Fallacies, Hokum and Contradiction

Commenter breedm asked what I thought of this TED Talk presentation about job creators from Nick Hanauer.

I think it provides some good examples of fallacies, hokum and an argument that contradicts itself.

At the 42 second mark, Hanauer presents this straw man:

…a policymaker who believes that the rich are job creators and therefore should not be taxed will do equally terrible policy  [as an astronomer who believes the Earth is the center of universe] .

The straw man is in bold. I know of no one who believes the rich should not be taxed. Comparing these fictional policymakers to fictional astronomers (that’s hokum) doesn’t make either group any more real.

Right after that, Hanauer enters the wealth discussion “in the middle” by claiming that job creation comes from the people who can afford to buy products, consumers. Without them, “all of those jobs would have evaporated,” claims Hanauer.

David Mamet and Thomas Sowell explain here that the “a priori question left unasked and unanswered” by folks like Hanauer is, where did the wealth of these people who can afford to buy products come from?

Wealth was not “descended from the heavens, like manna, and spread evenly over the ground,” Sowell writes. “It was created by individual expenditure of effort and individual willingness to undertake risk.”

At about the 1:15 mark, Hanauer says something I agree with:

Jobs are a consequence of a circle of life-like feedback loop between customers and businesses.

Sure. Customers buy products they value. Those purchases send signals to businesses about what consumers value and businesses make more of that stuff.

But, as Sowell pointed out, customers had to first acquire enough wealth to purchase these things in the first place.

This was done in the same “circle of life-like feedback loop” that Hanauer mentioned. Consumers acquired their wealth as workers or business owners that produced something of value for others.

Or, they somehow got their hands on a piece of the wealth these folks created. For example, children who spend their parents’ money got their hands on some of the wealth their parents created. Recipients of charity or government transfer payments, get a piece of wealth — either voluntarily or forcefully — from someone else.

But, I disagree with Hanauer’s very next sentence. I also think this sentence contradicts his previous and is the fundamental lapse in Hanauer’s thinking.

And only consumers can set in motion this virtuous cycle of increasing demand and hiring.

It’s not much of a “virtuous cycle” if only one player in that cycle can set it in motion, is it? Again, Hanauer’s basic flaw is not tracing back where those consumers acquired their wealth.

The next few minutes of Hanauer’s speech is filled with hokum. For example, he argues that when business people take credit for creating jobs, it’s like squirrels taking credit for evolution.

I wonder what Nick would say about politicians taking credit for job creation. Either way, it’s a hokum comparison. It’s more like squirrels taking credit for finding a good place to store nuts for the winter. Evolution may have favored the squirrels who do that, but that doesn’t mean that those squirrels aren’t working hard to make sure their families have enough food for the winter.

Hanauer really stretches the straw man and hokum meter at the 4 minute mark, claiming that the word ‘creator’ is an attempt to deify job creators.

It’s a small jump from ‘job creator’ to ‘the Creator’. It was, like, not chosen by accident. When someone like me calls himself a job creator, we’re not just describing how the economy works…we’re making a claim on status and privileges we deserve.

Or, maybe not.

Next, Hanauer claims that the 15% tax rate paid by ‘capitalists’ on dividends and carried interest, compared with the 35% top rate on work, is a privilege and hard to justify without deification.

That’s only if you don’t understand the difference and neglect that the ‘capitalists’, for the most part, had to pay that ‘35% top rate’ on the income that was used to acquire the capital that is now producing dividends, as economist Steven Landsburg explains here. Landsburg’s conclusion:

Why is this so terribly hard for so many intelligent people to understand? Here, I think, is why. They see a guy with a million dollar capital gain on his investment, and they forget that in the absence of wage taxes, he’d have invested twice as much and earned a two million dollar capital gain. In that sense, the capital gain is taxed in advance.

Hanauer concludes that a strong middle class is the real driver of job creation and:

…that’s why taxing the rich to pay for investments that benefit all is such a fantastic deal.

Except that kills the consumer-business feedback loop ecosystem that Hanauer praised earlier in his speech, because the “investors” are no longer investors and consumer purchasing signals no longer matter.

That is, “investors” in Hanauer’s model do not have to respond to what consumers want. Investors in the “ecosystem” go out of business when they make something consumers are unwilling to buy, as they should. That’s the feedback part of his consumer-business feedback ecosystem.

When government “investors” (i.e. spenders) make something consumers are unwilling to buy, they don’t necessarily go out of business because the tax dollars are not directly dependent on whether their projects are consumers successes or not.

To sum up, Hanauer first argues that the economy is an emergent order, like evolution, that is not dependent on a centralized investment function. But, then argues that we should centralize it, which removes the emergent order aspect of it.

breedm, Does that help?


Will donations create jobs?

I picked up the brochure on Starbucks new job creation donation project.

The brochure explains that donations will be used to give grants to community development organizations that loan money to community oriented businesses.  For a $5 donation, a community development organization can lend $35 to a business.  And you get a bracelet that says “Indivisible”.


The project sounds great.

It took me a little bit to figure out the logical flaw.

But, it occurred to me that this is a version of the Broken Window Fallacy.

It took me a little bit to recognize it since there is no destruction (breaking of windows) here.  But the Broken Window Fallacy isn’t about breaking windows.  The fallacy lies in not considering what would have happened anyway.

What would have happened if I spent the $5 on something else, like more coffee beans? How many jobs would have been created from that?

Probably about the same, or more, as what’s created from the $5 donation.

Starbucks’ efforts isn’t really about creating jobs.  Starbucks’ efforts are about creating seen jobs so it can tell you stories about them to make you feel like you are doing something good.  Their efforts ignore that you are doing just as good by spending or otherwise investing that $5, but the problem is that good is unseen and harder to tell a story about.

So, technically, yes, donations will create jobs.  It’s just not clear if they create any more jobs than if the money been used for something else.