Let's examine this premise:
In a capitalist society, why does a business or corporation exist? Answer: to make money for investors–its proprietors, its stockholders, or venture capitalists. No for-profit organization is in the business of providing jobs for the society's citizens.
So, why should a business or corporation create jobs? A business hires new workers only if there is the probability of a positive return on investment (ROI). The CEO or company president asks: Will adding an employee increase the bottom line? If the answer is yes, a job is created and a person is hired. If no, even though there may be plenty of cash in the bank (because of reduced taxes or increased profits), there will be no job creation.
Jobs are created by demand for products and services.
If, as now, the economy is in turmoil–high unemployment, risk of inflation (or deflation), political indecision, looming governmental regulation, uncertain interest rates, etc.–where will the increased demand for products come from?
Workers, here and abroad, are the ultimate consumers.
Consumers provide 70% of the gross domestic product (GDP) of the nation. To do so, consumers must have money to purchase products and services. If too many workers are unemployed or underemployed, demand for products and services falters, which leads to lay-offs and pay cuts, creating a downward spiral of further decreased demand and increased lay-offs and pay cuts.
What do we do when that spiral reaches bottom, when all else fails? When the economy does not respond to lower interest rates, lower corporate taxes, extended unemployment benefits, tax breaks for individuals, etc. What then?
The federal government must step in and create jobs,
even if this must be done through deficit spending.
The Fed can create jobs by:
(1) providing money to the States to rehire teachers, police, and firefighters;
(2) creating projects to improve the nation's infrastructure;
(3) rehiring furloughed government workers at the federal level.
Follow the money.
Federally funded jobs create income for workers. Workers spend money to purchase goods and services to meet their needs and desires. To meet the increased demand for goods and services businesses and corporations hire more workers. The spiral rebounds, turning upward again. The economy grows. All is well.
This is not rocket science. Think about it.
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Note: Many of the ideas expressed above are second hand. If you want to know what a real economist thinks, read the blog of Robert Reich.
Let's take a look at the tax and spend mentality. What happens when other peoples money runs out? You can't tax yourself into prosperity. The fed has bankrupted every major program in history ie. Medicare, medicade, social security. Remember that the rich got that way through hard work and sacrifice. Taxing them more is like taking a students A and lowering it to a C to bring up the grades of the F students.
ReplyDeleteThanks for the comment, Jed. If a government is to function, it must "tax and spend" on programs that benefit the society--defense against its enemies; public projects like roads, bridges, and dams; and yes, provide "safety nets" for those less fortunate. Most of today's unemployed lost their jobs through no fault of their own. And remember, no one gets rich on their own; they depend upon consumers and workers, they use the country's infrastructure and economic system. Those who benefit most should bear a extra share of the cost. I suspect that, like Warren Buffet, most of the wealthy are willing to pay more in taxes. Bottom line: are we "all in this together" or is it "every man for himself"?
ReplyDeleteI would take exception to the statement "The rich got that way through hard work and sacrifice." I truly believe that was the way it was in the past. And I know there are many folks who work hard and sacrifice now, and even build businesses who employ folks who are also hard working. These businesses provide them with jobs. BUT, if you're saying that the big corporations (and the people who run them), those who make billions of money and then store it off-shore, who don't pay taxes, who get government bailouts that they don't repay, and give themselves huge bonuses (even when their company has a bad year) are deserving?? I don't buy it.
ReplyDeleteHi Bev and thanks for your comment.
ReplyDeleteI agree with you for the most part. There are many people who became wealthy at the expense of others, e.g., the sub-prime real estate brokers who cleared unqualified buyers in order to make fat commissions; and the risk managers at Standard & Poor's and Moody's who gave AAA ratings to bundles of mortgages that were destined to default. Sadly, for all the harm they caused, none of these perpetrators of the Great Recession have been indicted and prosecuted.
Certainly there are legitimate entrepreneurs out there providing services, products, and jobs. And they deserve the rewards of their "hard work and sacrifice".
What is missing in Jed's analysis is that most of the folks who do well in any society do so because they were born (1) with healthy bodies, (2) of better than average intelligence, (3) into families of the predominant race, (4) within well socialized communities, and they received (5) a good education. In other words, they had the luck to be born well and raised well. Just having the opportunity to do well is not enough if you're born to a dysfunctional family in a drug culture in Harlem.
Seems to me it's only proper that the lucky extend a helping hand to the unlucky. And that's best done through the income tax system.