We are told that all we need to do to increase employment is to reduce personal and business taxes and to reduce regulations on businesses. Of course President George W. Bush reduced personal taxes but that does not seem to have helped the economy. At the end of his second term the country was hemorrhaging over 700,000 jobs a month. It’s better now, but what does make employers start to hire people?
First, let’s look at things that demonstrably have little to do with increasing employment. We’re told that rich people do the hiring in our country because poor people don’t have the money to hire anyone. Wow! What an insight. Perhaps a Nobel in Economics awaits!
First of all, just because someone is rich doesn’t necessarily mean their wealth has any significant effect on job creation. Several entertainers have contracts paying them tens of millions a year. Bouncy-Bouncy Limbaugh has a contract paying him about $30 million a year. Judge Judy earns more than that. Mr. Romney, an aspirant to the Presidency, has an income of $20 million a year. This isn’t earned income, so Mr. Romney pays only about 15% of it in federal tax. (Mr. Romney confesses a love affair with cars and when asked what kind his family drives, declares dismissively that his wife has “a couple of Cadillacs,” proving once again that one can become acclimatized to wealth.)
But what has this enormous personal wealth to do with reducing unemployment? These people probably try to do their bit for the economy. They can easily add another pool boy, perhaps a full time gardener, maybe add another cook, and perhaps employ an additional interior decorator. The Florida place has gotten so tacky. Maybe one of them will put an addition on the lake cottage or hire another stable hand. There are all sorts of jobs this wealth can create.
Of course we’re told that these folks make investments and these investments create jobs. A few may start a business, nurse it through the early stages, and perhaps make another mint. But lots of great entrepreneurs started with an idea and not with much money. I doubt that Angie of Angie’s List was a multimillionaire before she started her business. Did Sam Walton of WalMart begin as a millionaire? Ray Krock started as a kitchen supply salesman, joined McDonald’s, and then some years later bought the company. Do you think Bill Gates began as a millionaire?
Much of what passes for investment is just buying stock in some publicly-traded company, or maybe buying an apartment house. Ford stock could be bought for about $2 a share in 2009. If you had invested in it then you could have sold it for $12 a share in 2010. That was a great investment, right? But the Ford Motor Company didn’t see a dime of that profit. The increase in the stock price accrued to the gambler who bought the stock, to the broker who made the trade, and to the market maker whose job it was to provide an orderly market in Ford stock. Investing in the stock market is gambling. You buy a stock because you believe the price will go up; you sell it if you believe the price will go down. The company whose stock is bought or sold gets nothing. Of course the company may decide to issue more shares if their share price goes up and then sell those shares, invest that money in a larger plant, or maybe just buy another company. So in some few cases the investment in a company’s stock might create jobs. Just don’t stand outside the plant gates waiting for the “Hiring!” sign to go up.
Let’s say you’re the owner of a small shop. Your shop makes plastic stuff for the interior of automobiles. Assume that dear old Aunt Martha has died and left you a cool million. Will you run out and hire a couple more workers? Of course not, so why would a nice business tax refund or any other reduction in your cost of doing business cause you to hire another bunch of people? Lowering business taxes doesn’t increase hiring. Exactly the same thing is true if you’re running a restaurant downtown, or if you are running any other business. Lower business taxes may make a businessman more likely to situate his business in your state, but usually businesses locate where they know the territory. If the state or federal government reduces your cost of doing business you do not, because of that fact, immediately run out and increase your staff. Business owners, being for the most part conservative Republicans, would love to have their costs reduced because that means more money in their pockets, so they thump the table for the RNC lower taxes, fewer regulations, party line; but lower business costs have little or no impact on their hiring; it only impacts their income. That’s why they like it.
So why do businesses increase staff? There is only one reason; they increase staff when they have more demand for their product. No store owner, just because she got an unexpectedly big business tax refund, is going to hire more clerks to simply stand around and look at each other. That’s silly. She’ll hire more clerks when her customers are getting impatient standing in line to pay for goods they’ve bought or because customers need help finding something and there is no staff member available to help them. The manufacturer of auto parts hires more people when orders for his products increase. That happens when people buy more cars. In short, more people get employed when more people buy more stuff! The key word is demand. Without that we go nowhere and that’s why the government must prime the pump, that’s why bailing out General Motors was so important. Just ask the folks in Flint and in northern Ohio. That’s why we need to continue unemployment benefits. These benefits create at least some demand and that demand increases employment.
Be very careful about buying the RNC agenda that tells us if we just lower taxes (again) and reduce regulations (some more) jobs will automatically grow. Be very wary about drinking that RNC Kool-Aid. You already know what it tastes like and you know what it has done in the past. You know that drinking it will continue this acute economic indigestion. Time now for an Alka-Seltzer.