Business Does Not Create Jobs – Consumers Do!

July 30th, 2011
in Op Ed

by Guest Author Warren Mosler (bio here)

It is an article of faith by all parties involved that businesses are the job creators, particularly small businesses, and hence every political move is predicated on helping businesses create jobs.

Mercy! Can’t they get anything right?

Businesses hire to service consumers. A restaurant that’s full doesn’t layoff anyone, no matter how much he hates the government, and the same goes for department stores, engineering firms, etc.

Follow up:

And when stores are empty, there’s no way they will or should hire. It’s a waste of human endeavor. In fact, business serves public purpose best by producing and selling its output with as few employees as possible. That’s called productivity, which is what makes us rich in real terms.

Labor is inherently a scarce resource. There are only so many of us to get all the work done. We lost eight million jobs in 2008. Why? Because eight million people all of a sudden decided they’d rather go on the dole than work?

No. It’s because sales collapsed. In a heartbeat, car sales went from near 17 million/yr to just over 9 million/yr. And why did sales collapse? Because we all lost our credit cards.

How do we get back sales and all the lost jobs, and then some? How about we stop taking FICA (Social Security and Medicare taxes) out of the paychecks of people who work for a living, so sales can resume from income rather than from consumer debt? What’s wrong with that?

And how about suspending FICA for businesses as well, to lower their costs and help keep consumer prices from rising. That would also be a good thing.

So why don’t our fearless leaders just do it? Because they think they need those taxed dollars for Social Security and Medicare.

Can’t they get anything right?

Federal taxes regulate demand (our spending), they don’t ‘bring in’ anything. The federal government ‘collects taxes’ simply by lowering the balance in our bank account. No gold coin drops into some government bucket. It’s just data entry, just the Federal Reserve changing numbers on their spreadsheets.

Chairman Bernanke has told us repeatedly how the federal government actually spends, including Social Security and Medicare spending: they just use their computer to mark up the numbers in our bank accounts. They don’t call China for a loan and they don’t check with the IRS to see how collections are going.

Federal government spending doesn’t ‘come from’ anywhere. Everyone inside the Federal Reserve knows it, and has always known it. They know that suspending FICA taxes does not alter their ability to make Social Security and Medicare payments. They all laugh off the idea that FICA actually funds anything – a ‘useful fiction’ as it’s been called since the program began in the 1930’s.

That ‘useful fiction’ is no longer seems very useful, unless you’re trying to destroy the US economy.

With sky-high unemployment we can easily afford to both suspend FICA and truly strengthen Social Security and Medicare by increasing the minimum benefits and closing the donut holes.

This is not ‘adding stimulus’. It’s removing drag by removing massively regressive and punishing taxes. And it allows consumers to drive sales until they’ve created all the private sector jobs we need.

And I see no harm, along the way, in sustaining the public infrastructure that serves public purpose, and tossing the states a per capita payment to make up for what the federal government did to them in 2008. And, as should go without saying, there should be an $8/hr federally funded transition job for anyone willing and able to work, to facilitate the transition from unemployment to private sector employment.

But that’s not what’s going to happen.

It looks to me like there are too many members of Congress who can’t vote for any package, due to prior pledges: Democrats who can’t vote for cuts in Social Security benefits or eligibility, Republicans pledged not to ever vote to raise taxes, and some pledged to never vote to raise the debt ceiling for any reason. The compromise packages lose votes from both sides from those who are pledged to never compromise.

This means a partial federal shutdown is a high probability, with a sudden cut in spending cutting into sales and therefore jobs, as just described.

Treasury rates will stay low and probably fall further, with the fed funds rate presumed to stay low for a lot longer. Energy and commodities will deflate, the dollar will get stronger, stocks will fall as top line growth forecasts fall, Europe and Asian stocks will fall as their largest export market becomes at-risk. And, as sales fall and unemployment rises, the US deficit will rise via the automatic stabilizers of falling tax revenues and increased transfer payments – if the government pays them…

And if, alternatively, a compromise package is reached, the deficit reduction plan will cause the same things to happen, only not as severely, and it’s back to death by a thousand cuts.


Related Articles

Financial Profits Reduce Economic Prosperity by Lance Roberts

Is Ignorance Bliss? A Look at U.S. Income Inequality by Elliott Morss

Inequality, Leverage and Crisis by Michael Kunhof and Romain Ranciere

Devil’s Bargain by William H. Gross

The New Feudalism by Derryl Hermanutz

Wulff: Business as Usual Won’t Do by Dirk Ehnts

U.S. Problems are Institutional by John Lounsbury

A View of a New America –You Won’t Like It by Admin

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved