Saturday, October 8, 2011

Creating Jobs

The United States needs to create more jobs, and it needs to cut the deficit. These two objectives would seem to be in harmony, not in opposition, since people with jobs pay taxes, and people without jobs not only do not pay taxes, they cost the government money. So there must be a way to cut the deficit by creating jobs, jobs that pay enough that they workers can eat and also pay taxes.

To go about cutting the deficit by cutting government spending and laying people off is like trying to fill a bucket with a hole in the bottom. The more the government cuts spending, the more the people who did the things that the money was spent on will lose their jobs. (Even the federal government can't spend money without buying things, and when we buy things, we generate the need for someone to make those things and sell those things to us. And most of what the government spends money on is services, provided by people who get paid for providing those services.)

So it seems obvious to me that the government needs to keep spending money and employing people both directly and indirectly. Cutting spending can not make us prosperous. Unlike a family, when the government cuts spending, it doesn't maintain the same level of income. It cuts income at the same time, so now it's just operating at a lower level all around. (I understand that to some people, that is the actual goal. These are people who are motivated by a political philosophy that is opposed to government as an article of faith.)

So let's compare two methods of trying to create a more balanced budget while increasing jobs. One approach is to cut government spending, cut taxes, especially on high-income entities such as wealthy people and corporations, and look for this to work its way through the economy until it reaches the point that private businesses start hiring more workers.

Another way is to raise taxes on high-income entities, thus increasing the government's revenues, and then spending that money to do useful things, or even useless things, but things that require manpower (and womanpower).

Basically, the Republican approach vs. the Democratic approach, or the free-market approach vs. the Keynes approach.

We have basically run an experiment over the past 12 years as to what happens when tax rates are low and corporations have excess money and wealthy individuals and entrepreneurs have a large share of the nation's wealth in their portfolios. The results are in: they do not use that money to create jobs.

Not too surprising since "creating jobs" is not what anyone wants to do. A business person is not in the business of creating jobs. Not at all. Quite the contrary. A business person's goal is to create profits. Income. Wealth. Money. Not jobs. Jobs are an expense. Workers cost money. A business owner no more wants to create jobs than she wants to create taxes or inventory. Jobs, employees, are a cost of doing business. The more an employer can produce with fewer workers, the more money she makes. (Sure, she might want to create a job for herself, or her nephew, but in general, she does not want more employees, she wants fewer.)

If a company could make all its products or services with robots, and if the robots could design and create more robots, that would be the ideal. Products and services would flow out of the company, bringing in income, and no tiresome workers with their needs for health care and incentives would be needed. Nirvana. Perfection.

So is there anyone, other than unemployed people who want to see jobs created? Well the president and his party have a motive to increase jobs. People who get a job on his watch might vote for him. People who lose theirs will almost certainly not. (Note to Mr. Obama: even if they are African-American, their sense of pride in you will only go so far. A black person who lost his job in the past 3 years is a person whose vote is on the line.)

So what does this tell us? Businesses will create jobs only as a last resort, when they can't produce enough goods and services to meet demand any other way. Given a choice between money in the bank or another employee to manage, they will take the money in the bank every time. As they are doing this very moment.

However, if you tax that money away from them and put it back into circulation, you can use the money directly to create jobs.

Is this socialism?

No, this is reality.

If taxes went up on those people who have money they aren't using in any productive way, that money could be given to the state and local governments who are currently laying off teachers and police officers . Those teachers and police officers would spend that money, creating jobs for food servers and hair cutters. The food servers and hair cutters and police officers and teachers would not go on unemployment. Instead they would pay taxes. Oh look, more revenue to the federal government from both directions-- at the top and at the bottom. And thus the deficit could also be cut.

Is it fair to tax money away from people who have earned it, in order to create jobs for people who are not smart enough to find a job on their own? Well, only if the goal is a lower federal deficit, lower unemployment, more widespread prosperity, and ultimately, a better overall climate for people to create wealth.

Look at the way sports are managed in this country. A team that is rich and successful could buy up all the best players and dominate the game. Other teams wouldn't have a chance, and ultimately, the sport would not be interesting enough to watch, thus destroying not only the poor teams, but the rich successful one as well.

So mechanisms are put in place that function much like taxes on the rich. The team with the worst record (or almost the worst, to avoid incentives to lose) is allowed to pick first, in order to keep the sport balanced enough that it works for all the teams. Yes, there will always be winners and losers, but if the winners over-dominate, it hurts the entire game.

The same is true in the economy. Unless wealth is redistributed, it will tend to accumulate at the top so much that it will eventually destroy the whole system.

Smart rich people, like Warren Buffet and Bill Gates understand this. Thus they actually support higher taxes, and they re-distribute their wealth on their own.

It's too bad President Obama doesn't see what they see, shake off his fear of being called a socialist, and do what he can to save capitalism, as FDR did.