One of the conservative economic concepts that drives me nuts is the apologetic argument that rich people create jobs. In the words of Robert Reich: That’s baloney.
Usually that notion is an excuse for lower taxes on the wealthy and corporations. And from there we hear about trickle-down economics and the push for a smaller government.
What creates jobs is the demand for goods and services. How is that demand created? It is easy. The middle and lower classes need to have money to spend. If they can’t afford to buy things, there are no sales. No sales means no profits and no profits means no raises or layoffs. Layoffs mean people don’t have money to spend and around and around we go.
Billionaire Nick Hanauer wrote an amazing story on the subject, “This is why the middle class can’t get ahead,” saying the same thing this way:
“In plain English, the real economy is you: Raise wages, and one increases demand. Increase demand and one increases jobs, wages and innovation. The real economy is simply the interplay between consumers and businesses. On the other hand… not even an infinite supply of capital can persuade a CEO to hire more workers absent demand for the products and services they produce.”
Rich people didn’t become rich by simply employing people they don’t need or that won’t work toward improving their bottom line. Companies either.
In fact, the opposite is taking place. Companies look to reduce labor costs as a way to improve profits, which improve stock prices, dividends to their wealthy shareholders, and excessive executive pay. They do this through technology, overworking employees, temporary employment, and outsourcing. It’s rich people that drive this profit-focused environment.
Hanauer continues in regard to company resistance to paying overtime and increasing the minimum wage: “The arguments that the corporate lobbyists are making — about how badly business will be hurt — just don’t add up. What is adding up instead are the trillions of dollars in corporate profits and stock gains that corporations have made over the same decades that your hours climbed and your wages fell.”
Economic professor River Smith, in an article entitled, “We must find ways to provide consumers with money to spend,” agrees: “As we face the 21st century, we are no longer the country that offers the best opportunity to move up from one economic class to another — in fact we’re rated seventh best in a recent study — we must acknowledge that, for most citizens in this country, the American Dream is more likely a nightmare, or a very bad dream. In spite of corporate profits, very few companies are raising employee wages by any substantial amount. The disgraceful minimum wage continues to pull wages for all workers down.”
Middle class wages have remained stagnant, even falling behind.
Hanauer explains: “If you’re in the American middle class — or what’s left of it — here’s how you probably feel. You feel like you’re struggling harder than your parents did, working longer hours than ever before, and yet falling further and further behind. The reason you feel this way is because most of you are — falling further behind, that is. Adjusted for inflation, average salaries have actually dropped since the early 1970s, while hours for full-time workers have steadily climbed.”
It’s obvious that if money doesn’t get into the hands of the working class, you can forget about a complete economic recovery. Since corporate America won’t give up their profits, the only choice is to tax them and their shareholders and redistribute the wealth through government investment programs (like improving infrastructure).
In other words, if successful companies won’t hire people or give meaningful raises for fear of disappointing shareholders, then they and the wealthy need to be taxed at previous levels such as the 1950s, when the top tax rate was around 90 percent. It’s the government that can create jobs and economic stimulation by putting money in the hands of the working class.
It’s not socialism, it’s a capitalistic correction. When the great wealth of our nation ends up in the hands of a few, our economic system is broken. Wealth is exponentially created, which also comes with the influence to protect that wealth, at the expense of a large percentage of the population that can barely make ends meet.
If people want a smaller government, then they need to protest corporations and politicians that support them (and vice versa of course). It is greed that creates the need for larger government.
Otherwise, the inequalities of wealth distribution will continue to grow at alarming rates. That’s not an opinion or a theory. It is an economic crisis. Trickle down is a complete failure. Rich people don’t create jobs.