I am writing this because I feel the social obligation to let fellow Americans know the merits behind Nick's argument link and then he gave a TED talk based on the same argument. Below is an article co written by me and cofounder Gurinder Dhaliwal and that we have submitted this article to the editor of the Politico magazine. They did not responded so we decided to publish this article here to express our views about the danger of Nick's argument for increasing minimum wage as to solve economic inequalities.
Dear Nick,
I am writing in response to your opinion article titled “The Pitchforks are coming for us Plutocrats” link. You are like one of those guys that Malcom Gladwell talks about in his book “The outliers”, in this case, you were born in the right place, grew up in the right place at the right time and met the right people. You were born in this country where the American dream could be realized through hard work and equal access to opportunities. We have common ground here. Allow me to describe my co founder's story, story of Gurinder Dhaliwal, as a way to reveal the realism of how such equal access to opportunities has changed and remind you to do your job as an investor instead of baselessly barking up unsubstantiated arguments about policy making. You may have your freedom to express your opinions as do I. However, I am doing my job to explain the dangerous consequence of your opinions that are not only lacking robust data driven facts but also lacking a sound logical argument. I feel this is my obligation to remind you to use your influence with sound logical facts just as you have made sound logical investments.
The story of Gurinder: trying to live the American dream
My name is Gurinder Dhaliwal. My parents migrated to this great country when I was 5 years old. They believed in the ideals of the Great American Dream: work hard, do good to others and you will live happily and well. They were from the middle class. Like any average Joe, I studied in a public university in California. Like you during your younger days, I spotted an opportunity in the logistics industry and took risks in starting a logistics business. The only difference between you and I is that your investment decision reaps you billions while mine reaps me a middle class income. A few years later, I sold my business and took a postgraduate degree in economics. Shortly after graduation, I applied my knowledge when I worked for a top tier investment bank. Like any middle class hardworking American, I also wanted upward economic and social mobility. I quickly realized that working in a large organization, upward mobility comes at a much slower pace. Most of my colleagues are no doubt going to work hard and try to have better lives. By the grace of my parents help and financing, I was able to invest in a small pizza franchise. Now I am small business owner in the Portland, Oregon area with two locations.
The real world not your ivory tower
As an entrepreneur I take risks to invest in businesses yielding me a positive cash flow. I hire anyone that worked hard and guide them to ensure people are having great experiences at my locations. By the way, if you love pizza, please visit me. After paying the salaries, overhead costs and my SBA loan payment, my final income is the same as the middle class income, averaging between $60,000 and $80,000 a year, depending on the market conditions. This is how I feel that I am truly speaking for small business owners, speaking for the middle class and speaking for my employees. This is the true struggle of the middle class. Taking loans out to build for our future. I am an ambitious guy with big goals in mind, not dreams.
Getting your facts right: not all businesses are growing
Your example of Henry Ford, and large corporations that make an obscene amount of profits but they are the minority, Sir. You have to understand that the characteristics of making money differs from industry to industry. I agree that they should share more with their employees. Take a minute to think of the small businesses that run America. It is easy to look down from your ivory tower and dictate policies to the public when in reality you have zero insight of the real middle class.
In addition, most businesses especially small and middle business owners take out loans. Furthermore, business owners take more risks than the average Joe and so like Warren Buffett said best “fortune favor the brave”. As such, we need to preserve the meritocratic society of work hard, take risk, earn more, but do good to others. Note that he volunteers to be taxed more. Taxing more might be a sound economic idea and it is lesser of the 2 evils as compared to your opinion on drastically increasing the minimum wage to $15 per hour.
You mentioned that that the businesses are growing. First of all, I would like to enquire the decompositions of those businesses. What are the characteristics of those growing businesses? Are they growing in revenue and hiring people at the same time? I hypothesize that you based your facts on where you live in Seattle, which is a city of many tech startups, and they do not truly represent the average profile of mom and pop businesses. Because your facts are questionable and these facts form the basis of your argument, your argument that the government should increase minimum wage to close the gap between the rich and the poor becomes seriously questionable.
Now supposed that your facts are right, let us further investigate the merits of your argument.
Increasing minimum wage is like jerking off
Just because businesses are growing, the government deserves the right to increase the minimum wage is not a strong justification. Increasing the minimum wage is not a silver bullet to solve the income inequality in society. The pitchforks will come for you regardless of whether you are raising $15 or to $100 per hour.
Minimum wage is the wage paid to do something that requires minimal training or ability to perform. Do not get me wrong; I work side by side with my employees making pizza, doing dishes, sweeping, as well as handling the entrepreneurial responsibilities. If the minimum wage is raised to $15, will I go out of business? No, because my prices will increase to offset the rise. The minimum wage population will not be affected by this rise as prices will adjust. Business owners will raise prices so they are not affected either. Who loses at the end? The losers are most likely the managers and the middle class. Here’s why.
Increasing minimum wage actually burdens the middle class
Allow me to explain why increasing minimum wage actually hurts the middle class in the long term. If minimum wage increases, basic economics tells you that there will be inflation. If people have more money, it creates a shock, in the very short term. That will benefit businesses for a few months but prices adjust accordingly. Let us look at the scenario in the long run. If minimum wage increases, the people making $60,000 (the true middle class) have less purchasing power than they did before. Again, your argument that increasing minimum wage for closing the gap does not make economic sense. It actually accelerates the widening of the gap between the 0.01% Plutocrats and the average American! You are basically telling a guy to jerk off so he can feel happy forever, a one time hike in minimum wage is not the answer!
I am not here to just only question your opinions but I am here to offer insights and recommendations as to solve this concerning inequality. We need to know that the cause for income inequality is driven by inequality of economic opportunities.
Equal access of opportunities have changed!
Back in the days of Henry Ford gave every blue-collar worker a chance to earn a good living. The nature of job was simple, so any physically abled person can do the job. Again, in those days the nature of job was homogenously the same. There are other jobs that require higher education and skills but these job are in the minority during that time. So if you make your point back in those days, I agree with you that minimum wage should increase if people like Henry Ford do not on their own merit. That is because both of us can agree that we should not exploit any hardworking Americans.
Now times have changed. Technology created many jobs but also lead to obsolesce of many jobs. I have to go to school to learn skills to get access to jobs that were created because of technology. The biggest issue is the inequality in our education system. Standardizing the education system across the board and you will see real sustainable change in 10 years. At the current moment, the United States is addressing these issues by allowing our younger generation to embrace the use of Information Technology. Yet, we also know that this is still an unequal playing field from the start because the rich can get an early head start by pre-educating their offspring with more education. So what can be done?
Invest before the Pitchforks come for you!
Solutions for the sustainability of our future as a collective will come from creative capitalism. You have the resources to create true change. Investing in companies that empower true socio-economic change or investing in education are sustainable sources. You need to step up to advocate social economic empowerment investments like what you did for Amazon instead of spending your extra cash on buying houses, yachts or whatever else you .01%ers purchase.
Taxing rich only if they love to hoard money
In fact, I strongly recommend more taxes on luxury purchases by the rich but huge tax breaks on investments that drive true socio-economic change. This keeps the money flowing in the right direction to change the American economy for the better as a collective instead of being an economy that encourages hoarding of stagnant money.
Investing to create equal social economic access
The app stores in Apple created opportunities for app developers; Youtube created opportunities for media creators; Amazon created opportunities for publishers and Uber created opportunities for drivers. I met Andrew, my business partner in graduate school, who is a highly educated Singaporean that stated to create true change we need to develop a product that grants access of economic opportunities to those without high-end skills. These people are equally gifted in other areas. One of the areas that we are tackling is to allow equal access of economic opportunities to those who can cook. FoodMnM.com is created to enable anyone especially the stay at home spouses, elderly, people in career transitions or inspiring food entrepreneurs to cook for a decent living. Anyone, anywhere can post safe quality home made food on our site and sell it to the public.
Merits of such social economic startup
First, it eliminates overhead costs of running a business. Second, we collect data from customers and help build the chefs dishes and products customized to a particular target market. The general public neither has the resources to finance nor the skill set to manage a restaurant. We have provided a peer-to-peer technology that helps to navigate and most importantly gives anyone from any socioeconomic class the chance for income prosperity.
Start investing right today!
In conclusion Nick, your intentions are in line with mine, however the solution is wrong.
Basic economics tells us that prices will increase as wages rise. If prices increase the REAL middle class will struggle to make a living as their purchasing power decreases with stagnate wages. Increasing minimum wage can prevents exploitation and only work if you were living in the days of Henry Ford. Now the advice you gave is again telling a person to be happy forever by jerking off once. The silver bullet will not solve the problem.
Every person including a good man like you wants positive change but we all know that change is a long and bumpy road. Increasing short-term minimum wage is myopic and negatively disrupts the natural order of our economy. What America needs is the right change and that is creating access for every hardworking American to have the chance for upward mobility. Increasing the minimum wage to $15/hr does not provide upward mobility or ownership of their future. In order to create upward mobility for each hardworking American, we need to create avenues of creative capitalism. Any one-sided policy from an ivory tower will be ill conceived and poorly executed.
Like the classic moral behind any superhero movie, with great power comes great responsibility. It takes one person with a lot of money and ego to create the wrong type of change. I read your article and spent several days stewing, until I finally decided to write back as a civic and educated person to remind you that we need to focus on sustainable change. This change is the best way to close the widening economic gap.
On another note, you should learn from Jeff Bezo who invests in building Amazon technology throughout the growth of Amazon because technology drive output creates more jobs. Thank goodness Jeff Bezo did not increase the minimum wage voluntarily in the early days. Otherwise, I doubt you would be in the position you are in now.
My last hope is that you can learn from Mahatma Gandhi. To change the world first is to first change yourself. Stop buying luxury houses, stop advocating baseless policies and start investing in startups that can truly create social economic change.
God Bless You and God Bless America
Here's what others have to say
Here's are some recent articles that highlight the danger of Nick's argument. Tim Worstallhighlighted in his article in Forbes titled "The ignorance of Nick Hanauer TED speech" that Nick has been advocating ideas that lack sound economic logic and he should research before he goes around spread these ideas.
Jilian Berman wrote in response to Nick's argument in huffington post with the content just like the title "Nick's talk is too political for the site, TED" .
This article is written in the hope of promoting awareness of the dangerous implications of implementing Nick's idea.
Sincere
Andrew Liew