Tuesday, September 20, 2011

Job Creators

Which group creates the most jobs in an economy?

Group 1: 200 million households with an average of $50,000 each?

Group 2: 2 million households with an average of $5,000,000 each?

House Speaker John Boehner calls Group 2 members "job creators".

What is Group 1?

Both groups have the same amount of money (about $10 trillion in this hypothetical example). Group 1 members are buying food and clothing, washing machines, cars, computers, hairdriers, and microwave ovens. They go to movies, eat at restaurants, take vacations, use cell phones, get their hair cut. They seek doctors and plumbers and teachers for their children.

However, according to Boehner, they are not "job creators". Only people in Group 2 are actually "create jobs".

Well, maybe only those people in Group 2 get to be called "job creators" because they actually hire people. They are the employers. We are the employees.

But . . . what are they hiring people to do?

It would seem to me that they are hiring people to harvest and ship food, sell clothes, repair washing machines, build power stations, write computer software, build web pages, service bank accounts, wait tables, teach, provide medical care, build movie sets, provide cell phone services, cut hair, and the like.

But they wouldn’t be doing any of these things without people in Group 1 buying the things that these employees are working to provide.

When people are not buying these things, Boehner's so-called "job creators" become "job destroyers" as they lay off people and close businesses. That is if we adopt the "employer" definition of "job creators" as opposed to the "consumer" definition.

Now, it must be admitted that these 2 million people with an average of $5,000,000 are also job creators - along with the 200 million with $50,000 each. They hire people to design, build, and decorate large and expensive houses, buy expensive jewelry, collect expensive cars, buy personal jets, eat in the finest restaurants, buy tailor-made clothes, travel around the world, take cruises, build home-theater networks, and hire gardeners, maids, and chauffeurs, and secretaries to do their errands for them. Like Group 1, they create jobs. They just create different jobs.

While Group 1 makes up 1 percent of the population in this hypothetical community, they have half the wealth and, thus, create half the jobs. In other words, half of the productive power of this society caters to the interests of 1% of the population of this hypothetical community, and the other half caters to the other 99%.

Representative Boehner is giving us meaningless political rhetoric rather than meaningful political solutions. He is falsely asserting that Group 2 members are special, magical people who have supernatural qualities with the power to “create jobs” that the rest of us lack. This, he says, is why Group 2 deserves special protections - why we mere mortals must shoulder 100% of the burden of fiscal discipline and the special 1% must be spared even the slightest burden. If Boehner's gods are happy, then and only then will they bestow upon us their divine gift of employment.

This part of Boehner's political rhetoric is simply false. It plays well to the worshippers of the Ayn Rand "Objectivists" religion, but it is as much myth and superstition as another religion.

It is true that the average Group 1 person cannot, by herself, create as many jobs as the average Group 2 person by himself. However, Group 1 people are out there creating jobs. Putting the whole of the burden of balancing the budget on Group 1 because Group 2 are "the job creators" is simply a myth that aims - well, it aims to try to convince Group 1 to take on the whole burden while Group 2 takes on none.


Anonymous said...

Has anyone else noticed how often job loss is tied in with "slow growth of profit" or words to that affect? That is. the business climate now seems to be one that, if you don't INCREASE your profit from one year to the next, it is time to panic and cut jobs. It's not that the company lost any money- indeed, often the previous year might have had record-breaking profits. And the new year made just as much of an unholy profit- but it didn't go higher.

Mike Gage said...

We could also say that, while the total incoming money is the same in both groups, the outgoing money will likely be higher in Group 1. Poor people spend all or most of their income. Wealthy people do not spend even close to nearly all of their income (except in cases of poor money management, like MC Hammer).

Dea said...

Also, we keep hearing that small and medium sized businesses add the most jobs to an economy - and those folks typically make less than 500,000 or 1 million dollars a year - the super rich aren't the ones creating jobs.

Eric Noren said...

One might argue that the high income earners are more productive with their assets. None of them keep their money in mattresses, so Mr Gage, you are wrong when you suggest Group 1 has more outgoing money. Anything not spent by Group 2 is invested somewhere. Money invested in stocks, bonds, or bank vaults is loaned out to others, who make productive use of it.

As long as we're dealing in hypotheticals, Group 1 spends all of its money on basic necessities. Group 2 doesn't spend all of its money on necessities, but it spends at least as much as Group 1 on a per capita basis. Group 2 buys other stuff that's out of reach of Group 1.

What's left over is invested in something. Maybe an asset (home, gold, art), or a business (their own, someone else's, stocks, bonds). That investment is not idle; it's earning interest or otherwise appreciating. That investment would not occur unless the people in Group 2 could earn a return on their investment.

Ultimately, Group 1 spends 100% of income and Group 2 spends or invests 100% of income. So from that perspective, the two groups have an equal economic effect. But Group 2 also grows what isn't spent at some rate of return, say 5% annually (a pretty small ROI). People in Group 1 are spending all of their money and have no opportunity to grow anything on their income.

In the end, given the same income, Group 2 generates 105% more economic activity than Group 1, using the hypothetical above. Regardless of the actual numbers, it's not all that hypothetical.

Kristopher said...

the whole trickle down vs trickle up thing is a false dichotomy.

if wealth trickled down then one would find all the wealth accumulating at the bottom

if wealth trickled up one would find all the wealth accumulated at the top

both systems would inevitabley grind to a halt without govenment siphoning it from where it is acculmulating and giving it to where it originates

in a real economy you need wealth to be cyclical. you need it to be constantly flowing back and forth. up and down. then it becomes governement's duty to keep the flow from stagnating, from accumulating to heavily at the top or the bottom.

to only focus on trickle down economics to solve all flow issues is foolish. its like saying you vow to only use a hammer to fix anything broken. and you dont care whether it is furniture or computer software. this doesnt mean a hammer isn't useful, it just means that a hammer isn't always useful.

that is the problem with the all or nothing idealogical politician like boehner. they want to use a hammer for everything, becuase they have an irrational love of hammers. Becuase a hammer worked very well once on a previous problem. Becuase their fathers loved hammers. because the last enemy they fought against was really into screwdrivers, the reason doesn't matter. the republican party has recently become too rigid in its ideals to properly deal with dynamic situations.

from what i can tell by reading the news; america is, at the moment, having a problem with accumulation at the top, which is making the cyclical flow stagnate. and john boehner's hammer is not the answer.

Mike Gage said...

Interesting point, Heathen. I wonder, and this is complete speculation, if we might say that the money spent by Group 2 benefits fewer and richer people than the money spent by Group 1. Now, I recognize this is a completely separate question from whether or not this should concern us. Maybe it shouldn't matter, but I do find my hypothesis plausible.

mojo.rhythm said...

A "job" is an institutional relation between two people: an "employer" and an "employee". The concept of a job by definition involves at least two parties. One person cannot create a job for another. One person must offer the wages for a task, and another person must offer to perform the task. Only when those two offers have been fulfilled is a "job" created.

And as you said Alonzo, there won't be many persons willing to assume the role of employer in America if there is no aggregate demand for products and services.

I remember reading a survey of a range of small businesses recently, asking them for general thoughts and ideas on the state of the economy, how their firms were performing, reasons for sluggish earnings and so on. The number one reason that they gave for why their businesses were failing was not regulatory burden, taxes, government spending or public debt, as Republicans and Libertarians would like us to believe. The consistent reason given was lack of sales.


Don't bother trying to convince the far-right intelligentsia of this fact. Facts are stubborn things, but they can be conveniently ignored if you are driven, hook, line and sinker, by dogmatic ideology, and allow your ideological framework to act as a crude filter for all the information that you are exposed to.

Anonymous said...

I really like the comparisions that you're drawing and have never thought about things in this way. It reminds me of one of my economics courses where we discussed the marginal propensity to consume...