Who Really Creates Jobs?

[Mike]

Many political candidates like to say that business is the backbone of our economy (or some variation on that theme.) They particularly like to say it to voters who don’t have jobs or who work in factories, but they also like to say it to corporate leaders and executives who pay to play. They usually follow up with remarks like (a) government is the problem, not the solution; or (b) government should get out of the way and let business do what it does best; or (c) we need people in Congress (the government) who will create jobs. (The last statement seems rather incongruous with the first two.) Furthermore, when things go badly most people seem to want to place the blame squarely upon government.

So this begs the question to whom should we really look for jobs creation—and who should really shoulder the blame? What are some of the true major components of the problems we see today? I have opinions, but I would like to see how this thread might develop.

[Chuq]

To my way of thinking....demand creates jobs.....and without jobs there is no demand...a paradox......government can stimulate the economy for temp employment....but the creation of good solid jobs needs an industrial plan....a long range plan....so far that is not happening for awhile.....why? Corporations are making more money with this recession so why would they want it to end right now...eventually, it will but for the time being it is not happening....

[Mike]

demand creates jobs.....and without jobs there is no demand...government can stimulate the economy for temp employment....but the creation of good solid jobs needs an industrial plan....a long range plan

Please elaborate. Explain it bit more what you mean by demand. Certainly there is demand on the part of the currently unemployed, right? Or do you mean employers requiring new hires? I'm unsure about whether to agree that government CAN stimulate the economy--I think of the economy as essentially being the flow of money. How does the government get the money flowing? And what do you mean by an industrial plan? Do you mean on the part of businesses themselves?

[Chuq]

Sure thing.....I am talking about the demand for consumer goods......all that the government has done lately is create liquidity not demand......without a consumer demand there is NO flow of money......a plan that will help re-vitalize our industrial base......now how should this be done....above my pay grade...sorry....the government can help stim the economy by funding such things as infrastructure upgrades.....it is simplistic...I know....I agree that we should invest heavily in green technology.....unfortunately we would not be having this conversation if the cowards in Washington had acting on these types of things back in the 70's......

In these days of recession ...corporations are using it to lighten the payroll and expand their profitability...as long as this is allowed there will most likely be NO jobs anytime soon...

[Mike]

I am talking about the demand for consumer goods......all that the government has done lately is create liquidity not demand......without a consumer demand there is NO flow of money

OK, keep going. How does THE GOVERNMENT create demand for consumer goods? For example, I'm a small furniture retailer. How can I expect the government to CREATE increased demand for the goods I sell? I don't see that it can. Demand is influenced by advertising, perceptions of unmet needs vs. luxuries, etc. I see an essential component to be consumer CONFIDENCE, which to a large degree depends upon jobs. It's practically circular, isn't it? But it appears to boil down to the fear on the part of consumers that they might not be able to make the mortgage payments in the near future, so purchases they consider less critical must wait. By the way, when you mention the government creating liquidity, do you mean via so-called stimulus dollars?

[W.E.B. Du Bois]

So this begs the question to whom should we really look for jobs creation—and who should really shoulder the blame? What are some of the true major components of the problems we see today? I have opinions, but I would like to see how this thread might develop.

Job creation is like the yin and the yang, supply and demand. Without any demand, the supply is never created. People have to have sufficient income to actually buy what they produce. Without any supply, the demand is never met. There must exist sufficient opportunity to provide incentives for rich folks to invest in production capabilities to meet that demand.

Who should shoulder the blame you ask?

I would say that the theory of laissez-faire capitalism should shoulder much of the blame. The housing market exploded because lenders lent to people under terms that they could not repay. This is another way of saying that toxic assets were deliberately created by banks, and they did so because they had a new system of derivatives that allowed them to be unaccountable for these toxic assets.

Due to outsourcing, which is not all bad by the way, we have had a depletion in demand as well. Less income, less jobs, less demand for goods, less goods produced, less jobs.

I would also add: how do we get out? Obama botched the housing crisis; he just fucked it up. He should have forced the banks to modify loans, either that or possibly bailed out people and not banks, some way to keep people in their homes. Why did he fail at this? Maybe he was too busy passing health care, or maybe he thought that the bureaucracy he set up was equal to the task. It wasn't, and so he failed in this crucial area.

What we do now is still try to get the banks to modify loans. I don't think this can happen, since the GOP will say no. If the question came up about passing a law that says the US government affirms that clean air and water are good things, the GOP would vote no. If a law was proposed increasing funding to fight pedophiles and terrorists, the GOP would vote no. The GOP is anti-American, so long as the leader of America is a Democrat. I think that the tax cuts for the rich should be passed for a year or two, then let it go back to the Clinton times. All we can do now is wait for the economy to recover from the wounds inflicted upon it. At least we live in a country with a growing population, which should help to increase demand. People who were knocked down will eventually piece their lives back together, and ordinary Americans who got into debt will eventually dig themselves out, and over time, we'll recover if just by waiting, which is all we're left to do with a 60% requirement in the Senate to get permission to take a shit, and an impending Republican majority in the House.

[Mike]

Due to outsourcing, which is not all bad by the way, we have had a depletion in demand as well. Less income, less jobs, less demand for goods, less goods produced, less jobs.

I would like you to elaborate and clarify some of what you say here. Tell me what you see as some of the good along with some of the bad of outsourcing. Also, clarify what you mean in the second statement--are you referring back to outsourcing? Are you describing a spiral? if so, talk about where the spiral begins.

[W.E.B. Du Bois]

I would like you to elaborate and clarify some of what you say here. Tell me what you see as some of the good along with some of the bad of outsourcing. Also, clarify what you mean in the second statement--are you referring back to outsourcing? Are you describing a spiral? if so, talk about where the spiral begins.

I took a course on International Trade in college. One of the most important theories I learned about was the Total Factor Equalization Theorem. According to this theory, after trade is liberalized (free trade occurs), initially you have jobs being shipped overseas, however in the long term, the country that gets those jobs will become just as modern as the country sending the jobs, their wages will rise and then jobs won't be shipped overseas any more. Once that country is fully modernized, there will be no incentive for manufacturing jobs to go abroad any more since everyone's wages will be equal.

For an example, one can look at South Korea, Japan, Singapore and Taiwan (the "Asian Tigers"). Do we outsource jobs to them any more? Were they always as prosperous as they are now? They were as backwards as China was and then they became modern and now we don't outsource jobs to them anymore since their societies are modern and they pay good wages. Now they are drivers of the global economy, contributing to global demand, the global economy and scientific innovation.

US blue collar workers may not experience the benefits of a modern China in their lifetime, but in the very long run, when developed countries outnumber developing countries, we won't have to worry about outsourcing anymore. Developing countries need to become developed at some point. The American worker took one for the progress of human history.

[W.E.B. Du Bois]

As for the second income, I mean that with outsourcing, the blue collar worker has to find a new lower-paying job. Therefore he has less income, which means he can buy less goods, which in turn means lower demand, and less jobs to satisfy that demand.

[Mike]

Thanks for the elaboration. I had not encountered the Total Factor Equalization Theorem, therefore your remarks are instructive. I appreciate that.