Friday, July 15, 2011

The Job Creator's Tragedy

It's tough being a job creator these days. High taxes make it virtually impossible to hire more workers and an atmosphere of uncertainty is discouraging more investment in capital. Nobody would propose raising taxes on job creators under these conditions, right?

George Washington oversees the "car in the ditch" economy on Wall St / September 16th, 1920
That's the setting for the latest tragedy, that is. The job creator, ever heroic and noble, is accosted at all sides in his attempt to get the economy back on track. He confronts the Hydra of government and the armies of ignorance in his uncompromising quest to get the economy back on track. And this truly is a tragedy - our hero could perhaps be known as Supervacuo, and his tragic weakness - the fact that the job creator has absolutely no interest in creating jobs.

As it turns out, the setting is little more than a fabrication. Capitalists have enjoyed a 2 trillion dollar expansion of credit under Quantitative Easing 1 & 2. Government expenditures which directly create jobs are being axed under austerity measures. As I pointed out recently, US corporate taxes are not squeezing investors. Corporate tax incentives don't translate into employment growth.

You see, the current climate of tax and program cuts is not creating jobs. But this shouldn't come as a surprise - it has been this way for 10 years. The 2001 tax cuts worth 2.5 trillion dollars(which congress has spent plenty of time arguing about recently) failed to produce any growth in GDP, and in fact, GDP growth dropped significantly from 1996-00 to 2001-5 rates, and again over the following period. In fact, the capitalists admit that they do not intend to hire more workers if they win tax cuts.
Note that the periods are not in chronological order. Source

A Dying Breed?

Nonetheless, job creators are losing out. Under strict austerity measures, the recession has not been met with standard fiscal policy - in the past, the government was believed to be responsible to take up slack when the private sector stopped hiring and growth slowed down. Governments should create jobs directly by introducing new services or otherwise provide direct revenue to consumers. This policy is important because it serves to offset losses to consumer demand.

Consumer demand is important for the simple reason that it alone determines the limit of economic output. Say was wrong: "if you make it, they will come" only if they want it. And if only x number of consumers have the money and need for your product, you can't expect to produce more and sell them at a profit. Further production of units provide less, not more profit when consumer funds are static.

There's another incentive problem here, as well. In the context of corporate tax cuts, tax cuts to the rich, bank bailouts and quantitative easing, it doesn't make sense to expand production, capital purchases or hiring at all. Government bailouts, subsidies and tax cuts require corporate lobbying; at a certain rate, lobbying becomes more lucrative than investment in capital and labor. Expanding tax cuts encourages this 'investment in government.'

Further, corporate executives admit that tax cuts wont spur job growth. In a study published in the (Canadian) Globe and Mail in March, only 6% of respondents expected to hire more people as a result of corporate tax cuts - compared 26% who would "re-invest in business" and 30% who would make no changes at all. On the other hand, Thom Hartmann has described income tax rates on the rich in how they relate to demand for a certain lifestyle: the argument is that expanding the income tax rate will encourage raises since workers demand a certain lifestyle in exchange for their labor - regardless of the relative rate of compensation.

And if only 6% of reduced corporate taxes go to new hirings, doesn't it make more sense to spend those same funds to directly create more jobs in a Works Progress Administration style program?

Don't Bite the Hand that Feeds

The whole argument against tax hikes and government spending reads like the old adage: don't bite the hand that feeds. This betrays an underlying dynamic to the "job creator" phenomenon: "job creators" enjoy their status as such only because they restrict, rather than expand our ability to create jobs. In the past, lords, kings and slavers all enjoyed the same status. They were job creators insofar as it profited them to create jobs, and the same is true of capitalists today.

Like the serfs before them, the proletarian class is being crowded out of their dividend. Perhaps counter-intuitively, capitalism - like feudalism before it - has gotten only too efficient to sustain itself. It's just too good at making sure capitalists are the sole beneficiaries of the exchange process - it was only in a desperate attempt to maintain the system that consumer credit has been expanded since the 1970s. Even that is viewed as "too socialist" so the capitalist class is cutting off consumer spending power; in effect, destroying its own foundation.
"VINDICI: Study? Why, to think how a great, rich man lies a-dying, and a poor cobbler tolls the bell for him; how he cannot depart the world, and see the great chest stand before him; when he lies speechless, how he will point you readily to all the boxes; and when he is past all memory, as the gossips guess, then thinks he of forfeitures and obligations; nay, when to all men's hearings he whirls and rattles in the throat, he's busy threat'ning his poor tenants; and this would last me now some seven years thinking or thereabouts. But I have a conceit a-coming in picture upon this: I draw it myself, which, i'faith la, I'll present to your honour; you shall not choose but like it, for your lordship shall give me nothing for it." The Revenger's Tragedy: Thomas Middleton (Online)
More on this topic:
The Job Creator Myth La Revue Gauche 
Were the Bush Tax Cuts Good for Growth? David Leonhardt / Economix
Building on a Recovery Richard Blackwell

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