Can Anyone “Create Jobs”?

Adam Davidson, in his NYT article 6 November 2011, doesn’t think so. But that doesn’t stop every politician with aspirations for high office from putting forth his own plan for job creation, complete with wildly creative data about its vast benefits, often based on unrealistic beliefs in unregulated markets, butchered public spending, and tax reductions for the rich, all of which will make everything worse.

The essential problem with creating jobs is that it’s a bit like pushing a string. Job creation comes from the “pull” end of the string. If a store owner becomes too busy to handle all of the work in her store, she will pull the string and hire additional help. If she can do all the work herself, she will not, and no amount of string-pushing by someone else will change that. No employer will hire additional employees if the present employees can do all the work. This is as true of corporations with tens of thousands of workers as it is of one person in a small shop.

If a business has several workers, say ten or more, and business is reasonably brisk, it might make sense to hire an additional worker if that worker were subsidized by the government. The most likely way that could be accomplished would be through a significant tax break that essentially provides the new worker at half his usual cost. If business were not reasonably brisk, a new employee even at half price is not a good investment, because the new employee is not likely to generate additional income.

For a tax incentive for new hires to become a strong enough stimulus, several million such new jobs would have to be created, enough that a significant amount of additional money were earned for people to spend. When enough new workers are hired, tax revenue is increased and the new workers create new cash flow by spending their pay. The number of new hires must be large enough that businesses in general will experience an increase of income. Small stimulus plans, such as the Obama administration’s 2009 plan, help, but do not provide nearly enough additional cash flow to put the national economy on firm ground. This is why all the economists who recommended a stimulus said that it must be a huge stimulus, and why the little one we got was minimally effective. Note, however, that it did have a positive and measurable effect. Note also that slashing government spending and reducing taxes for business and millionaires increases unemployment.

There are some 14 million unemployed today. If about five million of them were hired under a tax subsidy, that would be a significant improvement in the tax-paying workforce. And the government’s double whammy coming from them would be transformed to a double benefit, with decreased unemployment costs and increased tax revenue. Although the net tax picture would probably still be negative because of the size of the stimulus required, the overall economic picture would gradually improve as demand increased and more people found work.

One possible source of new employment is government-sponsored projects similar to those of the 1930s, which has been proposed, and ignored, several times in the current crisis. The country’s infrastructure is in terrible shape, and would benefit from repair and retrofit projects to bridges, highways, and so on. A minimum of thought could uncover other ways the country could be improved with such projects.

Contrary to what conservatives think, the source of the country’s economic wealth is not rich capitalists, although they have their role to play in the capitalist scheme of things. The country’s economic health derives from the demand generated by the spending power of the working public. Only demand creates the pull on the string.

The present tax structure and politically motivated deregulation since the time of Reagan have very effectively throttled the source of the country’s economic demand, the spending power of the American public. The greed-generated Wall Street crash of 2008 then put millions out of work worldwide. This set up decreased demand, which caused decreased employment, etc., a vicious cycle, which is where we find ourselves now.

I am not sure that Adam Davidson is right that jobs cannot be created, but at the least it does seem true that job creation is very difficult. Creating jobs is important, however it happens, but employment in poorly paying jobs, like the ones Texas’ Rick Perry brags about, is more like emergency help. Assuring a Living Wage in all jobs, new or not, is what will allow all people to live full, rich lives, and bring the American economy back to health.

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