According to wealthy investor Nick Hanauer, the wrong approach to capitalism has been weakening the American Dream for the past 40 years

nick hanauerTed S. Warren/AP

  • Nick Hanauer is a Seattle-based venture capitalist and progressive activist.
  • He pointed to neoliberal policies of the last 40 years that have been weakening the American Dream, the idea that the US is a meritocracy with high upward mobility.
  • Mobility has been on the decline as inequality has risen, and Fed chairman Jerome Powell has stated the need for policies to address it.
  • This article is part of Business Insider's ongoing series on Better Capitalism.

In many ways, Nick Hanauer's family story captures the American Dream.

His grandfather and great-uncle fled Nazi Germany and made it to the United States, where they bought a bankrupted pillow factory and turned it into a success. Hanauer's father turned the company national, and it also provided Hanauer with real world training in analytics and operations. Hanauer became an entrepreneur himself, and made a fortune after an early investment in Amazon and the sale of his company to Microsoft in 2007 for $6.4 billion.

Since the financial crisis, however, he's become more passionate about pushing against the rising inequality in the US, and how it's been attacking the American Dream, this idea that the country is a pure meritocracy. To him, it's clear that it's the result of the Chicago School of economics free market approach that became the norm in Ronald Reagan's presidency in the '80s. He doesn't see it as a coincidence that inequality has risen and mobility fallen over the past 40 years.

"It's just objectively true, if you look at the numbers, that mobility in the United States has declined. As inequality has stretched the rungs of opportunity farther and farther apart, it becomes, not surprisingly, harder and harder to move rung to rung," Hanauer said in an episode of his podcast, "Pitchfork Economics."

"Is it dead? Hopefully not," he said, adding that it's important not to get too caught up in the "good old days," where that dream's benefits were not extended to most women and people of color. But it's a real problem to be taken seriously, and while Hanauer is unabashedly progressive, President Donald Trump's Federal Reserve chairman Jerome Powell recognized that the country's economy is not matching its ideals.

"We want prosperity to be widely shared. We need policies to make that happen," Powell said recently. "The US lags now in mobility. And that's not our self-image as a country, nor is it where we want to be. ... We have some work to do to make sure that the prosperity we do achieve is widely spread."

A 2017 report from the Federal Reserve of Minneapolis found that intergenerational mobility "declined sharply" around 1980. "It was during the early 1980s that there was a pronounced increase in the 90-10 income gap and a sharp rise in the income share of the 1%," the authors wrote.

There's another report from 2017, this one published by the Federal Reserve of St. Louis, that showed US mobility lagging behind other developed countries. As former Business Insider reporter Pedro Nicolaci da Costa pointed out, an American child born in the bottom fifth of income distribution had a 7.5% chance of reaching the top fifth, whereas a British child had a 9% chance, a Danish child an 11.7% chance, and a Canadian child a 13.5% chance.

Hanauer's take on this echoes Nobel laureate economist Joseph Stiglitz's, which is that an unwarranted faith in the idea that people always make rational economic decisions and the market always self-corrects may have helped clear up some government excesses of the '60s and '70s but went too far.

In an interview with Business Insider last year, Hanauer said, "You can have a highly innovative capitalist economy where everyone benefits from it. You just have to decide that's what you want to do. And so the only thing we have to fear is neoliberalism, which is the idea, among other things, that the only purpose of the corporation is for its shareholders. Which is bullsh--."

To counter the reigning views of the past four decades, Hanauer is a proponent of moving beyond shareholder primacy and turning to stakeholder capitalism, significantly increasing taxes on the country's wealthiest, and increasing the minimum wage to at least $15 an hour in every state.

"I think for the American Dream to have real resonance," Hanauer said in his podcast, "you want to create an economy where everyone has a reasonable chance to live a life of dignity and security, both in their working lives and in retirement, and you want to have an economy where people who work insanely hard and who are very, very capable can come from anywhere and make it to the tippy-top.

"That really is worth shooting for, and something worth working for. Something we've had to a certain extent, but less and less today."

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