstein: Well, we’re operating as if-
Nick Hanauer: As if we believe in MMT.
David Goldstein: … in MTT. Republicans have for years.
Nick Hanauer: Exactly. Because we have approximately $17 trillion to $16 trillion worth of public debt, 75% of GDP. And so far, so good in the sense that this debt has not destroyed the economy. And that reality seems to reinforce the basic position of people who believe in modern monetary theory, that it’s not the debt itself which is the threat; it’s the inflation that it may cause by creating too much money.
David Goldstein: Right. And to understand the reason why it would create inflation is whether you are stretching the capacity of the economy to produce the goods and services that people are demanding with the money that you’re pumping into the economy.
So the point being that it’s questioned on something like free college tuition. It’s only inflationary in the university level if we don’t have enough slots, we haven’t invested in creating enough slots at the universities to teach all the people that might want to go. As Stephanie Kelton has said, yes, we can give everybody a free pony if we create enough ponies.
Nick Hanauer: Correct. And so the thing is, is that we obviously are operating today in a way that is consistent with MMT. The Republican tax cut of last year effectively increased the federal deficit by $1.3 trillion or $1.5 trillion. The shame of it is, is that we could have used that $1.3 trillion or $1.5 trillion in super productive ways that would have actually benefited a lot of people and made the future of the country stronger. We could have, for instance, eliminated all college debt. We could have used that money to build infrastructure. We could have done 1,000 things that would have been really, really great for citizens. And instead, we gave almost all that money to rich people in the form of a tax break. And so now that money will be converted into-
David Goldstein: Private jets.
Nick Hanauer: Yeah, private jets and Picassos that will hang on walls instead of jobs and investment or just debt relief for ordinary citizens.
David Goldstein: Right.
Nick Hanauer: Which would have been far more productive. So we are not a debt hawks. We think that debt can play a constructive role in building an economy. What we hate is wasting increased debt on just shoveling money into the pockets of very wealthy people who didn’t need the money in the first place.
Annie: Hey Nick. My name’s Annie and I’m from Pensacola, Florida. And I have a question about the impact a UBI would have. I’m not completely sold on the concept of universal basic income, and only specifically because of this reason: If you know Andrew Yang were president and we, all of a sudden got our little freedom dividend of $1,000 a month, what would prevent my landlord from increasing rent $1,000? Or the local college from creating some nonsense fee that’s $4,000 a semester, effectively eating up the entire benefit of the UBI? What would prevent the market from just swallowing this money, because we know that the people at the top have an endless capacity for greed and makeup BS for us to pay all the time? Would a UBI have to come hand in hand with rent and price control? I’m not really sure if that would be much of a benefit, or whether it would just drive inflation. Thanks, Nick. I appreciate everything you do, and enjoy listening to your podcast.
Nick Hanauer: Any, I really don’t think that we need to pair if we did UBI with rent control, because I don’t believe that rent would rise any more than would the price of popcorn or iPhones. They are not linked. Now, obviously the more affluence there is in a society, the more people who are well paid, the more pricing room companies have, but they still are competing for your dollars. Right? The same apartment in a city with lots and lots of people who can afford to pay for it, can’t charge more than an alternative apartment that is better and cheaper.
David Goldstein: Right.
Nick Hanauer: And so the downward pressure on prices created by competition in a market economy should continue to keep the price of apartments and popcorn and iPhones low. I mean Apple can’t charge more for iPhones in an affluent market because there will be an alternative phone available to you that you would prefer if it’s better and cheaper, even if you have more money. I absolutely don’t think so.
David Goldstein: Yeah, see I don’t think UBI is different from any other source of income.
Nick Hanauer: Yeah.
David Goldstein: You don’t have to have rent control because we did a $15 minimum wage.
Nick Hanauer: Yeah.
David Goldstein: You don’t have to have rent control simply because workers are getting a larger share of productivity increases.
Nick Hanauer: Right. And look at it from the converse. Even in a climate of stagnant wages for 40 years, rents in most cities have gone through the roof.
David Goldstein: Right. That’s a supply issue.
Nick Hanauer: So when people [crosstalk 00:12:32] … Exactly, exactly. I mean, so when people didn’t have money, rents went up, but it certainly doesn’t follow that rents would go up more because people did have money. I mean, the supply and demand dynamics were what drove the rent prices increases.
Cody: Hey, Pitchfork. It’s Cody from South Carolina. In episode Whatever Happened to the Middle Class, Heather Bouschet mentioned Boeing and the opportunity it provided her father 40 years ago compared to now. Regardless of government policy, what factors and metrics might accompany use if it wanted to be the ideal Pitchfork economics company? Thank you.
Nick Hanauer: So Cody from South Carolina, that’s a really interesting question about how a company could be the ideal employer from Pitchfork’s economics point of view. And I think that the ideal corporate behavior is not to act unilaterally to try to make the country better, but to be part of a movement to raise standards everywhere. Because it’s simply not realistic for one company in a low wage industry to pay all of its workers a living wage and provide them with great benefits. It’s almost certainly not sustainable, right? If your competitors are paying $7.25 an hour to do a thing, if you pay $15, it will be very hard to be price competitive in the market that you serve and you are unlikely to survive. I mean, I think that we should expect business leaders to be moral and to do the right thing, but hoping that a few good ones will save us from neo-liberalism isn’t realistic. We need business leaders to lead the charge in raising standards for all businesses. And when we do that, then we’ll have an economy that works for everybody.
David Goldstein: Yeah. I think Boeing speaks, actually, also to a heuristic that CEOs should use, which is that your employees are an asset, not a cost. But Boeing was a company that was essentially run by engineers for many, many years. And they understood how important their workers were because these were people who worked their way up through the system. And so you had, yes, a very high wage workforce and a very strong union, but it was one of the most productive workforces in the company at all levels. They have unionized engineers. Those are unionized professionals.
Nick Hanauer: Yeah.
David Goldstein: And that’s unusual. And it paid off huge for Boeing. Boeing was incredibly successful. And then since that McDonnell Douglas merger, and essentially the bean counters at McDonnell Douglas took over, changed the corporate culture, moved the headquarters out of Seattle and into Chicago so they wouldn’t have to be bad corporate citizens here. And then engaged on a program of trying to destroy and disempower their unions. That’s where all of Boeing’s recent troubles have come from. There are problems making money on the 787, the problems with the 737 MAX, which were were clearly design flaws that, well, if an engineer was running that company, that would have not gotten through to production.
Nick Hanauer: Yeah.
David Goldstein: So when you have a company that understands that the company is people, they’re the ones creating all the value, that is your most important asset, that’s where all the innovation comes from, that’s where all the labor comes from, that there’s a lot to learn from the mechanics and the machine is just working on the line, you end up with a better and more robust company. But when you’re focused on maximizing shareholder value, one quarter at a time, you end up with the kind of problems that Boeing has seen.
Andrew: My name is Andrew. I’m from Chicago. I’m in traffic right now, talking to my speakerphone. Forgive me for not having scripted this out, but my question involves stock buybacks. It seems to me that there would be a legitimate use of a stock buyback, and that would be to exit Wall Street, if you had a company, and you were raising funds via an IPO. But then eventually you wanted to take your company back private, wouldn’t you need to buy those shares back? I guess that’s all I’ve got. Talk to you later.
David Goldstein: So what you’re describing, Andrew would be a leverage buyout.
Nick Hanauer: No [crosstalk 00:17:06].
David Goldstein: You’re taking a company private.
Nick Hanauer: Yeah, you’re just taking your company back private. And by all means, that is a legitimate use of stock buybacks, and companies occasionally do that. They go public and then decide that they don’t want to be public anymore and they buy all their shares back.
David Goldstein: Right.
Nick Hanauer: Totally legit thing to do.
David Goldstein: More common would be an acquisition.
Nick Hanauer: Yes.
David Goldstein: That’s what companies do when they acquire another company, they acquire all of their shares.
Nick Hanauer: That’s right.
David Goldstein: Maybe a little less legitimate.
Nick Hanauer: Sometimes.
David Goldstein: In many cases.
Nick Hanauer: Yeah. But for sure, the nefarious part of stock buybacks is just this endemic practice of just issuing more shares for options and then buying them back on the open market with the company’s cash to boost the stock price and wash out the dilution. And again, it would wouldn’t be a bad thing if one company did it. The problem is that it’s a trillion-dollar problem now, and it’s just an awful use of the value that our economy creates. That money could be used so much more effectively if it was being invested in workers, paid as wages or used for R&D.
David Goldstein: Right.
Nick Hanauer: And that’s what we should encourage.
Anders: Hey, Nick. This is [Anders 00:18:18]. I’m from just outside of Portland, Oregon, and I am just leaving a business meeting that happened at a restaurant, and was talking to our accountant about how much tip I should leave when I’m using the company credit card. And that got us into a big discussion about tipped workers and whether or not we as consumers should be subsidizing their wages. And I’d be curious to hear your thoughts about that. There’s one restaurant in Portland here that has multiple tip lines for front of house and back of house, which, as a consumer, drives me nuts because I don’t know how much each of those workers are getting paid, what their effort is. I have no way of knowing how I should divide my tip. I’d be interested to hear your thoughts on any or all of that. Thanks again for a great program.
Nick Hanauer: Hey Anders, from Portland. You ask a really interesting question, or a series of questions around tips and restaurant workers and norms of behavior. And so we’re going to try and tease your question apart in the best possible way that we can.
David Goldstein: Right. Because there’s actually a theoretical response to your question and a practical, real world response to your question. Let’s start with the theoretical, Nick, which is, my god, tipping is such a stupid norm.
Nick Hanauer: It is a stupid norm.
David Goldstein: There’s no transparency. It’s bizarre. What industry is it that you don’t actually pay your workers, and you expect the customer to throw a little extra to make sure that they can pay the rent? That is such a dumb way of running a business.
Nick Hanauer: It is. You don’t tip the airline pilots after you get off the flight.
David Goldstein: Well, no, you’d want to slip them a $50 beforehand just to make sure that you land okay.
Nick Hanauer: Yeah. That’s crazy.
David Goldstein: Tipping is totally nuts. It’s offensive. And as a consumer, there’s nothing I hate more than dishonest pricing.
Nick Hanauer: Yeah.
David Goldstein: When I see a price on the menu, I want to know that that is the price, not the price plus gratuity plus some stupid living wage service charge plus tax plus, I don’t know what, a [crosstalk 00:20:30] charge.
Nick Hanauer: Right? Yeah.
David Goldstein: What are you going to throw in there on top of it?
Nick Hanauer: That’s right. And the tipping convention in the United States was a ruse created by the restaurant industry to socialize the costs of labor. And there’s another thing that’s really worth mentioning about tips, which is something that I really learned in my early work on the minimum wage from lots of the women who we helped organize with, which is that there’s this massive problem around tipping with women. Right?
David Goldstein: [crosstalk 00:20:59] sexual harassment.
Nick Hanauer: Sexual harassment in tipping is a really, really prevalent and terrible problem, and we should just probably eliminate the whole thing. In the meantime-
David Goldstein: In the meantime-
Nick Hanauer: Until it’s eliminate-
David Goldstein: I never tip less than 20%.
Nick Hanauer: Exactly.
David Goldstein: Even in Seattle where everybody’s making, well, a $15, $16 minimum wage, but in the restaurant industry here, you can’t hire somebody for probably less than [crosstalk 00:21:26].
Nick Hanauer: $20, or something like that.
David Goldstein: Right.
Nick Hanauer: So anyway, so the second part of the answer to the question that we wanted to get to is, can the restaurant industry survive without this ridiculous tip convention? And the answer is hell yes they can. We’re doing it in Seattle and a bunch of other places around the country. And indeed restaurants can survive by paying their workers enough to get by without tips.
David Goldstein: Like in most of the world.
Nick Hanauer: Like in the entire rest of the world. Right? They have restaurants in Germany, and you don’t tip there. But the third thing that you said, which was intriguing; wrong, if we may say so, but definitely reflects a kind of very prevalent and understandable neoliberal thinking, which is that people who work in restaurants don’t have good jobs, and if they worked harder or were better educated, they’d go get better jobs and that should be it. And we strongly object to that line of reasoning, because the truth is that restaurant workers are not trained less than, for instance, auto workers from the 60s or 70s. They’re not creating less value. The difference is that they just get a smaller split of the value created in that industry or enterprise.
David Goldstein: Because they’re not unionized.
Nick Hanauer: Exactly. And there’s no earthly reason why every single restaurant worker in America couldn’t earn enough to get by without food stamps or government assistance. In fact, we should have a hospitality industry that people can make a career out of. And I think what you would find if you got to know some restaurant workers is indeed, many of them really love that industry.
David Goldstein: Right.
Nick Hanauer: They love being waiters and they love being cooks and they love being bartenders and stuff like that.
David Goldstein: And if you ever worked in a restaurant, you’ll notice that a busy restaurant is carefully choreographed.
Nick Hanauer: Yeah.
David Goldstein: That if the dishwasher isn’t doing their job, the whole thing can grind to a halt.
Nick Hanauer: Right.
David Goldstein: You need everybody … These are not unskilled or low-skilled jobs.
Nick Hanauer: No.
David Goldstein: These are just traditionally poorly paid jobs.
Nick Hanauer: Poorly paid jobs, yeah.
David Goldstein: Essentially, there are no bad jobs. There are just bad employers.
Nick Hanauer: Exactly, and so we definitely want to create an economy where there is no industry that exists where people who work in it full-time can’t get by and lead dignified, middle-class lives. Indeed, I would suggest that if there is a business or an industry that can’t operate while being held to that standard, then it shouldn’t exist.
David Goldstein: Right.
Nick Hanauer: That’s not capitalism. That’s socialism for the rich.
David Goldstein: Right. So the bottom line is never don’t tip, and when you’re using the company credit card, tip even higher! Why not? Your boss is paying for it. He’s not going to know. It’s not line itemed. I’m like the only one in the office, Nick, who doesn’t have a company credit card.
Nick Hanauer: For very good reason, obviously.
Thank you listeners for all those really cool and interesting questions.
David Goldstein: If you have a question for Nick on any economic issue, please give us a call and leave us a message at 731-388-9334.
Speaker 2: Pitchfork Economics is produced by Civic Ventures. The magic happens in Seattle in partnership with the Young Turks Network. If you liked the show, make sure to subscribe, rate, and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action and Nick Hanauer. Follow our writing on Medium at Civic Skunk Works, and peek behind the podcast scenes on Instagram, @Pitchforkeconomics. As always, from our team at Civic Ventures, thanks for listening. See you next week.