Billionaire Nick Hanauer: “Shit’s Gonna Hit the Fan”

On Monday, billionaire venture capitalist Nick Hanauer spoke with Gawker about the class war being waged in this country. Despite being a billionaire, Hanauer has written extensively on the need for higher pay for low-wage workers, along with other measures to boost the fortunes of the declining lower and middle classes in this country and perhaps close the ever-widening gap between our nation’s haves and have-nots. Here’s a portion of Hanauer’s interview with Gawker.

Yesterday, the Seattle-based investor was in New York testifying in favor of a $15 per hour minimum wage for fast food workers. He stopped by our office afterwards to talk.

Gawker: Why did you decide to speak at the fast food wage hearing today?

Nick Hanauer: I flew out to do testimony obviously because they asked me to, but [also] because I was at the forefront of the effort to pass $15 minimum wage in Seattle, and have been collaborating with the people who are trying to make that happen across the country.

Gawker: And your message is: it worked in Seattle, and it can work here?

NH: Yeah. My message is that the counterclaim—which is that if wages go up, employment will go down—is a scam. It’s a con job. It’s an intimidation tactic. There is absolutely no evidence anywhere that it’s true. On the contrary, where you find high wages you usually find low unemployment.

Gawker: It’s a bit of a chicken and egg situation though, isn’t it? Which came first, the high wages, or the strong economy in the place that has the high wages? The typical rejoinder is, “higher wages drive down employment.”

NH: Show me an example. Show me an example of where high wages drove down employment. You show me a high wage place, I’ll show you a low unemployment place. And this is because the fundamental law of capitalism is: when workers have more money, businesses have more customers, and need more workers. The idea that high wages equals low employment, it’s absurd. And you have to understand that when somebody like me tells somebody like you that [high wages equals low employment] is the case, the only thing that’s true about that statement is that if I can get you to believe it, it would be very good for me. Which is why people like me have been saying it, again and again and again, and why people like me have said it at every point at which workers’ rights have been advanced. You can go back 150 years and literally find the same people saying the same thing in the same way. “If we have to pay you more, it will be bad for you.” And that’s because saying that is a much more polite way of saying, “I’m rich, you’re poor, and I would prefer to keep it what way.”

Gawker: It’s just the fast food industry up for discussion in New York right now, but do you think the minimum wage across the board everywhere should be $15 an hour?

NH: Of course. Fast food workers are all the governor has power to enact. Your state legislature is held hostage by the same nitwits that hold hostage the federal [government]. People who have confused suffocating collectivism, which is bad, for a necessity to solve collective action problems, which is what all human endeavor is based on.

Gawker: Is raising minimum wages the best approach to tackling economic inequality in America today?

NH: Raising the minimum wage a lot across the board would make a big difference. It’s not the only thing, but it’s an indispensable part of solving the problem. Raising the minimum wage is very efficient. Everybody’s on the same playing field, it’s a very simple rule, it doesn’t require a lot of administration, you don’t have to negotiate anything. It just is what it is. And Americans today spend a minimum of $150 billion a year in tax subsidies that go to people not who don’t have jobs, but who have jobs, and are in poverty. There is no earthly reason why Walmart and McDonald’s and Walgreens and these other giant, profitable institutions should have one worker in need of public assistance. It’s ridiculous. And it’s not just getting them out from under the need for public assistance; it’s like, that’s what drives the economy! The person earning the federal minimum wage of $7.25 isn’t going out to eat at restaurants. They’re not taking piano lessons. They’re not going to the gym or the yoga studio. They’re not sending mom flowers on Mother’s day. What good is this person in the economy? If you raise it to $15 an hour, they’re doing all of those things. And all of a sudden, not just business thrives, but small business thrives.

Gawker: What else is part of the package of addressing inequality, besides raising the minimum wage?

NH: Raising the overtime threshold—something that is about to happen. This is more complex so not as many people understand it, but it’s equally consequential. The overtime threshold is to the middle class as the minimum wage is to low-wage workers. What the overtime threshold is is the salary level below which your employer is required to pay you overtime if you work more than 40 hours a week. When we had a thriving middle class 40 years ago, two thirds of salaried workers were entitled to overtime if they worked more than 40 hours a week. As a consequence, we had relatively low unemployment, and people went home at a reasonable hour and could take care of their families and their kids.

Today, the average full time worker works 47 hours a week. And they work those [extra] seven hours mostly for free, because today, less than 10% of salaried workers are entitled to overtime. If you earn more than $23,600 a year—if your employer pitches you a fake title like “assistant manager,” they don’t have to pay you overtime. And as a consequence, all over the country people are working for $27,000 a year and working 70 hours a week doing basically: one person doing the job of one and a half. So as an employer I can get two people to do the work of three, and think about what that does for profits… what I’ve done effectively is not just increase my profits, but I’ve taken a job out of the economy, and in so doing I’ve softened the labor market. And the softer the labor market is, the more leverage I have in my wage negotiations. And as a consequence we have this relatively high persistent unemployment. But if employers have to pay people overtime, they’re not going to want to do that. So now I’m going to have to get three people to do the job where two were doing it before. I add a person to the work force. I reduce the level of unemployment. I increase the level of demand in the economy. And I put upward pressure on wages.

The president has unilateral ability to raise that threshold through a rule through the Labor Department. And within two weeks, the Labor Department will announce what that rule is, what that new threshold is. And I can tell you that the shit is going to hit the fan.

Gawker: What is the new threshold going to be?

NH: I cannot tell you. I’m telling you, the shit’s gonna hit the fan.