Is inflation bad? What’s the difference between a neoliberal and a conservative? If large corporations were held to higher labor standards than small employers, wouldn’t Walmart get all the talent? And more!
Thanks to Mark from Nashville, David from Japan, Mike from Dallas-Fort Worth, Mary from Pennsylvania, Steve from Austin, and Pete from Boston, who left the great voicemails included in this episode! If you have any questions for a future AMA episode, leave us a voicemail at 731-388-9334.
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David:
Everybody I know wants a simpler tax process. So why isn’t it happening?
Mary:
I was wondering if you could explain inflation to me.
Mark:
Is America’s rising income and wealth disparity the causative force or derivative outcome of inequality among the lines race and gender?
Pete:
Can you please help convince me and the rest of your listeners that there is hope and we are not all doomed.
Mike:
I guess I’m asking for a little education.
Speaker 6:
From the home offices of Civic Ventures in Downtown Seattle, this is Pitchfork Economics with Nick Hanauer, the best place to get the truth about who gets what and why.
Nick Hanauer:
I’m Nick Hanauer, founder of Civic Ventures.
David Goldstein:
I’m David Goldstein, senior fellow at Civic Ventures.
Nick Hanauer:
Hey, everybody. On this week’s episode of Pitchfork Economics, we’re going to continue with fantastic listener questions in our AMA, Ask Me Anything episode. If you didn’t listen to the first episode of questions, go back and listen to that. But with that, Goldie, let’s get to this week’s questions.
David Goldstein:
Yay. You know how much I love to answer questions, Nick.
Mark:
Yes. Hi Nick and everybody. This is Mark from Nashville, Tennessee. My question is this. Is America’s rising income and wealth disparity the causative force or derivative outcome of inequality among the lines race and gender? Now this could be seen as a chicken and egg question, and it may be, but I’m convinced our ruling plutocrats had been very masterful obscuring divisive economic policies that ensure their ascendancy by pitting the middle and working class against itself. Thank you so much. Love your show.
David Goldstein:
So I think the answer, Mark, and it’s not a simple one, is that you’re describing a vicious cycle. That rising income and wealth inequality creates greater inequalities across lines of race and gender, and rising inequality across race and gender creates rising income and wealth disparity broadly. Nick, we talk about how a good economy is a virtuous cycle, what we’ve seen over the past four decades has been this vicious circle.
Nick Hanauer:
Yeah. It’s a really interesting and complicated question and probably could talk about it for hours. What pops into my head, Goldie, is so one of the things that rising inequality does is it shreds the reciprocity norms that make social cohesion possible, and increases racism and sexism. Right? People who are stressed, feeling left behind, feeling bullied and taking an advantage of, look for enemies. They need to find someone to blame. And for sure, one of the very crafty things that the neoliberals did is that they did turn working people against one another, black working people against white working people. They looked at one and other to blame rather than looking up and recognizing that the both groups were being taken advantage of by a small… I mean, to be fair, mostly white economic elite.
I do think that the vicious cycle versus a virtuous cycle metaphor that you’re using, Goldie, is the right one. Because in a world where everybody is doing better, you have of course less resentment, you have less racism, you have less sexism. And certainly, as you eliminate inequality, the differences between these groups converges too, which benefits everybody, by the way. It’s a really interesting question, very complicated, and probably one that we can’t completely answer in a quick snippet like this.
David Goldstein:
Yeah. So what I’m hearing from you, Nick, is that Marx was right. We need a little class consciousness, workers of the world unite and all that, instead of being divided by plutocrats.
Nick Hanauer:
A 100%.
David Baldwin:
Hello, Nick and everyone at Civic Ventures. Quick question. My name is David Baldwin. I live in Japan. Why is the tax system not simplified? That was one Trump campaign promise that I actually liked. Now, I live in Japan. My friends and I were discussing this. Each of us has lived in either Hong Kong, Taiwan, Singapore, we all now live in Japan. And each country has a much simpler tax system. My Canadian friends simply need to declare they’re currently living outside of Canada, and they don’t have to file. But me in the meantime, I have to pay taxes in the United States, file every year, and hire an accountant to organize it for me. Everybody I know wants a simpler tax process. So why isn’t it happening? Thanks guys. Love the show.
Nick Hanauer:
There’s a giant industry that sucks off of this complexity. Right? So rich people love the complexity because complexity makes it easy to hide innovate the rules. And the accounting and legal professions love the complexity because they-
David Goldstein:
I guess people pay them to do their taxes.
Nick Hanauer:
Exactly. I mean, it just it would be so easy to make it simpler. And if you made it simpler, it would benefit everyone except for those interest groups that have a lot of power. And it’s just it’s so unfortunate.
David Goldstein:
So let’s be clear, only 25% of filers itemize. For everybody else, for 75% of tax filers, there are no reason for them to do their own taxes. The IRS should be doing it for them and could be doing it for them. The IRS knows how much you’ve earned. They have your W2’s, they have your 1099s, and they could do your taxes for you and either send you a bill or send you a check. And a lot of other countries work that way, the US could work that way. But the tax preparation industry has conspired with Republicans to prevent it. And the reason why Republican suppose it is because they want you to hate doing taxes. They want it to be a burden because they’re anti-tax.
The truth is, when they talk about a simpler tax system, they talk about a flat tax, eliminating the brackets. That’s not the complicated part of the tax system, that it’s all of the credits and deductions and exemptions and loopholes, which are mostly put in there for people like you, Nick, not for people like me. And if you ask me and I am orthodox about this, I am a fanatic on this, I think we should eliminate absolutely every single tax deduction and exemption. Everything but the standard deduction. That means no home mortgage interest deduction, none of the deductions and credits that make your tax form complicated. And just to a straight up, you can have as many brackets as you want, but just straight up, this is how much I earned, multiply it by this amount, that’s how much you pay. It’s easy but we don’t do it. Again, politics.
And I should also add for all of you folks out there who are not itemizing, who don’t have complicated tax firms who are still paying people to do your own taxes, stop. There’s a lot of free services out there, free software out there that the vast majority of American taxpayers qualify for. Go online, Google it. I’ve never paid anybody to do my own taxes. And I do itemize because I’m a home owner.
Mike Davis:
Hi. My name is Mike Davis, calling from the Dallas–Fort Worth area. The reason I’m calling is I’m looking for a little bit of clarification, I guess I’ve always embraced a more conservative economic viewpoint. And I’m surprised by the term neoliberal associated with people who I always thought were conservative. So I guess I’m asking for a little education on conservative versus neoliberal, that kind of thing. Thanks for what you’re doing, for making me rethink my world.
Nick Hanauer:
So, Mike, you asked a spectacularly good question. And sadly, the terms that we use to describe these things are both complicated and somewhat indefensible. Conservative economics has largely been what we now call neoliberal. And there’s a whole historical account that explains how we ended up calling these folks neoliberal, and it started in the ’60s and ’70s and included people like Alan Greenspan and Milton Friedman and others. But another term of art that it may be easier to use and more descriptive is market fundamentalism, which is the idea that the only institution in the whole wide world that matters is markets, and they’re perfectly efficient and perfectly just, and you just leave them alone and everything good will happen and you don’t have to really worry about anything else. You don’t have to worry about justice, you don’t have to worry about climate change, you don’t have to worry about inequality, the market will magically sort all this out creating just an efficient outcomes for everyone. And that is largely the neoliberal view too, but neoliberalism is just a more complicated and nuanced term of art.
David Goldstein:
The important thing to remember, Mike, is that the liberal, the term liberal in neoliberal is not liberal in the American context. It’s liberal in the way more of the European context. In America, we consider that more libertarian. So neoliberal, these are the new liberals, liberals as in the 19th century idea of liberals, which is that laissez faire libertarian perspective, leave the market alone to do what it does. So it’s confusing in America. It makes more sense everywhere else in the world where the liberal party is the laissez faire party. It’s different.
And I’d also add, I don’t know that there is a conservative economics anymore, not in the true sense of the word conservatism. I think that the modern neoliberal economics is very radical. It’s radical libertarianism. It’s not conservative by any traditional sense of the imagination. A friend of the podcast, Oren Cass, who is a true conservative, has been arguing quite loudly for redefining and reviving conservative economics. And you’d be surprised to know that there’s some overlap between his conservative economics and our progressive economics, our middle out economics. It turns out when you’re actually basing it on sound economic theory, instead of on this extreme radical laissez faire ideology, we end up at the same policy conclusion even if we’re coming at it from different perspectives.
Nick Hanauer:
Yeah. I mean, for example, true conservative economics cares deeply about the family, which conservatives believe is sort of the most important part of a successful society is a high functioning family. Well, you just can’t have high functioning families if they’re poverty stricken and in crisis. So that idea very much animates how true conservatives are starting to think about economics rather than just this sort of naked making rich people richer.
David Goldstein:
So to show how confusing this all is, Mike, for the past four decades, both political parties have been neoliberal parties. There’s no question that the Democratic party is the left leaning party, and the Republican party was the right leaning party. Traditionally, Democrat center left, Republican center right, but they were both holy and truly to the bone neoliberal in economic terms. That’s the way how they understood the world work, that you wanted to have as little government as possible interfering in the economic realm. And you wanted to let the market do its magic. And the big difference was whether the government had a responsibility or the right to ameliorate the inequality created by the system. Some of the pain, right, and to fix the market failures. And that was the real difference between the two, how much do we step in to fix the things that inevitably go wrong? But the policies mostly were the same. And now, what you see with the modern Democratic party and with the Biden administration thankfully, is an abandonment of these old neoliberal orthodoxies, and a return to a more empirically based economics that looks at the way the economy really works.
Mary:
Hi. This is Mary [inaudible 00:14:00] from Massachusetts. I regret that I never took an economics course in college. So I was wondering if you could explain inflation to me. If it occurs when unemployment is low and people are paid higher wages, why is that so bad? Aren’t people now in a better position to buy things despite those higher prices? Thank you. I’ll be listening for your answer.
David Goldstein:
Well, first of all, Mary, I want to assure you, you should not regret ever taking an economics course in college. I didn’t take an economics course in college. Did you, Nick?
Nick Hanauer:
It was the only course in college that I dropped. Because I got up at a quarter of the way into it, and I grew up in a family business and I was like, “This has nothing to do with reality. Like I don’t know what these people are talking about, but they’re not talking about planet earth.” [crosstalk 00:14:57].
David Goldstein:
I scanned the textbook first and decided not to take the course. So had you take an economics, you would have been totally misled because they would have taught you that ECON101 bullshit that we’ve been fighting for so long on this podcast. So feel good about yourself, Mary, you made the right choice. As for inflation, what do you think, Nick? Is it’s still true, the Phillips curve is when unemployment goes down, does inflation go up?
Nick Hanauer:
Yeah. So, A, the answer to that is almost certainly not. So inflation, of course, is when things start to cost more. And because a human economy is largely a psychological construct, the economy really is sort of the perceptions that we hold in our heads. Inflation mostly is a product of how we are feeling about the future. And hyperinflation is the thing that has occurred in the past and can be quite a destructive thing. Hyperinflation being when prices absolutely go crazy and currency effectively loses its value. This is not something that has ever happened in the United States of America, or at least not to my knowledge, at least not in the last 100 years. Although in the ’70s, we did have a lot of inflation that was driven by the oil shock and a bunch of other things.
But as our friend, Austin Goolsbee, the former head of the council of economic advisors explained to us on a recent podcast, the current circumstances are nothing like what created that inflation shock of the ’70s. So are things likely to cost a little bit more if the economy overheats? Yes. If wages go up, does that create inflation? Maybe a little bit. Is that bad? Absolutely not. Like if you raise the minimum wage from 7.25 an hour to $20 an hour, will that fold into prices for products longterm? Absolutely. Will things cost a little bit more? Absolutely. But will they cost 300% more for the people who just went from $7 to $20 an hour? Not hardly. So if you all of a sudden have a 300% increase in your annual wages, and products costs 5% more or 7% more, that is a spectacular trade. That is the kind of economy we want. We want to have a high wage, high cost economy. That’s what an advanced economy is. So we absolutely want to drive wages higher, and if it creates a little bit of inflation, well then so be. But that would be a good thing net for the vast majority of people.
Would also mention that inflation is the thing that most people have used to create wealth in their lives. So if you buy a house for whatever it was, everybody has a story about this, their parents buying a house for $30,000 or $50,000 but seemed like a lot of money at the time, and they borrowed 30,000 or $40,000 which seemed like a lot of money at the time, well, if there’s wage inflation, you get to use those higher wages to pay down that former debt which is fixed. So, 20 years later, you may be earning three times as much money and paying down alone that at that point seems very, very cheap and your wealth has expanded dramatically. So, for most workers, a little bit inflation, wage inflation for sure is a good thing.
David Goldstein:
It’s also, and you’ve raised this with talking about this generational thing, it’s there’s a certain amount of generational warfare in this war on inflation, that it turns out that low inflation is good for people with assets, and higher inflation is good for people with debts, because the money you’re paying to pay off your debt is worth less than the money you borrowed.
Nick Hanauer:
That’s right. So rich people prefer no inflation.
David Goldstein:
Right, because they have lots of assets and people have lots of student debt and a big mortgage, they would benefit from a little inflation as long as their wages were keeping up, because it eats away real value of their debt quicker than their payments do.
Nick Hanauer:
Correct.
Steve:
Hey, Nick and [inaudible 00:19:33], this is Steve calling from Austin. And I got really excited listening back through the history of your podcasts, so I’m back in 2019 listening to podcasts about the minimum wage and how it should be decided or leveled. And one of the ideas that had come up frequently that you Nick can be excited about is attaching minimum wage to the size of a company because large companies in small rural towns like Walmart or others can afford higher wages, certainly. They can afford more than perhaps the local small businesses can.
I got excited about the idea, but then when I shared it with my wife, her response was, “Won’t Walmart, if they’re paying the highest wages in a particular area, or whatever large company is paying the highest wages in the area, won’t that company tend to get the cream of the crop when it comes to employees?” A good employee would much rather go to Walmart where they’re paying 20 to $25 an hour, as opposed to working in a local store that may be doing more for the local economy but only is able to pay 15 or so dollars an hour. So I wonder what your thought is about where the talent goes when minimum wages are staggered between large and small companies, especially in small towns. Thanks for your time, love to podcast. Hope you guys are having a big day, and look forward to hearing your response too.
Nick Hanauer:
Yeah. So, Steve, that’s a terrific question. And the policy idea that you raise, scaling the minimum wage to the size of business rather than the geography is an idea that we are in love with and presently calling countervailing wages. And we feel strongly that one of the best ways to address inequality in general, corporate concentration, and in particular, the ways in which non-urban places have fallen behind economically from urban sort of super growth cities, is requiring the largest companies to pay the highest wages, and having mid tier companies pay a slightly lower wage, and small businesses paying an even lower wage. And we are absolutely convinced that by doing this, we would enormously impact the prosperity of most Americans. And yes, big companies would earn less, but that would be fine. And our present idea would be $25 minimum wage for the largest companies like Walmart, and a $20 minimum wage for franchises, and maybe a $15 minimum wage for small businesses.
The issue you raise is a valid one, which is, if you live in a small town and the Walmart’s paying 25, and your own employer as a small business paying 15, wouldn’t you rather go to the Walmart? And the answer almost certainly is yes, you probably would want to go to the Walmart, which does put pressure on that small business to raise wages too. But there are all sorts of reasons that people choose to work at an employer. And as a small employer, you have radically more flexibility to improve the working circumstances of somebody who you employ. More flexibility, more responsibility, just generally a funner, more enjoyable, more satisfying work environment, getting to know the people that you work with in a deeper way, having a great relationship with your boss, all sorts of other things go into where people choose to work. But just to be clear, no economic system is perfect, there are always trade offs. And by holding the largest companies to the highest standard, you definitely will call it give them an advantage in drawing the best talent, which is the way of the world.
David Goldstein:
Yeah. So I’m going to appeal to some Pitchfork Economics orthodoxy here, Nick. And remind you, Steve, that when workers have more money, businesses have more customers and hire more workers. And that means the small local businesses who are competing with the Walmart. So what we’re talking about with the countervailing wage is something that will jumpstart that virtuous cycle we want. Suddenly, suddenly, you’re going to have all these better paying jobs within the community. Those people are going to be earning more and they’re going to be spending more money in the community and not just at Walmart, they’re going to be spending more money at these local businesses. And as these local businesses have more customers with more disposable income to spend, they will be able to afford to pay their own workers more money too. And in the end, that’s what we want.
We don’t actually want one business to be paying $15 and another business paying 25 for the same job, we want them all to be able to afford to pay 25. But the truth is Walmart can afford to pay $25 an hour right now in every single community in this country. It might lower their profits a little bit, it might mean less dividends for their shareholders, it might mean fewer stock buy backs, it might be a little less compensation for their CEO, it might not. It might not because their workers are going to be more productive at these higher wages, and so there’ll be more profitable per store. But they can do it. It won’t hurt them. They can afford it, and that will pump more money into the local economy.
And I’ll give you an analogy here. If in that same community Ford went in and said we’re going to open an auto plant and we’re going to pay everybody $25 an hour, with the local businesses say, “Oh, no, we don’t want you to do that. You’re going to attract away our employees. You’re going to get all the good workers who will go for that higher wage than we’re paying 7.25 an hour at the local grocery store.” No, they’re going to welcome that factory coming in because they know it’s good for the local economy, and ultimately, that’s good for them. So, yes, Steve. Will small businesses eventually have to raise their wages to compete for talent? We sure hope so. We sure hope so. But the good news is that once there’s all that extra money in the local economy, they’ll be able to afford it too.
Pete:
Hey, Nick, Goldie and team. This is Pete from Boston. I’m an avid listener follower, big fan. And just so you know, I push your podcasts on everyone I know left right center. As an independent, I’m saddened, and sometimes even disgusted by how many policymakers pundits so-called experts and regular citizens continue to repeat and advocate for neoliberal ideas while ignoring evidence to the contrary. And given that it doesn’t seem to be ending anytime soon, can you please help convince me and the rest of your listeners that there is hope and we are not all doomed. And also, please tell us the specific ways that we can be most effective at enacting change. Thanks so much. Keep up the good work.
Nick Hanauer:
Well, Pete, first, thanks for shilling for us. We do very much appreciate it. And honestly, I do think that there’s hope. I really do think that there’s hope because, well, I mean, holy cow that the Biden administration has fully embraced basically the middle out alternative to neoliberal economic policy. And if they can do it, others can do it. And for sure, for the first time in 50 years probably, the nation has had leadership from the top that has going right after these neoliberal mistakes and lies. The other thing is, is that the whole economics profession is slowly rotating. And in 1980, 90% of economists believed that raising the minimum wage would kill jobs. And today, probably only 10 or 20% of economists believe that and all of those economists are effectively on the payrolls of big corporations in the chamber of commerce in one way, shape or form.
So things are changing sadly slower than we’d prefer, but they are. And I think we just have to keep putting the pressure on. We just can’t let political leaders and policymakers get away with these things, and just standing up and pushing back on them is a very important part of the process. Not letting people get away with these ridiculous ideas and hiding behind things like, “Well, you just don’t understand economics,” or, “Oh, you’re just not serious,” or whatever it is. So I do think that there’s hope, and I do think that change is coming, and we’re just going to have to push as hard as we can to make it happen.
David Goldstein:
Yeah. I’d say, Pete, keep doing what you’re doing. Push our podcast out on everybody you know left right and center, and be relentless and keep repeating the narrative. A narrative is just a story, and the way you get a story to take hold is to repeat it over and over and over and over and over again. That’s what the other side did to the point where the reason why they keep repeating these neoliberal ideas, is because they’ve heard them so often, they believe that that is the conventional wisdom. But if we can repeat our narrative over and over again, it changes the conventional wisdom and you start bringing people over, because people want to be with the winning team. But also, because eventually, it makes sense. A lot of what we talk about on this podcast makes just as much if not more sense intuitively as the neoliberal market fundamentalist paradigm.
This idea of when we say, when the other side says, as they said for 40 years that if you raise the cost of employment, employers will buy less of it. Right? Raise the minimum wage, it’s going to reduce employment. And we say no, when workers have more money, businesses have more customers and hire more workers. That’s just a 180 degree flip. They both have an internal logic. It’s just that we never heard our side before, and now we have, and people say, “Oh yeah, that makes sense.” They’ve been primed for it. So it’s not just up to people like me and Nick, it’s up to everybody listening to this podcast to spread the word. Argue with people, be assertive, be confident. The empirical evidence is on our side and try to bring as many people into this as you can. I know, does that make me sound like an evangelist, Nick?
Nick Hanauer:
You are an evangelist, Goldie.
David Goldstein:
Cut.
Nick Hanauer:
Yeah. And to be clear, we’re not the only ones doing this work. This is happening both across the country and across the globe. I mean, we’re part of an increasingly loud chorus of folks who are pushing back against the neoliberal era. And our side is gaining momentum, and their side is losing ground. And we just have to keep racing. Well, Goldie, this was great fun. And I have to tell you, I think the questions are getting sharper and harder. Honestly, we got really great questions. We’re going to leave the number in the show notes. If you have a question at any time, please leave us a message, and hopefully we can get to it at some point in the future.
Speaker 6:
Pitchfork Economics is produced by Civic Ventures. If you like 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@civicskunkworks, and peek behind the podcast scenes on Instagram at Pitchfork Economics. As always from our team at Civic Ventures, thanks for listening. See you next week.