Some politicians and economists maintain that reducing taxes on the wealthy provides investment for businesses and corporations, which will result in more jobs for workers. That is, the untaxed money will "trickle down" through organizations to the level of the individual workers in the form of more jobs and better pay.
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.
