Letter: Demand for product, services creates jobs
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From: Tom Lane
Columbus
Received: June 14
I am surprised that the myth or lie that the wealthy top 1 percent are “job creators”. That is blatantly false. The only thing that creates jobs is higher demand for your product or service. This is Business 101 and every executive knows this. When demand goes up, you add people and when demand goes down, you let people go. Without demand for your product or service, you can not make a return on your investment and you have to cut costs and that usually means people.
Now, there is one area where wealth has some effect on jobs, and that is with venture capital and banks who invest in new startups. But when you go to one of them and ask for a million dollars to start a business, one of the first things they will ask is, “how much demand do you see for this?” If your answer is, “I have no idea, but it will create some good jobs”, they will politely show you to the door. Wealth does not invest without some good chance for a return, and you only get a return from sales, i.e. demand.
Every business I worked in, or consulted to, worked from this principle of demand creates jobs. So how do we create demand? It comes from a large number of people having discretionary income. (That means extra money after basic necessities are paid for). Wealthy people have lots of discretionary income and they do spend it, but not like a large middle class would spend. You can get more money into people’s hands by cutting taxes (we have done some of that) or by government spending (we have done a lot of that). But both of these have limits and we are close to the limit.
As jobs get created and wages go up, demand increases. Big business is sitting on trillions of dollars and will not spend until they are confident that demand is going up. They are not in the business of creating jobs, they are in the business of producing a product or service that creates a return.
There is a good lesson in history. About 100 years ago, Henry Ford doubled the wages of his workers and his logic was simply that he wanted his workers to be able to afford what they were making. In other words, he saw that he needed to create demand. From this new demand, many more jobs were also created. This is how it works.
I am somewhat embarrassed by the lack of response to this issue by business executives. The silence colludes with the lie and is purely self-serving. In a time of great complexity and economic trouble, we need to help people understand how things work, not try to blind them with lies.
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