Of Pitchforks, Revolutions, Capitalism and our Better Angels…

It's a rare thing when within one week I run across two articles written by two very different members of the financial elite (the  0.1-0.015%) ringing alarm bells about the rising tide of income inequality. But it happened this week.  Both addressed their fellow plutocrats directly and had the audacity to speak out strongly against the rising tide income inequality.

Nick Hanauer and the Tedtalk that wasn't…

Nick Hanauer, a very successful entrepreneur, CEO and philanthropist is decidedly a part of the exclusive financial elite. He is also no stranger to controversy.  In 2012 Mr. Hanauer gave a TEDtalk that TED declined to post.   Why?  Well as it turns out that instead of invoking his own personal success story, Mr. Hanauer had the chutzpah to focus his talk on the emerging oligarchy, income inequality and its impact on business, society and the economy. OOPSIE!   TEDtalks are all about rugged individualism and empowerment - that's a no-no!

[youtube]http://youtu.be/bBx2Y5HhplI[/youtube]

Dreams of pitchforks...

Nick Hanauer's latest salvo was published In the July/August issue of Politico Magazine where he penned an article "The Pitchforks are Coming…For Us Plutocrats".

Surprisingly self-effacing, Mr. Hanauer suggests that he is not the smartest guy in the room or the hardest working.  He attributes his great success to the ability to tolerate risk and the ability to see where things are headed.  And what he sees next for him and his fellow 0.01%ers are….pitchforks.

The first part of the article addresses the threat that rising inequality is for the middle class and how it is choking off demand for goods and services. He goes on to explain that anytime inequality resembled the "feudal" levels that we have today in America that there were no happy endings.  Only pitchforks or some other major cataclysmic event such as a great plague, the Great Depression or a World War.

Speaking to his peers - Mr. Hanauer continues...

I know that virtually all of you feel that compelling our businesses to pay workers more is somehow unfair, or is too much government interference…But here’s the thing. When those who set bad examples…pay their workers close to the minimum wage, what they're really saying is that they'd pay even less if it weren't illegal…In any large group, some people absolutely will not do the right thing. That’s why our economy can only be safe and effective if it is governed by the same kinds of rules as, say, the transportation system, with its speed limits and stop signs.

And that indeed is the crux of the argument.  Laws governing society should allow business owners to "do the right thing" without the fear of it putting them out of business.  This involves a dirty little word called "regulation".  But it is absolutely essential or no one will be inclined to summon their better angels and play fair.

Bill Gross and the need for "normalcy"…

Even more surprising was the article by Bill Gross the founder and chief investment officer of PIMCO.  In an article in USA Today,  Mr. Gross emphasized (as did Hanauer) the need for a vibrant middle class to create purchasing power.  It's a simple formula:

Wage inequality = Income loss for the majority (99%)  = Shrinking economic opportunity

Mr. Gross invokes the need for a return to "normalcy" citing the following current conditions as decidedly "not normal":

• After-tax corporate profits at 10% of the GDP  (exceeding the roaring 20's).


• American wages at 42.5% of GDP (it was 57.5% in 1970).


• A national minimum wage of $7.25/hour.  (It should be closer to $22/hour).

Normalcy, he intones, will not return until middle America has regained its footing and has re-established the purchasing power relative to inflation and corporate profits.  He adds that  making such things voluntary will not work:

There is no first-mover advantage, however. If healing requires higher wages, the Henry Ford solution must be broad based, but it cannot be voluntary. Minimum-wage law increases, while seemingly anti-capitalistic and undemocratic, might be necessary for the common good — workers and corporations alike.

Like Nick Hanauer, Mr. Gross argues that the current disparities put the very concept of capitalism in danger of being overthrown.  Those on Wall Street and in executive suites that resist any form of redistribution are sowing the seeds for their own destruction. It's not a matter of "if" but "when".

This is strong stuff coming from two very prominent but different capitalists.  But despite the logic of these arguments, both Bill Gross and Nick Hanauer are being regarded as about as popular as the bubonic plague with their fellow 0.01%ers.  Hopefully, they will see the light.  Since I'm not even in the top 10% - let alone the top 0.01% - I certainly hope they do.  Meanwhile, I'll sharpen my pitchfork, because I don't think most of these people are capable of summoning their better angels.

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