When multi-millionaire venture capitalist Tom Perkins used a holocaust analogy to describe his concerns for the safety of the 1 percent, many appropriately decried his horrifically ill-fitting turn of phrase. Perkins apologized — sort of.
But on Thursday, the Wall Street Journal editorial board defended his message, even if it distanced itself from his comparison to Nazi Germany. Perkins himself has asserted on Bloomberg TV, “Now that as a messenger, I’ve been shot — I think [people should] at least read the message.” Fair enough. Let’s look at the economic problems and solutions that he outlined.
To his credit, Perkins admits that inequality is a problem. In fact, he says when others call inequality the “number one problem in America,” that is “probably and possibly true.” So just how bad is inequality? It’s the highest it’s been since 1928. In fact, 95 percent of the income gains in the first three years of the recovery since the Great Recession went to the top one percent. In international rankings, U.S. economic inequality puts us in league with countries such as Russia and Cameroon. And economic mobility — the ability to move out of the economic position into which you were born — is lower in America than in countries such as Germany, Canada, and France.
But if the problem is inequality, the solution Perkins offers misses the mark entirely — and this is where terrible metaphors turn into terrible economic policy. Perkins offers that “the solution is less interference, lower taxes, let the rich do what the rich do, which is get richer, but along the way they bring everybody else with them when the system is working.”
Perkins asserts the supply side economics myth that the one percent are “the job creators.” But as fellow venture capitalist — and one of the original Amazon investors — Nick Hanauer has written, “An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be.” That’s because what is required to create jobs is demand. Then-Federal Reserve Chairman Ben Bernanke pointed out that basic relationship in 2012.
Economists Heather Boushey and Adam Hersh have proven how important the middle class is to increasing demand — and the concomitant problems of rising inequality. Nobel prizewinners like Joseph Stiglitz and Paul Krugman have had a lot to say about it, too.
It is especially hard to understand Perkin’s tax panic — evinced when he described his “message” as being that “the rich as a class are threatened through higher taxes” — when the top marginal tax rate in America is 39.6 percent, significantly lower than it was for most of the post-war period and less than half what it was under President Eisenhower. And capital gains for the wealthiest Americans, how many of them make their money, are taxed at 23.8 percent, lower than many middle-class families.
What about Perkins’ overall prescription that cutting taxes — a return to supply side, or trickle-down, economics — will improve everyone’s lot? The facts aren’t on his side. Looking at when this policy was in place in the 1980s under President Reagan and the 2000s under President Bush, versus the 1990s under President Clinton, the data paint a clear picture. While average wages fell under Reagan and remained stagnant under Bush, they rose under Clinton. In fact, under supply side policies, investment growth was weaker, productivity growth was down, overall economic growth was slower, employment growth lagged, and income growth for middle-class households was lower.
Saying that the wealthiest among us — those who have benefited the most from our economic system — should pay their share of taxes isn’t class warfare; it’s a simple effort to better balance our books in a way that is fair. And realizing that our economy will work better when it works for more Americans isn’t class warfare, either — it’s smart economics.