The Real Job Creators: Consumers

[RommelDAK]

Apologies for posting something I wrote, but I thought I'd like to preach to the choir for a bit!

http://www.forbes.com/sites/johntharvey/2012/06/17/job-creators/

[Bozita]

1. Terrific post! ... Recommended ... Please xpost in GD

"Job creators" is the biggest bullshit term in the GOPer vocabulary book.

[RommelDAK]

2. Thanks...

...and will do!

[hollysmom]

4. I believe in the trickle up theory. n/m

N/M

[Hugin]

5. Feel free to post the first couple of paragraphs.

That usually generates more interest than only a link.

[RommelDAK]

7. Actually, this is one of the shortest posts I've ever made...

...so I can post the whole thing!

Today on Face the Nation (hosted by fellow Horned Frog, Bob Schieffer), I heard Mitt Romney add his voice to the chorus of those saying that economic recovery would follow if only we relieved the terrible burden that the government has placed on the nation’s job creators: business. Were taxes and regulations were relaxed, this would reduce costs sufficiently to allow firms to do what they are already dying to do, which is expand operations.

But even if we grant the argument that business taxes and regulations are high (which is by no means clear–in fact, it’s easier to make a case for the opposite), this ignores two crucial facts. First, as my friend Mike Norman has pointed out, employees are a cost, usually the most significant one faced by firms (Mike Norman Economics). For that reason, every rational entrepreneur’s goal is to reduce, not increase, the number of workers they have to pay. And quite right. Entrepreneurs have families, too, and they need to feed and clothe them. It would be irresponsible to do otherwise.

Second and more fundamentally, no matter how much you lower costs, if you don’t have more customers, you won’t hire more workers. If the demand for goods and services stays where it is today and we only cut industry taxes and regulations, there is absolutely no reason to think that firms would expand employment. Rather, they would continue to produce at the same level and simply earn higher profits. On the other hand, if we leave taxes and regulations untouched but increase demand, entrepreneurs will happily add workers. And that is the root of the problem today. The bottom line, lost on Mr. Romney and many others, is that the real job creators are consumers. The direct route to reducing unemployment is boosting demand, not reducing costs.

Ask yourself this question: what do you really think caused firms to lay off so many workers that unemployment jumped from 4.4% in May 2007 to 10% in October 2009 (remaining at 8.2% today), a sudden spike in business regulations and taxes, or a collapse in demand? It is impossible to imagine that anyone truly believes the former to be the case. In reality, the reason we are stuck where we are is because the middle class lacks jobs and incomes–something that will get markedly worse if we continue to try to cut government spending and balance the budget (many of my other blog posts cover this issue so I’ll say no more here).

In conclusion, let me add my voice to the chorus of those who actually understand what’s happening in our economy: WE DEMAND AGGREGATE DEMAND!

[exboyfil]

6. The $10/hr. minimum wage proposal should

get more discussion. I got another one. Eliminate the cap on Social Security but stay at current total contribution rates by reducing rates for everyone. That would put more dollars in the hands of those who will spend it more on U.S. produced goods and services.

Also someone should be looking closely at trade policy and determining which are the most labor intensive jobs that can be brought to the U.S. by careful application of tariffs and other techniques.

[Warpy]

8. It's nice to see this slowly crawling out of the Economy forum on DU

and making it into the mainstream. Kudos to getting Forbes to publish it.

Choking off the supply side had the stock market in the doldrums for many years. Unfortunately, the Kennedy cut of the top marginal rate wasn't enough for them, they demanded union busting and wage stagnation, effectively choking off the demand side in order to over fatten the supply side.

They always do. It's the basic flaw with Hamiltonian/Republican dogma, that economies always run from the top down. The truth is and has always been that economies run from the bottom up.

They accepted confiscatory taxation in order to resurrect the golden goose back in the 1930s. I'm wondering whether or not their descendants will be as wise this time.

[chrismiller8888]

33. wow

Forbes actually published this!

[mother earth]

9. Kudos to you on the article & posting it here at DU. A voice of reason is always welcome!

[Wild_Dog]

10. Consumers have great unused power

Consumers could take over the world if they stuck together!

[Sam1]

11. Where does the money come from for all of this consumption?

The average consumer is revenue constrained, in other words she has to have an income before she can go out and buy. So the money can't come from the consumer. The average company is also revenue constrained, in other words it has to sell something to the consumer before it has money to pay the expenses of productions. So the money can't come from the production of the goods and services that are available for consumers to buy. So where does the money come from? It doesn't just magical appear; it has to come from someplace doesn't it?

Can you borrow it from the bank? Yes, but you have to have a stream of revenue to pay back the bank and besides where does that bank get the money? (Recent events might suggest that they pull it out of their ass, but that is another story and not fit for polite company!)

There is however an entity that is not revenue constrained, that can spend even if it doesn't have any revenue! American money weither it be in the form of currency or bank deposits is spent into existence by the federal government when it purchases goods and services or when it credits my bank account with my social security payment. In a fiat money system with a nonconvertible currency such as we have the ultimate source of money is that government which exercises monetary sovereignty with in the domestic economy. In other words, the federal government will always have enough dollars to purchase goods and services offered for sale in dollars.

[Wild_Dog]

12. In other other words!

"In other words, the federal government will always have enough dollars to purchase goods and services offered for sale in dollars."

We do not have a deficit problem, we have a lack of tax problem.
In other words tax and spend.

[Sam1]

13. Wild Dog you didn't pay attention to the post.

What I argued was that the federal government does not need to obtain dollars through taxation to purchase goods and services offered for sale in dollars. What I said was that the money, i.e. the dollars to pay for the purchases, are created by the act of paying for them. I definitely didn't say that the the government had to obtain the dollars from tax payers to fund its spending. It doesn't! Because the Federal Government is a monetary sovereign it is self funding.

However, I do agree with you that we have deficit problem. The deficit isn't big enough, and the evidence of that is the unemployment rate of 8%; about 16% if you count those who have given up looking but would go back to work if offered a job.

[Wild_Dog]

14. Sam. I did understand but I offer the method should be fair share taxation.

I further argue that we must take over the Democratic Party in a similar way as the Tea Party did the GOP.

I offer what I call; Coalition of Natural Allies to change the makeup of Congress
outline here;
http://beauproductions.com/usworld/forum/index.php/topic,787.0.html

[Sam1]

15. If you understood then

why did you criticize it as tax and spend when in fact it is nether tax and spend or borrow and spend.

[Wild_Dog]

16. Is it enough that I agree and am on your side or do you require something else?

[DrewFlorida]

17. The ultimate source of money is Labor.

Money only has value as a unit of labor, without labor money means and is nothing.
Labor is the backbone upon which all markets are built and exist. Banks don't magically create money, money must be made, cotton must be grown and harvested and fabricated into sheets for printing etc etc. All money is , is a means to put a value to each other's labor in relation to another's labor.

To quote Abraham Lincoln.
"Labor is prior to and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration."

[Sam1]

18. currency is always money, but money isn't always currency.

Quote from post 17 "The ultimate source of money is labor." Posted by DrewFlorida.
"Banks don't magically create money, money must be made, cotton must be grown and harvested and fabricated into sheets for printing etc etc."

As far as currency is concerned you are right. However, not all money is currency. For example I go down to my bank and borrow a thousand dollars. I sign a loan agreement and the bank rather then give me a thousand dollars in currency credits my checking account with a thousand dollars. Nothing printed on cotton has changed hands yet I have a thousand dollars to spend. The Bank's balance sheet shows an increase loans receivable and an increase in deposits payable of a thousand dollars. There is no change in the banks cash account. My balance sheet will show an increased in cash of a thousand dollars and an increase in loans payable of a thousand dollars. My cash account increased by one thousand dollars but the bank's cash account did not decrease by a thousand dollars, i.e. the bank created a thousand dollars.

You have confused real assets with financial assets. The ultimate source of real assets such as houses, cars, breakfast at IHOP is labor. However, the labor would be worthless without some capital assets. i.e. IHOP needs a range to fry the eggs and a cooler to keep them in until I walk in and place an order. And when I walk out I may pay with a credit card and no printed pieces of paper have traded hands. When I get the bill from visa I write them a check; the amount in my checking account at the bank goes down and I haven't seen any currency in the whole line of transactions. When the bank clears my check it's reserve account at the Fed decreases and no currency has traded hands.

[DrewFlorida]

19. You have confused financial assets with speculation.

Those financial credits which have been credited to your account without you having done anything for them is nothing more than speculation on the part of the bank, that you will do the labor needed to earn the capital to repay them. If people don't do the labor to repay their liabilities then banks stop lending (speculating). As I said if the labor is not done, the credits or currency has no value. In order to have something to sell or something to buy, labor must be done, labor to collect resources or raw materials, labor to process those resources, labor to bring those resources to market, and labor to earn currency in order to purchase products.
If you were to do a balance sheet or asset/liability account for yourself, both before and after the transaction you mention where the bank credits your account and you suddenly have more currency than you had before, you would also have a corresponding liability to go with your increased currency. This recognizes that your liability is your promise of future labor.

[Sam1]

20. the confusion is yours.

The money with which the bank speculated was created as part of the speculation. It should have been very clear that none of the transactions that were part of the example involved currency. I claimed an increase in money not currency hence the title of the post "currency is always money, but money isn't always currency."

Also as part of the post I did do a balance sheet for both the bank and myself and show the increased liability to the bank. However, I disagree that that liability is a promise of future labor. I could for example borrow the money from another bank, win it in a poker game, ask my family to give it to me and so forth and so forth. What the bank wants to discharge the debt is money in the form of currency or deposit. What they don't want, and will refuse, is me walking in and offering to work off the debt.

[DrewFlorida]

21. I can explain it to you, but I can not understand it for you.

Economics 101, it's very simple, take a course.

[Sam1]

22. Rather then abuse the poster it

should be very easy to give me some links to explore.

[DrewFlorida]

23. My post to you was not abusive!

Please explain what part of my post to you was even remotely abusive?
You quite obviously don't understand basic economics, don't blame me for your ignorance.

[Sam1]

24. explanation of abuse and links supporting my position.

The accusation of ignorance is abusive if that accusation is based on nothing more then disagreement with your analysis.

I think that you have confused the LTV (Labor Theory of Value) with the creation of money by a country that is sovereign over it's fiat currency. In other words you have confused currency originators with currency users.

Here is some substantiation for my position. http://neweconomicperspectives.org/p/modern-monetary-theory-primer.html

Now let me see some substantiation for your position.

[DrewFlorida]

25. You abuse the term abuse!

I have in no way abused you, I simply stated my opinion of your ignorance regarding economics 101.
I will admit my approach was abrasive for that I apologize, I contend that your approach was equally abrasive, I don't feel the need to try and prove that, that is for you to acknowledge or not.

With that said, I read a great deal of the page you posted, I see nothing which proves your position, quite frankly I think you sent me on a fishing expedition, please link to the actual portion of the document you wish for me to read, which supports your position.

The idea that currency is supported by labor, or a promise of labor, is a basic principle of economic theory. It doesn't necessarily mean that a bank must accept you cutting their lawn as payment on your mortgage, it represents that the basic ingredient of value must first be created through physical labor, even at the most basic level, a gold coin must first be mined and manufactured into a gold coin in order to have usefulness. Just as other raw materials must be grown or collected and then manufactured into usable products in order for there to be something to buy or sell. If you don't have any products, then you #1 don't have a need for currency, #2 currency must be produced (even if you define a currency as an IOU, you must create that IOU from a product ie. pen and paper, computer generated entry entered by someone's labor).

Even if as you say you could borrow the money from your parents, at some point labor has to be done to create the payment of the IOU.

The most basic ingredient in any economy is labor and therefore, currencies, economies, commodities all can not exist without it.


There, hopefully you accept my sincere apology and you offer your own and we can continue a conversation in a more polite tone of disagreement.

Regards,
Andrew

[Sam1]

26. Yes I am willing to continue

I admit to becoming hostile and abrasive and for that I offer my apology. I too want to continue.

Sincerely
Tom

[Sam1]

27. Going back to the beginning.

I take it that your basic premise is that all economic values are labor based. In other words, you claim that nothing has value until it has been changed, or in some way augmented or brought into existence, by human labor. Is this a correct understanding of the premise that your argument is based on?

[DrewFlorida]

28. That is fairly close!

That is fairly close to my premise.
Also, even products that have been produced require physical labor to be put into use. In other words; any given product or raw material or idea only has kinetic value (potential for value), in order to have actual value it must be used or sold or moved or in some way affected by human labor. Hence labor is first and foremost in any economy, all other economic theory rests on this most basic principle.

[Sam1]

29. a couple of nit picky points to keep things going while I finish my research.

1. Assuming that you took the term kinetic from physics, as in kenetic energy, kinetic is the energy of motion. The term for the energy in, say a ball at the top of a ramp is potential energy. When that ball is released and rolls down the ramp the potential energy is converted into kenetic energy. I think this is a bad metaphor.

2. The amount of both labor and materials in both a $1.00 bill and a $100.00 bill are most likely the same yet the exchange value in goods and services of one is 100 times the other.

3. So far I have looked at several economics books, one published by Barron's, the other a part of the "Dummies" series and in both the example of money creation is similar to the one I presented.

Later this week I am going over to the IU library and look at economic texts. What I think I am going to find is that Labor Theories of Value were pretty much discredited everywhere but in Marxist economic theory.

[DrewFlorida]

30. Good point in reference to Kinetic energy.

#1 You make a good point regarding kinetic energy, I meant potential energy but used the wrong term, TY for the correction.

#2 Regardless of the unit value assigned to one bill or another, the fact remains that the currency would / could not exist without labor taking place first. As well, products for which that currency could be used would / could not exist without labor taking place first. It is for this reason that all economies first must have labor and therefore labor is what drives the need for currency not the reverse.

#3 I understand the point you were trying to make, I was trying to add perspective to your original point.

You do know that a;
* Capitalist economy requires all functions of the economy to be controlled by a free market, there has never been an example of a purely Capitalist economy in modern times.
* Communist economies require that all functions of the economy are controlled by a centralized government, there has never been an example of a purely communist economy in modern times.
* Socialist economy requires some functions of the economy are controlled by a free market and some functions are controlled by a centralized government, in effect it is a hybrid, there can be any number of various combinations of which different functions are free market and which functions are centrally controlled. An example of a country which leans toward more central government control is China or North Korea, an example of a country which leans toward more free market functions is Somalia.

In any of these systems, both currency, and products for sale, must be produced with the use of labor before an economy exists, therefore labor comes before currency.

[Sam1]

31. I think I get it.

Labor, i.e. physical human effort, is a necessary requirement of all human activity including economic activity. More narrowly, and I am taking this from your point two, human effort is necessary to explain the existence of both the dollar bill and the hundred dollar bill but neither necessary nor sufficient to explain their relative values. Nor does it explain why the existence of currency is desirable.

Therefore, labor is not sufficient as a bases for economic theory.

[DrewFlorida]

32. I'm done.

[Sam1]

34. If this analysis of Veblen fits what you are talking about then we have some points of agreement.

This definitely isn't 101 stuff.

http://www.google.com/reader/view/#stream/feed%2Fhttp%3A%2F%2Fmichael-hudson.com%2Ffeed%2F