Saturday, December 31, 2011

Creating Jobs Out Of Cow Manure

Republicans are credited and rightly so for controlling public debate in the country, with the help of a vast network of think tanks, media outlets and activist organizations, by monopolizing talk radio and by downplaying internal differences and concentrating on the one goal of holding on to power.

Along the way to controlling the agenda they have convinced people to believe a lot that's not supported by any evidence. That socialism was a threat. That socialism still is a threat. That Americans are exceptional. That the market is free. That the market is controlled by an invisible hand that allots resources better than can people acting in congress who have a lick or two of common sense among them. That Ronald Reagan was not an amiable buffoon who left office with low popularity ratings. That Ronald Reagan didn't raise taxes.

 One of the dumbest, but most nefarious things Republicans have convinced people of is that when the government lowers taxes on "job creators," i.e. the rich, these people create more jobs.

That truism is one of the basic tenants of Neoliberalism, that is, of Reaganomics. If you raise taxes, it holds, business people don't have the money to hire people. If you keep taxes low, business people create jobs. If you lower them further, they create even more jobs.

To think about how that would work out, use this example, or use any example, as long as it demonstrates what they are saying. My example is that if you cut a business person's taxes by, say, $100,000 per year, that would allow them to hire, say, five people at $20,000 per year.

Those people would be put to work making things or performing services. If the business was, say, a shirt factory, that already employed ten people, who were making 100 shirts per day, these five new employees could make 50 extra shirts per day.

The exact numbers don't matter. The business doesn't matter. Put in any numbers you care to, and use any example you can come up with, but you have to be able to demonstrate the theory that cutting taxes translates into jobs, which transltes into more goods and services created.

In this example, a $100,00 tax cut has translated into five additional jobs, and 50 extra shirts per day. But what is not included in the truism is this: Now that there are an extra fifty shirts per day on the market, the businessperson has to hope he or she will sell them.

This part of the scenario isn't addressed in the cutting taxes = job creation truism. Of course, it's possible that the shirts will get sold. Maybe there is pent up demand. Maybe working peoples' pockets are full of money and they want to buy shirts with it. Maybe the flood of goods and services that enter the market because tax cuts have been given to all businesses all will get sold.

Or maybe not. It doesn't really matter. My point is that no consideration of the market is included in the Republican truism that cutting taxes means job creation.

One doesn't have to be a business person or an economist to realize how stupid the truism sounds on its face. It not only sounds stupid, it is stupid, because so called "job creators" do not create jobs. Demand creates jobs. Working men and women having money in their pockets, by which they can meet needs or fulfill desires, creates jobs.

Job creators don't create jobs. Tax cuts don't create jobs. Free money doesn't create jobs. Do you think that, if a business person finds $100,000 on the sidewalk, it will actually even occur to them to use the money to hire some people and have them make things and then hope they business can sell those things?

Business people must know the truism is stupid, but don't point out how stupid it is because they want the $100,000. They are not stupid.

What's stupid is that no Democrat I've ever heard has pointed out how stupid the Republican truism about cutting taxes equaling job creation is.

Of course, it could be that Democrats are aware of how stupid it is, but are afraid that if they point out how stupid it is, their campaign contributions will dry up. It also could be that they agree with the Republicans, but know that their role in American democracy is to pretend that they represent the interests of working people while actually representing the interests of the rich.

Entrepreneurial Spirit

A word about that risk taking entrepreneurial hero of American Capitalism, the one Republicans and Democrats alike hold up as an example of what makes America so exceptional. The entrepreneurial spirit, they all say, is what causes innovation. But people don't go into business out of some innate desire to innovate. They go into business out of an innate desire to get rich. To accumulate wealth. To make life easier.

Yes, sometimes people start business not knowing if they will be able to sell the goods or services they are about to offer on the market. They take that risk. Whether they are acting intelligently or not, they take that risk. It's often said that half of all new businesses fail, and the primary reason new businesses fail is that the owners have not been able to calculate the demand for their good or service beforehand.

In other words, they produced good or services hoping they could sell them. Just like the business person doesn't do in my example above, but would have to do if the Republicans' truism that tax cuts = job creation was true.

Established business don't take such risks, and it is established businesses that fill Republican bank accounts and that Republicans are talking about when they repeat the mantra about job creators creating jobs.

When established businesses think about expanding, they have many means at their disposal by which they can find out if there is demand for the added goods or services they will create.

But they usually don't even have to make a good guess, because what happens, in the real world, in the real economy, is that an established business, say, a shirt factory, that is producing, say, 100 shirts per day, gets a call from the people they supply shirts to, or they call that person. As a result of the call, they now know that the people they supply shirts to wants more shirts. The result of the call is that they now have an order for another 50 shirts per day. An order is a comittment ot purchase, and at a specific price.

They have the order because the demand is there, already, and when they get the order, then and only then will they they spend the money to hire more workers. And if they don't have the money they will borrow it, and they will borrow the money because they have in hand an order for more shirts, at a certain price, and they and the lender know beforehand that they will make more than the interest costs, the labor costs, and the expanding the factory costs.

Getting back to the Republican truism. There is no reason for a business to spend any extra money they come across, whether it's profits, from tax cuts, or found on the sidewalk, unless the demand, represented by the order for more shirts, is already there, or if their research tells them there is a reasonable expectation it will be there. If the demand is not there, any extra money they come by goes straight into their pocket, and if the demand is there, their tax expense is only one of many expenses that go into the cost-benefit equation that tells them they will profit from the expansion.

But Republicans want us to believe that that extra money goes into creating jobs. That it goes into producing extra goods and services, which are then thrown onto the marketplace in the hopes someone will buy them.

One More Thing

As I say, taxes are just one of the expenses a business has. If there is demand, it doesn't matter how high taxes, or other expenses, are. The demand could only exist if the people had enough money in their pockets by which they can realize needs and desires, and taxes and other expenses are already figured into this equation, because it is part of the price the business is asking for the good or service.

It's like this. If each of the pool of potential customers only has $100 each, there won't be a market for Mercedes Benz cars. If each has 1 million, there will be.

There is a relationship between the price and the demand. If the price is too high, the demand will melt away. Either someone else will find a way to produce the item at lower cost, or the consumer will buy something else that satisfies the need or desire.

Republican policies of propping up businesses lets some businesses that would have failed continue on inefficiently. But there's not a free market, and Republicans  don't want a free market, they want a rigged market. If the market was really left to decide who fails and who succeeds at business, we'd have better business owners. Smart business people find a way to make money in spite of high expenses, as they do in Europe, where, as Federick Allen, an editor at Forbes, reported the other day, automakers, despite paying double in salary costs as they do in America, are more profitable than they are here.

There is one more fallacy behind the Republican truism that giving money to a business person will cause the business person to create jobs. Republicans also want to lower wages, meaning that the price at which something is no longer demanded is reached even more quickly. The theoretical end points for price, for wages, and for demand, when wages are in decline, are all zero. Going in the other direction, when wages are on the rise, there is no end point.

But this would lead to hyper inflation, right? No. When everyone's demands are met because they can afford to met them, demand will fall off, and prices will drop. Demand for raw materials will also drop, and prices for them will drop. Prices and wages will stabilize and wages will not have to increase any more in order for workers' demands to be met.

In fact, there will be downward pressure on wages, as demand dries up and sales slow. Taxes, which will go toward providing social services -- education, health care, retirement -- can remain high. An equilibrium will be achieved, as it is in Europe, where standards of living are higher than in the US and where health care is free and universal.

Or at least all that was true before Neoliberalism began to be implemented in Europe, too. Before the Eurozone and the IMF and the World bank all adopted Neoliberalism. The reason that happy state of equilibrium with high wages and successful businesses and health care and education and all the rest can't happen now, of course, is that Republicans, and their counterparts in Europe, are lying, and Democrats and their counterparts, for whatever reason, whether they are ignorant or are on the same side as Republicans, don't call them on it.

Neoliberalism was always a lie, from the moment Ronald Reagan and Margaret Thatcher first began to implement it. It is not an economic theory, but a collection of focus group tested campaign slogans. It is a scheme devised to redistribute wealth upward, devised when, in the post World War II years, the working classes in the US and Europe had achieved the highest standard of living in the history of the world.

To be sure, that standard of living was the result not only of a fairer distribution of wealth. It was the result of much of the sum total of US and European wealth being stolen and extracted by force from other peoples, from the so called developing nations, from the so called third world. The Occupy Wall Street movement shows signs of being universal in nature, and some in it are taking into account the global disparity of wealth, and there are others in the Us and in Europe who definitely take it into account. but so far, the discourse in the US and in Europe only compares the western working classes with western Capital, and only compares the state of fairness now with what it was before.

And in that context, Neoliberalism is achieving its goal, as wages and standards of living for working people are in decline and inequality of wealth is back to the levels it was at in the 1920s, a time of unregulated, voracious Capitalism, when Capital routinely used state violence to suppress the working class. Conditions had become so intolerable that they led to the rise of the Labor Movement, and Socialism, and increasing living standards for the working class.

We see the precursors for history to repeat itself. Voracious, unregulated capital is back. The Occupy Wall Street movement is raising consciousness among the working classes. But Capital will do everything it can to make sure things don't get out of control, to make sure that working class consciousness isn't raised to the level at which the working class realizes its power. Capital in fact is showing us that it will do everything in its power to prevent that, including using violence committed by the police, one of the coercive arms of the state that is at its service, now, as then, a state run by Republicans and Democrats alike.



  1. Indeed and Amen!

    There seems to be structural reasons for the drop on demand; the effective demand (which is necessary, as you point out, to realize a profit) has been declining exactly because the corporations have been destroying the industrial base of the U.S., and shipping jobs abroad, at the same time that they have driven the real wages down and kept them at the level they were in the early 1970s.

    Happy New Year!

  2. Thanks for that comment, RF. And a happy New Year to you, too!

    Folks, that is from someone who knows about such things, more than I do. His web site, Revolutionary Flowerpot Society, linked to on my sidebar, is "An internationalist socialist blog, with emphasis on Iran." It's an excellent source for finding out what's going on in Iran, an important power in that region and never far from the center of US foreign policy, as is happening right now. He translates articles, and Marxist analysis, by some top thinkers we'd never have the chance to read otherwise. He's also has original work there and he's published in Left media outlets like Global Research and Counterpunch.

    His latest post is about an interesting idea he has for bringing direct democracy to the US budget process by letting taxpayers determine how their tax dollars are spent. He's previously had articles about it in Counterpunch. It's one of those ideas that is in front of the curve and I think that with the rise of the Occupy movement, which is trying to bring back direct democracy, it's time may have come and so he's written about it again. Just click on Revolutionary Flowerpot Society at the top right on this page.