Nick and Goldy answer more of your questions! What happens to current economic systems if world population growth goes to zero? Should I feel guilty for wanting my stocks to do well? What could be a good methodology to measure how progressive a tax is? And more!

If you have questions for a future “Ask Me Anything” episode, leave us a voicemail at 731-388-9334.

Nick Hanauer:

I am Nick Hanauer, founder of Civic Ventures.

David Goldstein:

I’m David Goldstein, Senior Fellow at Civic Ventures. Nick, one of the great things of having you in Seattle and in the office is I get to ask you anything but our podcast listeners, they don’t have the same opportunity that I have all the time, so we’re doing another Ask Me Anything episode.

Nick Hanauer:

Indeed, we are, and Goldy, we got some really great questions this time from our listeners. The questions over time are increasing in sophistication and it’s really fun to watch that. They’re harder questions to answer in many cases.

David Goldstein:

That’s right, yeah, and since most of these questions came in via email instead of voicemail, we’re going to have our producer, Ashley, read them for us.

Ashley:

So to get started, our first two questions, one’s an email and one’s a voicemail, but they’re very similar, so we’re going to put them together. The first is from Kevin who says, “Hello, I love your podcast. I’m no economist, but most of what you say really resonates with me. However, I’m concerned about your criticism of stock buybacks. As a tech worker, half of my compensation is in stock grants. These grants would not be possible without stock buybacks. What are your thoughts on stock buybacks for this specific purpose? Perhaps you could make a distinction in a future show.” And then this aligns with the voicemail that we got from Francine, which I’ll play now.

Francine:

Hey, Nick. My name is Francine. I’m calling from Raleigh, North Carolina and I’m retired, was working class all my life, and now I have a 401(k), and I guess my concern or my question is how am I contributing? I want my stocks to go up. I have mutual funds and yet I don’t want them to profit like they do. All right, thanks, Nick. Bye.

David Goldstein:

First I’d like to congratulate Kevin for not being an economist. “I’m no economist” is the way I like most people to introduce themselves.

Nick Hanauer:

I love it, and these questions are all both really, really good, and in our discussion, Goldy, you brought up the issue that folks are in a system and shouldn’t feel bad about benefiting in some ways from the system, right? Francine shouldn’t feel bad about having a 401(k) and wishing the stocks would, mutual funds would go up in value even though the system itself is in many ways corrupt, and I’d love to start there.

David Goldstein:

Yeah, ’cause this is the hand you’re dealt. These are the rules of the game right now, and your alternative, Francine, to benefiting from your 401(k) is to not benefit from a 401(k) and retire into poverty.

Nick Hanauer:

Yeah, and that’s not a great alternative.

David Goldstein:

Right.

Nick Hanauer:

But I think what’s really worth highlighting both to Francine and Kevin is that the reason the stock market has gone up so much and the reason that you are so dependent upon it is that your wages are so bad in both cases. The benefit you get from suppressed wages is a higher stock market.

David Goldstein:

Because explain that we’ve had this shift of about 10% of GDP from wages to profits.

Nick Hanauer:

Wages to profits, exactly.

David Goldstein:

Right, and that’s good for owners of stocks ’cause-

Nick Hanauer:

Capital, right.

David Goldstein:

… Yeah, owners of capital,

Nick Hanauer:

That’s right, but that represents just, really, I mean, 80% of the value is in very, very few hands, and so you live in a world where you have traded away wages that would allow you to invest and retire in dignity and afford all the things that you might need for a hope that the stock market will appreciate enough so that you can not live in poverty in your later years.

Again, we’ve all sort of collectively made this trade-off. If you’re in the tech world, you’re definitely on the good side of that trade obviously because you have stock options and because you’re probably working in a industry that pays you reasonably well and has a relatively high chance of success. But for most Americans, of course, they don’t live in that world. The only thing that happened to them is that they haven’t gotten a raise in 40 or 50 years in inflation-adjusted terms.

And so especially with respect to Kevin on stock buybacks, first, it is not true that you can’t get stock grants in the absence of stock buybacks. Of course, you could, it would just make it more and more expensive for the other owners for the company to give you those grants, and of course, they might not want to do that, which might in turn force them to have to pay you more in hourly compensation, which would not be a bad thing. And so again, in both these cases, we are sort of all part of this system, but the benefits we seek often are important to us because of the harms caused by that system mostly in the form of suppressed wages.

David Goldstein:

I’d like to add there, Kevin, that the fact that you say that half of your compensation is in stock grants, that means that you are being paid half what you are worth and they are shifting the risk onto you because those stock grants are not a sure thing. It is a weird, strange thing that’s happened particularly in the tech industry. And Nick, this is not exclusive to the tech industry-

Nick Hanauer:

No.

David Goldstein:

… but it dominates in the tech industry. This idea of, obviously CEOs get stock grants all over the economy, but the idea that rank and file workers get stock grants, that’s a startup thing, and I can tell you I got a ton of stock grants at three different startups and none of them were ever worth anything in the long run because not every company wins.

Nick Hanauer:

Correct.

David Goldstein:

And so what they did was they shifted part of the risk and part of the cost of starting up that company onto the workers in exchange for the possibility that I might get rich at a future date and that makes the economy much less stable and secure for most workers.

The other thing is that it’s kind of a tax dodge for all involved because you’re going to get your stock grants and if you hit big and you pay the capital gains tax on that instead of the income tax, you’re getting a discount. For example, you’re not paying FICA, you’re not paying Social Security and Medicare tax on those stock grants, and if it’s a big gain, it’s at a much lower rate than you would pay on a regular income tax, and at the same time, it’s making the books of your company look better because they’re not spending nearly as much on wages on their books than they are kind of sort by granting you that stock. So this idea that we need to have this allow this trillion dollars a year in stock buybacks, that’s a trillion dollars a year out of a 25 trillion economy just on stock buybacks in order for some tech companies to have a lower cost of startup. I’m just not sure that it’s worth it.

And I just also, I want to reiterate one more time for Francine, you are doing nothing wrong participating in the only system that exists, right?

Nick Hanauer:

Yeah.

David Goldstein:

The point is, and what we try to do with the podcast and with our other work is to change the system. You’re doing nothing wrong, just like it’s not Nick’s responsibility to take all of his fortune and give it to the government or spend it himself trying to solve problems unilaterally just because the system is rigged in his favor. What it is Nick’s responsibility to do, which is what he does, is to try to work to change that system so that it works for everybody.

Ashley:

Okay, so the next question comes via email from Jeff who asks, “What happens to current economic systems if world population growth goes to zero?”

Nick Hanauer:

That’s such a great question and the economic orthodoxy says cataclysm, that if we stop having population growth, we can’t have economic growth and therefore the world will collapse and everybody will die and so on and so forth. And I just want folks to reflect on how titanically stupid this perspective is in a world where we’re rapidly getting to the point where there are so many people that we can’t support life on Earth anymore. I mean, there has to be a way obviously to have a population on Earth which is stable or even declining and not have civilization end as a consequence. We’ve thought about this deeply, Goldy, I know this is one of your favorite sort of bugaboos of neoliberalism, yeah.

David Goldstein:

Right, so I think the real answer to your question, Jeff, is it depends on whether our economic systems evolve, right? Because if you have a capitalist system that is predicated on perpetual growth in a world that is finite, well, obviously it will collapse eventually.

And let’s be clear, we are headed towards a world of zero or declining population growth within the century. That’s what all the demographic projections say. We have population declining in China, we’ve had population declining in Japan and in South Korea. We have population declining throughout the countries of Europe that don’t allow much immigration. If not for immigration in the United States, we would have population decline, and when you look at the areas of the world where population growth is still pretty large, for example, on the African continent, population growth has actually been declining at a remarkably faster pace on the continent of Africa than it did in North America throughout the 20th century, so you’re going to get to that zero population a lot quicker there as the world develops.

Now, as Nick said, if you look at orthodox models, this is a big problem because let’s be clear, when we talk about growth, the largest factor that contributes to GDP growth is population growth, and it’s part of what we say in middle-out, the more people you fully include in the economy, the faster and more prosperous it grows, and when you look at that GDP growth rate, it’s basically two numbers. It’s the increase in the size of the workforce, which is not directly, but largely correlates with the size of the population, and you multiply that by productivity growth, and that’s how you get GDP. It’s basically output per worker, and if you reduce the number of workers, it’s really hard to keep GDP growing.

And you’ve seen that in Japan. Japan has had a slow or even negative growth, what they call a period of stagnation for a couple of decades now because their population is declining. But what you’re not seeing in Japan is a declining standard of living. You have a stagnant economy in terms of GDP growth, but it’s not like people are dying younger or starving or consuming less stuff. What this requires, and this is what we’ve thought a lot about, is a rethinking of what capitalism is, if it really still is capitalism, and a rethinking of what growth is. And I know you agree with me totally on this, Nick, that we think that you can have what is substantially growth, which is improving our quality of life, improving our wellbeing, improving human flourishing at an ever-increasing and in fact infinite rate without increasing our consumption of stuff.

Nick Hanauer:

Well, but even in the broadest and most coarsest measures of increasing our consumption of stuff, given that the distance between the richest and the poorest people on planet Earth is whatever it is, a thousand X or something like that, all we have to do for the next 200 years is focus a little bit more of our energy collectively on decreasing inequality, and we’ve got a market for more stuff that is not infinite, but damn near infinite, right? Like two-thirds or three-quarters of Earth’s population today is barely getting by. The market for more stuff is enormous if we take the time and the energy to make sure that we have included all of those people fully in the global economy.

David Goldstein:

This is the promise, Nick, and this is what makes us optimistic. I know a lot of people would laugh at the idea that I’m an optimist, and that is that we say the more people you fully include in the economy, the faster and more broadly prosperous it grows, and we will admit that there’s a limit on the number of people. There’s a finite limit on how many the planet can support, which is probably much larger than we would have. But realistically, as economies develop, as nations develop, people choose to have fewer children. This is across the board always everywhere. We are going through the global demographic transition. We will reach zero to negative population growth. The population will stabilize if the world economy fully develops.

So there’s a limit on the number of people, but there is almost no limit on the amount of inclusion because so many people are so excluded from so much of the economy. There is so much room there. We have so much headroom to include more people more fully that you can see a much more prosperous and by some metrics faster-growing economy in a world in which population is shrinking.

Nick Hanauer:

That’s right, and there’s also no limit to the degree to which we can increase human welfare year after year after year. We need an economy to switch from a focus on more to a focus on better.

David Goldstein:

That’s right.

Nick Hanauer:

And you can make stuff better forever, forever, and so yeah, I mean, population growth cannot stop soon enough if we want to save the planet and the economic systems that we’ll have to put in place to keep everything going in a zero-growth environment are there and ready. All we have to do is adopt them.

David Goldstein:

Right, right, and if people want to continue calling it “capitalism,” maybe they will, maybe they won’t. But I’ll tell you, we will not get there by focusing our policy on cutting taxes and regulations on the owners of capital.

Ashley:

So we got an Instagram message from Jody. Jody says, “Can you break down how Trump’s tax cuts for the rich cost US, quote, ‘normy tax payers’ so much money? I feel like an explanation would provide more credibility.”

David Goldstein:

$1.9 trillion in tax cuts mostly for corporations and the very wealthy. Nick, how did that impact the people who are here?

Nick Hanauer:

Well, I mean, it depends on how you want to look at it. Obviously, there was no increase in economic growth by any measure from that tax cut. I mean, that was sold as this-

David Goldstein:

Right. If anything, growth slowed.

Nick Hanauer:

… Slowed, correct.

David Goldstein:

Right. Pre-COVID.

Nick Hanauer:

Yeah, so the idea that this was going to result in more wages for working people or a higher rate of economic growth that would generate more revenue, none of that was true of course because tax cuts for the rich don’t create growth, all they do is increase the size of our deficits, which is what that did, and what that means is that somebody has to pay that money back eventually or deal with the size of that debt, and so that very much leaves the rest of the country kind of holding the bag.

It’s classic example of deficit spending in the service of a narrow constituency that doesn’t benefit the country broadly and it’s so different from the investments that the Biden administration is now making in infrastructure and in the energy transition through the IRA and in the CHIPS program to bring semiconductor manufacturing back to the United States or in the American Rescue Plan, which put money directly in the pockets of consumers and headed off the Great Depression. All of those things, which arguably also increase the deficit, at least will increase economic growth long-term and directly benefit ordinary Americans.

David Goldstein:

Right. So I guess it’s the difference, Nick, of, let’s say I borrow, I go and I put a few hundred bucks on my credit card to go out for a fancy dinner. I get no growth out of that personally, right? I do spend a few hundred bucks on my credit card to, I don’t know, increase my education, get a job skill, maybe get a computer that I need to use. Let’s say you’re a craftsman and you need a tool. You’re investing in yourself. You’ll get some growth out of that.

Nick Hanauer:

That’s right.

David Goldstein:

It really, does it affect normies? Well, it didn’t increase your taxes, so it didn’t affect you directly, but it’s a question of do you care about deficits? Is there a limit to debt? And I don’t care about deficits as much as most people, but despite what Trump thinks, it’s still a democracy, and you still need support, political support to spend on stuff, and this is $1.9 trillion that isn’t being spent on something more useful.

Nick Hanauer:

Exactly, yeah, so I think both of us agree that deficits, while a challenge, are not the nation’s biggest economic challenge today, but spending a couple of trillion dollars on just making a small group of rich people richer is extraordinarily objectionable, right? It’s just exactly the wrong thing you want to do from a policymaking point of view and so it was just incredibly stupid.

David Goldstein:

And I want to make a partisan political comment here instead of an economic one. This is what Republicans always do. They always run up the deficit so that when there’s a Democrat in charge, they can say, “Oh, we can’t afford all that spending you want to do because the deficit is so high,” and then Democrats always act responsibly and they bring down the deficit and then Republicans take over again and they run up the deficit. They’ve been doing this since 1980. They run as deficit hawks. They run up the deficit on tax cuts, which never pay for themselves, even though they keep telling you that.

Remember when Trump promised you that $1.9 trillion in tax cuts for the rich would mean a $4,000 pay raise for every American? Yeah, that didn’t happen. This is a cycle that we see again and again, and remember when we say there were no benefits from it where there was no growth, there was no increase in investment, there was no rise in wages, there was no spurt in employment. We’re talking about those first two years before COVID hit because to be fair, COVID ruins everything when it comes to economic data, so that was two years from that tax cut. It did not deliver what it promised except for the higher deficits. That it delivered.

Ashley:

Okay, this next question is actually a voicemail, so you don’t need me for this one, I can just play it.

Rick:

Hi, this is Rick, a fan in Baltimore, Maryland. I am hearing more and more talk about government transfer rates by household income and how they show that federal taxes are in effect progressive because wealthier households receive less benefit as a percentage of their income. This doesn’t pass the smell test and feels like the counterargument created to discount what household effective tax rates show. I’d like to know what could be a good methodology to measure tax progressivity and what would those rates by household income look like? Thanks.

Nick Hanauer:

Yeah. To Rick, I mean, this is a complicated question, but to be clear, the federal tax rates are progressive. What it was, the 40% highest rate or whatever it is higher than the bottom rate and lots of people below a certain income don’t pay any federal income tax, although they pay plenty of state taxes. But the broader question is when you include transfers, is the system still fair? And the answer is it depends on what transfers you include and count. Conservatives love to count the transfers like SNAP, but they conveniently forget about transfers like the mortgage interest deduction and so on, which only benefits whatever it is, 10 or 20% Americans.

David Goldstein:

Right. So there’s so many ways to break this down when you look at it. First of all, when you look at these transfers, a big chunk of it, the largest chunk of it is actually going to Social Security and Medicare, which is, and by far, those two, and that’s not fair to count as a transfer because that is a social insurance program. We are paying into that.

Now, I know it’s the federal government, they throw it in, they count it as part of the deficit because the government is borrowing from it, but it is an insurance program that we’ve been paying into. It still has a so-called trust fund, so it has not cost taxpayers outside of that money yet and that is the biggest chunk of transfers right there and that’s our money. We’re paying for premiums on that insurance. Now, maybe 10, 20 years from now, that won’t entirely be true if we don’t fix Social Security, but that’s the way it is.

And remember, Nick said some households don’t pay any income tax. That’s income tax. The lowest rate is what, 10%, Nick, I think?

Nick Hanauer:

Yeah.

David Goldstein:

You wouldn’t know. You’ve never paid the lowest rate.

Nick Hanauer:

No.

David Goldstein:

But when you look at FICA, when you look at Social Security and Medicare combined, that’s 15.3%. If you are employed, of course your employer is paying half of that and the other half is coming out of your payroll, but that’s still money that’s not going to you ’cause there’s a cost to your employer of paying that FICA, and if you are self-employed or you are a contract worker or a gig economy worker, if you are driving an Uber, you are paying 15.3% off the top of every penny you own. I know, I used to have my own business. It didn’t matter whether I turned to profit or not. You’re paying 15.3% on every dollar you earn.

The other thing, and Nick mentioned this, is tax expenditures, things like the home mortgage interest deduction. That’s $1.5 trillion a year. It’s about 7% of the economy and almost all of it goes to the top 20% and we know that largely because only about 20% of households actually itemize to get those tax credits and deductions. Most people don’t itemize because it’s not worth it. Since I paid off my mortgage, I don’t itemize anymore, so I just get the standard deduction. So that is a huge amount of government spending, and again, that’s not counted in the transfer rate.

So yeah, if you’re only going to count things like SNAP and housing assistance and then you throw in dishonestly Social Security and Medicare and then there’s Medicaid and so forth, yes, it’s going to look like the bulk of the money is going to lower-income families. But when you look at the system as a whole, the government is spending a lot on the affluent, and that doesn’t even get into the real regressivity in the system and that is the economy we’ve built over the past half-century that is radically unequal, and had incomes grown, you can say the numbers, Nick. I’m sorry. I’m just getting on a rant here.

Nick Hanauer:

Yeah, no, I mean, had your salaries increased with GDP as they should have over the last 40 or 50 years, virtually everyone on this podcast listening to this podcast would earn almost twice as much as you presently do, and that’s the real problem and that’s the source of all the trouble.

David Goldstein:

Right. If there’s a need, and there is a need for, we’ll use the term “redistribution,” there’s a need for that, I mean, that child tax credit that we had temporarily lifted more children out of poverty than any program ever, and we let it expire because it was too expensive and we talked about that $1.9 trillion Trump tax cut, that could have been spent on making the child tax credit permanent. The reason why it lifted so many children out of poverty is because the wages of their parents are too low, so yeah, for people to get upset about tax transfer saying, “Oh, no, the system’s not regressive at all. It’s very progressive because people are getting Medicaid and food stamps and home fuel heating assistance,” that’s just ridiculous in an economy that has so vastly benefited the rich over the past half-century.

Nick Hanauer:

So loyal listeners, thank you so much for your questions, and I know there are so many questions that we did not get to. There’s a lot of them, and it’s hard to get through them all, but we really, really appreciate the questions. Please keep them coming. It keeps us thinking and it keeps us sharp and we really appreciate it.

David Goldstein:

And if you want to be a part of our next AMA episode, please call and leave your question on our voicemail line at (731) 388-9334, or fill out the contact form on our website, pitchforkeconomics.com, and please remember to follow or subscribe to the show wherever you listen, and if that happens to be on Apple or Spotify, we wouldn’t mind a five-star rating and/or a review. Thanks.

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, @CivicAction and @NickHanauer, follow our writing on Medium, @CivicSkunkworks, and peek behind the podcast scenes on Instagram, @PitchforkEconomics. As always, from our team at Civic Ventures, thanks for listening. See you next week.