Battling Income Inequality With Second Avenue Partners’ Nick Hanauer

When venture capitalist, entrepreneur, and political provocateur Nick Hanauer was coming of age in Seattle, he wanted a sports car. His father, however, wouldn’t let him get one.

It wasn’t because the family, which owned and ran bedding producer Pacific Coast Feather Co., didn’t have the money for a luxury like that. Nor was it because Hanauer’s dad deemed it too dangerous or frivolous.

He forbade the purchase because he was worried about the optics. “He felt strongly that it sent the entirely wrong signal to our employees who worked, in his opinion, harder than I did and couldn’t afford such a thing,” Hanauer told me on the latest edition of my podcast, The Bottom Line.

“That was just kind of the perspective that my dad had,” Hanauer adds, “and I suppose I got some of it.”

Actually, Hanauer got substantially more than some.

An early investor in Amazon and a co-founder of Second Avenue Partners, Hanauer for years has been citing the dangers of income inequality in America, famously warning his “fellow zillionaires” that “if we don’t do something to fix the glaring inequities in this economy, the pitchforks are going to come for us.”He also hasn’t been shy about offering a host of policy prescriptions to lift up the working class. Among them: raising the minimum wage to as much as $25 an hour at the nation’s biggest corporations; making vastly more people eligible for overtime pay; creating a system of portable, pro-rated, and universal benefits for independent workers; and curtailing stock buybacks.

If he had his way, he’d also significantly boost corporate taxes—a total reversal of Trumpian economics.

Hanauer says that he learned the merits of this idea from watching his father manage Pacific Coast Feather. At the time, in the 1970s, the top corporate rate was 48%. (The Trump tax law just lowered it to 21% from 35%.)

“When I grew up in the family business and tax rates were very, very high, my dad employed this fantastic tax-avoidance scheme,” Hanauer says. “We called it investing in the business.

“What my dad did to avoid paying corporate tax, which he hated, was to spend every dollar of cash flow on more employees, more factories, and more equipment,” he recalls. “We kept our profits insanely low because we did not want to pay more corporate tax. Today. . . the penalty of high profits is very, very low.”

While Hanauer has harsh words for what he calls the “trickle-downers,” his condemnation is not limited to one side of the political aisle. “The evisceration of the middle class,” he says, “took place during Democrat and Republican administrations.”

He also sees the public sector as just one part of the problem; the private sector, in Hanauer’s eyes, has largely abdicated its responsibility, as well. “In the old days, big companies used to set the tone at the top,” he says. “Today, they drag everyone down to the bottom. And that shouldn’t be tolerated.”

One of the corporations that Hanauer criticizes is Amazon, which he helped to get off the ground (and where, it was recently disclosed, the median employee made $28,446 last year while CEO Jeff Bezos’s net worth has climbed to more than $130 billion).

“They’re super exploitive—just unacceptable,” Hanauer says. “What I can guarantee you is that Jeff Bezos is not going to change those things in the absence of somebody putting essentially a gun to his head and forcing him to do it.”

If Hanauer’s father helped to forge a firebrand, there’s at least one aspect of the son’s life that he would have trouble fathoming. “I . . . have this giant pile of money that would have been inconceivable to my dad,” Hanauer says. “And I live a ridiculously lavish life as a consequence of that.”

You can listen to my entire interview with Hanauer here, along with Larry Buhl reporting on the steady erosion of overtime pay in America, and Karan Chopra explaining how great social benefits can result when “agents of innovation” combine with “agents of scale.”