Friday morning the U.S. finally got a monthly jobs report that was unequivocally good: According to the BLS, 243,000 jobs were created in January, way more than expected.
Of course, this immediately led to a political fight about who or what is creating those jobs.
One of the most commonly repeated theories about job-creation is that "rich people create jobs"--specifically, rich investors and entrepreneurs who build companies that eventually employ hundreds or thousands of Americans.
This theory is often used to justify very low taxes on investors and high-income earners, under the theory that such folks have to be given an incentive to "create jobs."
But the trouble with the theory, says Nick Hanauer, is that it's just wrong.
Hanauer, an entrepreneur and investor and the author of The Gardens of of Democracy, built an online advertising firm called aQuantive that he sold to Microsoft for several billion dollars. He was one of the first investors in Amazon.com, which now employs tens of thousands of people worldwide. He also make an "eight-figure" income from his investments. So he knows a thing or two about investing, job creation, and the impact of low taxes on rich people.
What actually creates jobs, Hanauer says, is not "rich people" or "entrepreneurs," but the economic ecosystem in which companies are created. The entrepreneur and initial investors provide the "seed" that eventually leads to job-creation, but it is ultimately the company's customers that provide the demand necessary to support jobs. Without healthy customers, Hanauer says, entrepreneurs and investors can't create any sustainable jobs, so the idea that rich people create jobs is misguided.
One of the reasons our economy is struggling, Hanauer says, is the middle-class has been gutted and stripped of its purchasing power. To restore the economy to health--and reduce the unemployment rate--the buying power of the middle class has to be restored. And that, Hanauer says, can be accomplished in two ways:
First, cutting taxes for the middle-class while raising them on high-income earners.
And, second, paying middle-class workers more.