Why Job Creators Fail at Creating Jobs

I am increasingly frustrated by the amount of misinformation that pervades the airwaves and how easily people take it at face value.  There are a lot of really good articles out there, but I am guessing either the right people aren't reading them, or they are dismissing their content out of hand because they don't want to believe the ideas they have been circulating might actually be wrong.

Well, we're all wrong sometimes, and when that happens it is better to figure it out sooner rather than later, at least from the perspective of how much damage is caused. 

Here is an interesting fact from recent history (from an excellent article), worth beginning this discussion with:

Belgium, currently in a government shutdown, has done absolutely nothing any of the other western countries have done: No spending cuts, no austerity measures.  Their government spending has gone neither up nor down, and yet in the past quarter their economy grew by more than double that of the UK, US, Germany & France.  Germany and France in particular may not have cashflow problems but their economies are growing at a slower rate than the US, which should throw up red flags to anyone pointing to them as a model we should be following.

INCOME GAP

The other half of the problem is the income gap.  In the US, we have the highest gap between the wealthy and the middle class since the great depression.  More than 16% of Americans now live below the poverty line, and while Fox News likes to point out that 99% of these people own refrigerators, 80% of them have microwaves, and 50% of them have air conditioners, I hardly think these are good barometers.  In the end, if people can't afford to buy a new car, a new computer, go out to dinner, go to the movies, new clothes, new shoes, new toys for their kids, these are things that slow down the economy.

TAXES

Even Reagan raised taxes a number of times during his presidency, but despite his tax cuts, the economy grew under Reagan due to his massive deficit spending.  I don't know how this has become such a blind spot.  Clinton managed to balance the budget by cutting some programs but he also raised taxes to keep some of the programs, and the economy did even better than it did under Reagan and Bush.  

Then W came along and went very Reagan-esque in his economic approach except he lowered taxes even more aggressively and increased spending even more dramaticaly–but that spending was primarily military in nature (as opposed to roads, bridges, etc).  This should have opened people's eyes to the ultimate destination such policies will take us too, especially now that we've had an extra four years of them since Obama has been unable or unwilling to reverse any of Bush's economic policies.  

We have had the lowest taxes in half a century, and most of the new government spending has gone directly into the pockets of large corporations that were already doing quite well.  It has not created new jobs, certainly not in the way road construction would have.  Criticize government inefficiency as you will, but government jobs are preferable to no jobs.  In an economy there are only three groups that spend money to get things moving:  People, Businesses, and the Government.  If people have no money and businesses have no customers, there is only one group left that can possibly break the stalemate.

BIG PICTURE

Think of this: If the "Job Creators" get their taxes lowered, the poor and middle class will have even less money.  This means businesses will have fewer customers, and therefore continue laying people off rather than creating new jobs.  In short: in this scenario money tends to stay where it is and the economy comes to a halt (but the wealthy get to hold onto the money they currently have).  On the other hand, raising taxes on "Job Creators" lowers the burden on the poor and middle class, who then have money to spend.  They choose where they want to spend that money, which drives the free market by rewarding better companies and starving inadequate ones of cash.

Regular people drive the free market–customers drive the market, not businesses.  Businesses are supposed to respond to demand, and those that do this well are rewarded, that is how the free market is supposed to work.  Instead it has been twisted and the current paradigm insists we allow business owners to keep as much of their cash as possible so they can drive the economy.  Businesses do not drive the economy, they never have.

HISTORY IS USUALLY RIGHT, IF IT HASN'T BEEN RE-WRITTEN

In the aftermath of the great depression Herbert Hoover cut government spending and catered to "job creators" in the hopes that they would create jobs.  They didn't, they just pocketed their extra cash and for the average person things got worse.  FDR came into office and his advisors gave him similar advice, which he followed and things continued to get worse.  He then decided to follow some of the lesser voices and go the complete opposite route:  New Deal + targeted spending.  

This is a critical point in our history and in economics in general, how is it lost on today's Americans?  Because WWII also helped the economy and the right-wing cleverly gave WWII all of the credit and claimed FDR's policies as ineffective.  Even today, conservatives claim Clinton didn't do anything for the economy, that it was just the .COM Bubble, and poor W was stuck cleaning up the mess.  One look at the DJIA 20 year graph disproves this, but people don't look.

CAPITALISM INVIOLATE

So we are stuck in a world where an ever-growing number of people believe that if you give rich people enough money, they will give some of it back.  The reality is, maybe they do, maybe they don't, maybe they spend it overseas.  Only one thing is for certain.  Give that money instead to a family that is living in or on the edge of poverty and we can be very well assured not only will every penny be spent, but it will be spent locally.  

This isn't "re-distribution of wealth" on a grand scale.  A more apt analogy would be giving someone a handicap in Golf, although even that is really too strong to properly describe what is really going on.  All that is really happening is making sure the people with the least money can still live in relative comfort, which allows them to contribute to the economy, which in turn benefits true capitalists who have decided to wage battle in the free market to supply better products/services than their competition.  NOT providing that handicap because our government wants to make sure businesses can hold onto their money is guaranteed to destroy the economy.  

In a time and place where the middle class was strong and the level of poverty was low, this might not be the case, but it is certainly the case now.