Creating jobs: How Demand Creates New Jobs

Who is creating jobs?  How can more jobs be created?  Who are the job creators?

Update February 4, 2018:  Well, we have more tax cuts mostly for the rich!  And we have Republicans again talking about how these tax cuts are going to create more jobs and raise the GDP.  So this article, that I wrote a LONG, LONG time ago, back in 2011, still stands. 

Photo found on Facebook.  I'll be happy to credit it if I can find the original.

Demand drives the economy.  Demand creates jobs.  

A very basic primer:  

You may have heard the adage "You've never received a job from a poor person."   This is an attempt to get people like you and me to support cutting  taxes on the rich, to support lowering corporate taxes, etc.  This is the whole premise of "supply side" economics:  Make the country more "business-friendly" through lower taxes, fewer regulations, less concern for the environment, less union influence, less concern for the condition of workers, etc., and business will thrive.  And, as business thrives, they will hire more people and life will be much more grand for all of us.  So "they" say. 

Supply-side "trickle down" economics

At least that is what certain politicians and business people want us to believe.  That's the essence of "supply-side" "trickle down" economics that we've been hearing about for decades now.


The Role of Demand

But supply-side ignores a very important fact: 

Businesses expand and hire for one reason and one reason only.  Businesses are started for one reason and one reason only:  Because the people involved in these businesses see or perceive a demand for a product or a service through which they can make revenues and earn profits.  Businesses hire for one reason and one reason only:  They need workers (or they need more workers) to meet that demand. 

No business person is going to sit up there and say, "Well, we just got a tax credit today; let's go out and hire some people!  Hey, HR, put out a few ads."  To repeat:  The business is NOT going to hire anybody, tax credits or not, unless they perceive a demand for their product or service.  Or unless they perceive a market (also a demand) for a different or new product or service.  And unless they can perceive that they can turn a profit when introducing a new product or service and they need more workers to meet the demand so that they can make that profit.    

Do poor and middle class people create jobs?

So about that "You've never received a job from a poor person":  Don't let that sway you.  The poor person may not be the actual hiring entity, but without plenty of poor and middle class people and their money stimulating demand, nobody would be offering you a job.

Demand for a particular good or service will only come about when people have money (and desire or need) to pay for a particular good or service. So it's really "people" who create jobs: All people, that is, with enough money to buy something. 

From Newsweek last fall:

"Tax cuts for the rich put relatively little back in the economy compared to tax cuts for middle-cla­ss or poor people, even though, as advocates of tax cuts for the rich are usually quick to point out, the top 2 percent of earners account for a disproport­ionately large proportion of total consumer spending."

"Nonpartis­an economic analyses show that while any tax increase will lower overall demand and thus reduce economic growth, the Bush tax cuts for the wealthy create far less economic growth than other potential tax cuts or spending increases of equal size. So if we were to let the Bush tax cuts on top earners expire and use the money for something else—wheth­er it’s infrastruc­ture spending or more effectivel­y targeted tax cuts—we could be much better off."

An important sentence to repeat:

"Tax cuts for the rich put relatively little back in the economy compared to tax cuts for middle-cla­ss or poor people."

That is, money in the hands of the middle class turns over more quickly than money in the hands of the rich.  It stimulates demand.

We need to also remember that surveys have shown that unemployment insurance compensati­on is almost immediatel­y spent for goods and services, while other forms of income are not spent as quickly. So unemployment insurance will create more demand per dollar than many other forms of income.

Let's Summarize:

Remember that "job creators" (businesses and entrepreneurs) only add jobs when they perceive a demand for a particular product or service.  They don't create jobs in a vacuum. 

YOU create jobs when you have money to spend and you go out and spend it.

Photo found on Facebook.  I'll be happy to credit it if I can figure out who first posted it.

Update 1/30/2012:  Here's another related article by Right off a Cliff:    The 99%: The Real Job Creators  That's exactly right!