Punishing the real job creators

The Republicans now have enough announced and unannounced candidates for President to field a football team – at least on one side of the ball. The problem is that when you look at the political landscape across the country, it’s almost impossible to tell which side they should really be playing on. Wisconsin provides a good example of the disconnect.

The S&P 500 stock index has fallen around 3.4 percent in the past month and much of it has to do with an economic recovery that appears to be stalling. Most of the drop occurred over the last few trading days, as employment numbers showed new jobs trickling out at rates far lower than what is necessary to keep unemployment rate from rising.

“It’s clear from this morning’s jobs report that the economy still isn’t creating enough jobs. You talk to job creators around the country like we have, they’ll tell you the overtaxing, overregulating and overspending that’s going on here in Washington is creating uncertainty and holding them back,” House Speaker John Boehner, R-Ohio, said. “If we’re serious about creating jobs in America, we can’t raise taxes on the very people who create jobs, and keep spending money that we don’t have.”

One figure bandied about is that an incumbent President has never been re-elected with an unemployment rate higher than 7.2 percent since Franklin Roosevelt. But Republicans might also want to take a look at what a bad economy means in statehouses and who the job creators in this economy really are.

In the economic malaise surrounding 2010 elections, Republicans took control of a majority of the state legislative bodies, with a net of 19 of the 49 partisan legislative bodies changing from blue to red. That wave may well prove to be the high water mark of the current cycle for the GOP – not the 2012 race that they are attempting to position for on the “strength” of a weak economy. If Republican incumbents end up having the kinds of issues getting re-elected that the Dems did in 2010, then it will not set up a winning backdrop for more gains in Washington.

Popular GOP dogma seems to be that anyone who draws a government paycheck is a drain and that the only place that virtuous money can truly be earned is in the private sector. I’ve even seen ratios that purport to compare the number of government workers against “productive” workers in the economy. This is bullpucky. Government workers are productive and they are a huge share of the U.S. economy, which is 70 percent consumer spending. But if all workers perceive are higher costs for gasoline, rising grocery bills, larger deductions for benefits, the threat of layoffs, lengthening periods of unemployment for displaced workers, co-workers bailing and a crappy future Medicare plan, then you’re not going to see people spending very freely. That’s what’s happening now.

Economists talk about a tame ‘core inflation rate, which excludes the volatile food and energy sectors,’ but people on the street tend to draw their own conclusions and it has an impact. The lower your income, the more of your income this stuff consumes. For those industries offering more discretionary goods or services, it’s a big problem. If the industry happens to be one in which these rising commodity prices play a large role in their cost structure and profitability, it’s an even bigger problem. One example: the passenger count at Central Wisconsin Airport in April 2011 was down around 20 percent from the same month a year earlier. That’s more than 5,000 less people boarding or arriving. Weather and cancelled flights account for only a single-digit percentage of the drop.

Whether I have a rummage sale or an airline, I don’t much care where my customers get the money that pays for my product or service. Cutting government budgets adds to the shortfall in demand and it keeps more people unemployed. In the May employment report that sent the stock market into a swoon, the private sector was estimated to have produced 83,000 jobs, but more than a third of that number was offset by 29,000 jobs lost in state and local payrolls around the country and unemployment edged up. More than a half million jobs have been shed from government payrolls in the economic downturn and forecasts are for 110,000 more to be shed in the third quarter. Moody’s Analytics estimates that each job in state and local government supports an additional 1.3 jobs elsewhere in the economy. See the problem?

The Republican plan? More tax cuts for the “job creators.” The problem? They don’t have to create any more jobs than they did under the hundreds of billions in tax cuts that are already in play. They certainly won’t do it if there isn’t sufficient demand, an issue that GOP economic prescriptions only exacerbate. While some may produce jobs, others hoard cash or get involved in activities that don’t put Americans to work — things like buying back their companies’ own stock, expanding overseas production to cut costs, speculating in commodities, day trading investment instruments or purchasing competitors that they can subsequently downsize. This time, it’s going to be different?

Take a look at this chart and then tell me that the people at the top of the income scale are the ones that need more help to get the economy moving. (Interestingly, the chart also shows that most people don’t understand how skewed things already are and they also have a different vision of the way things should be.)

It isn’t just me saying that tax cuts for so-called job creators aren’t going to work to bring down the deficit. Alan Greenspan has been consistently saying that the Bush tax cuts ought to be allowed to expire, along with a lot of other people who can view the situation without the burden of a dogma-drenched agenda paid for with campaign contributions.

Everybody knows that the debt and the deficit are too high. The problem is that austerity for the masses and tax cuts aimed at the top of the income pyramid will only make things worse. As Congressman Obey said of the stimulus bill, we need to put out the fire with the hose we’ve got and then deal with the leaks in it later. Republicans like to propose that everything be paid for, including offsets for disaster relief in Joplin. But they make one big, fat exception – (besides wars) — and it’s that they imagine that tax cuts are free or that they pay for themselves. They aren’t and they don’t. It’s a failed theory and its relentless implementation has played a huge part in bringing us to where we are today. If you want to run government more like a business, then you had better pay attention to the top line.

Give a working stiff or an unemployed person a few dollars and it will be recirculating in the economy almost immediately. Give a millionaire tens of thousands and you may never see it again. (Remember all that “death tax” talk? It’s about people who don’t even want to give any of it up when they’re dead.) People who don’t need to spend money sometimes don’t. So even if you cut the taxes of the rich and corporations even more than our Swiss cheese tax code already provides for, it’s way too inefficient of an approach to adequately drive a consumer economy as large as the one we have in the U.S. It simply takes way too much rain up there to adequately trickle down and we’ve more than proven it through practice. It makes the stimulus legislation look positively brilliant, in terms of near-term impact.

That is why moves like Gov. Walker is making are bad news for jobs and many businesses. When more than two-thirds of your economy rides on consumers, you can’t keep cutting their capacity and expect things to improve. It doesn’t matter if his numbers crunchers tell us his policies produce 250,000 jobs or a million if the net result is continued high unemployment and a lower standard of living for most people in Wisconsin.

Go back to your Economics 101 textbook. The factors of production are land, labor and capital. Following a significant crash, real estate is a lot cheaper than it was a few years ago. Labor is in oversupply. Capital? Take your cash to the bank and see what they’ll give you on a certificate of deposit. Less regulation, after inadequate oversight of the shadow banking system helped bring us to this point? We don’t need more supply side economics because these “job creators” that Boehner is talking about already have a better situation for pulling together resources than they could have ever imagined a few short years ago.  The real problem is a fundamental misunderstanding about who and what really creates jobs.  It’s like treating a broken leg with antibiotics.

So look ahead to next year. The very same stick of a sick economy that Republicans plan to beat President Obama with to recapture the White House is the one that GOP governors and state legislators can expect to feel when they can’t deliver on jobs promises that they have shown little inclination to advance. Their insistence on tax cuts that don’t find their way efficiently back into the economy coupled with jobs-killing budget slashing represent a huge drag that feeds a vicious cycle. And it’s one that they will have to answer for next year, just as surely as President Obama will.

Most people in business know that ultimately, the people who really create the jobs are not rich folks or corporations. Once the Republicans figure that out, we will be well on our way to a more productive approach toward meeting our economic challenges. Jobs are created by customers. Got that? Customers.

JR

RELATED: Tax cuts push debt to new milestone:

http://money.cnn.com/2011/06/08/news/economy/tax_cuts_national_debt/index.htm

RELATED: A corporate payroll tax cut won’t work:

http://finance.fortune.cnn.com/2011/06/15/a-corporate-payroll-tax-cut-wont-work/?iid=HP_LN

The Battle of 1937:  http://finance.fortune.cnn.com/2011/06/24/the-battle-of-1937/

Nick Hanauer explains why the rich don’t create jobs:

http://www.youtube.com/watch?v=CKCvf8E7V1g

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2 Responses to “Punishing the real job creators”

  1. Actually, small business employs more people than the large corporations or mega-billionaires do.

    If the government wants to do something to help create jobs, they can provide tools for the small business owner. The new 1099 requirements were going to be a brutal paperwork nightmare for small business, so one of the best things the fed government did was un-do that requirement.

    Most small business owners are not ueber-rich. My personal family gross income on my tax return last year was under $100K, and most of that was actually from my better half.

    Come up with ways that make it easier for small businesses to start, and succeed, and you will go a long way to help our situation. Give those that are unemployed a way to do something they have been dreaming about doing, and in turn maybe they will not only bring themselves back into the work place, but they might bring a few more off the unemployment rolls with them.

    Everyone is looking for the big fix. The big fix isn’t there.. it doesn’t exist… if it was real, it would have already been done… what we need are a bunch of little fixes designed to help our situation in the long term. Short term solutions almost always have a long-term negative side effect that is worse than the situation trying to be cured in the first place.

    • Michael Caudill Says:

      Absolutely! Small businesses are the backbone of our economy, not the giant corporations and super-rich. Investment in infrastructure, more regulation for banks and insurance companies that would force them to support the economy rather than simply being parasites (even people with great credit are not getting loans now and insurance profits are higher than ever while pay outs have remained virtually the same), more money spent on education, and regulatory and tax incentives for small business, all paif for by the elimination of tax breaks for giant corporations and super-rich and higher taxes for people that make a million a year or more.

      Can anyone make a rational argument against that?

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