In the current unemployment climate, the one piece of empty rhetoric you constantly hear is "creating jobs":
- "Obama created jobs"
- "Bush’s tax cuts didn’t create any jobs"
And yet when you look around, unemployment is still very high, underemployment is high, and many people are scraping the barrel to make ends meet. "Where are all the jobs?" has been screamed by people at all four corners of the political spectrum. Everyone wants jobs, and they think the government is who creates them, as if Congress or the President (or one of his many employees) calls up various companies in the United States and says to them, "I want you to create some jobs".
Imagine this kind of phone conversation:
President: Jim, the country’s hurting. I need you to create some jobs, get some people back to work.
Jim: Well, Mr President, I’d love to be able to, but we cannot just up and create jobs.
President: Why not?
Jim: Well, sir, our revenues have been on a downward trend for the last couple quarters. Orders are down as well, so we’ve had to scale back production and reorganize our production lines to optimize our labor usage.
President: So what you’re telling me is that you won’t create any jobs?
Jim: What I’m telling you, Mr President, is that I can’t create any jobs. The demand on our products and services is going down, despite our best efforts to market our company to increase sales. When demand goes back up, we will not only be able to create jobs, we will need to create jobs to keep up with that demand.
Now if you’re reading this conversation from a left-wing perspective, you’re probably thinking that Jim is just trying to protect his company’s bottom-line and doesn’t want to create any jobs so he can keep lining his pockets with as much cash as possible. If you’re reading this from a right-wing perspective, you’re probably wondering why the President is asking a corporate executive to create jobs.
If you’re reading this from an educated perspective, meaning you’ve educated yourself on economics, you see clearly why Jim isn’t able to create any new jobs as the President is asking: demand for his products and services is down. And when demand is down, a company will first try to do what they can to level out the decline and send it back on an upward trend, and if that isn’t working out well, they will scale back, reorganizing production to get the most out of their labor force, possibly even laying off some of their labor force while further cutting back production.
But there is one quote out of this conversation that begs attention:
When demand goes back up, we will not only be able to create jobs, we will need to create jobs to keep up with that demand.
When a company sees increased demand for their products and services, they will need to hire more people to keep pace with that demand. Some companies may even create more jobs than needed to outpace the demand. This would actually be a better approach and reduces the risk of them being caught understaffed should demand start rising faster than is forecasted.
So market demand is the key. This begs the question: what influences market demand?
In short, we do. Consumers and customers influence demand. And we do it all the time, mostly unconsciously. Market demand is such a broad topic that I’m not going to go into it. I’d be writing forever if I did, but if you Google "supply and demand" or "market demand", I’m sure you’ll find a lot to read on that topic.
One concept, however, that is highly relevant can be summarized as this: all corporate taxes are paid by consumers. This is an offshoot of the broader statement: All costs of business are passed onto consumers.
For corporations to pay taxes, they need revenue. And from where does revenue come? Customers.
Any tax increases passed by Congress automatically become tax increases on everyone. There is no escaping this. This is why increased taxation as a means of generating government revenue is always doomed to fail. Raising taxes on businesses means that business will need to raise prices. Sales taxes always come directly out of the consumers’ wallets. All taxes levied by Congress are paid by the consumer, directly or indirectly, with no exceptions.
So what can government do to create new jobs?
Not much is required of the government except to lower taxes and scale back on what they do. The government itself does not need to be creating any new jobs. Instead the government needs to scale back, reducing the sizes of many departments so they can pay down the public debt and get out of everyone’s way.
Reducing taxes puts money back into the pockets of the people who pay them: consumers. Changes in tax policy result in changes in consumer behavior. Raising taxes means consumers spend less because products and services will end up costing more. Raising income taxes means that companies have to pay their employees a higher gross salary or wage to make up the shortfall the taxes would create, forcing the company to increase prices to be able to pay that higher salary or wage.
The government does not create new jobs, we do. Consumers cause the creation of new jobs by creating demand in markets. Increasing demand in markets means that companies must create jobs to keep up with that demand. If the demand is great enough that existing companies find it difficult to keep up, new companies will be formed by entrepreneurial individuals seeking to capitalize on that demand for their own profits as long as the demand holds out.
Reducing taxes, putting money back into the pockets of consumers, gives us more money by which we can influence that market demand, growing the economy, allowing for a more efficient system of wealth creation and more prosperity for everyone.
We create the jobs, and the government needs to get out of our way and stop taking so much of our money so we can influence market demand in the direction of job creation.