Sunday, December 1, 2013

Job Creators? Not Quite

Henry Blodget:
"Rich people create the jobs."
Specifically, by starting and directing America's companies, entrepreneurs and rich investors create the jobs that sustain everyone else.
This statement is usually invoked to justify cutting taxes on entrepreneurs and investors.  If only we reduce those taxes and regulations, the story goes, entrepreneurs and investors can be incented to build more companies and create more jobs.
This argument ignores the fact that taxes on entrepreneurs and investors are already historically low, even after this year's modest increases. And it ignores the assertions of many investors and entrepreneurs (like me) that they would work just as hard to build companies even if taxes were higher.
But, more importantly, this argument perpetuates a myth that some well-off Americans use to justify today's record inequality — the idea that rich people create the jobs.Entrepreneurs and investors like me actually don't create the jobs -- not sustainable ones, anyway.
Yes, we can create jobs temporarily, by starting companies and funding losses for a while. And, yes, we are a necessary part of the economy's job-creation engine. But to suggest that we alone are responsible for the jobs that sustain the other 300 million Americans is the height of self-importance and delusion.
So, if rich people do not create the jobs, what does?
A healthy economic ecosystem — one in which most participants (especially the middle class) have plenty of money to spend.
Over the last couple of years, a rich investor and entrepreneur named Nick Hanauer has annoyed all manner of other rich investors and entrepreneurs by explaining this in detail...
What creates a company's jobs, Hanauer explains, is a healthy economic ecosystem surrounding the company, which starts with the company's customers.
The company's customers buy the company's products. This, in turn, channels money to the company and allows the the company to hire employees to produce, sell, and service those products. If the company's customers and potential customers go broke, the demand for the company's products will collapse. And the company's jobs will disappear, regardless of what the entrepreneurs or investors do.
Lots of people don't believe this, which seems obvious to me.  Income inequality cuts a large percentage of people out of being able to fully support the economy, while a smaller percentage of the population has way more money than they could ever use to benefit the economy.  Why have we had so many bubbles?  Mainly because all the excess wealth is being employed in speculating for greater gains.  All those dollars are chasing a finite number of potential investments.  If you are really concerned about a balanced budget, you would support taxing more of that wealth, or creating regulations to ensure that more of the national income went to labor.  Most "budget hawks" are opposed to both.

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