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  • w.heinlein w.heinlein Oct 26, 2011 10:08 AM Flag

    Does Business Investment Create Jobs?

    Not according to one economic historian, it doesn't: http://www.nytimes.com/2011/10/26/opinion/its-consumer-spending-stupid.html?_r=1&ref=opinion

    Although the facts pretty decisively demonstrate that business investment does NOT create jobs, it is an article of faith, particularly among Republican politicians, that ONLY business investment creates jobs. While there are obvious exceptions (Apple being the most prominent), the general rule is that demand induces supply. In other words, businesses invest in new plant, equipment and employees to meet increased demand for their products. They don't, as a rule, build new products and see if anybody wants one. (Apple, again, being the great exception.)

    Another article of faith is that "small business" is the ultimate job creator. But that's also a vast oversimplification. For instance, there's a coffee shop near my office. The place is always jammed with people getting their coffee and espresso drinks. The manager proudly told me that he runs one of the 10 highest-grossing units in the chain. It's open 16 hours a day, 7 days a week and employs several dozen people. Classic "small business" job creator, right?

    Nope. 90% of the customers are either government employees (federal, state and local offices are all nearby) or employees of companies doing business with one or another of the government offices. The government employees are supporting this coffee shop, half a dozen restaurants, a drug store, etc. The small business jobs were created by consumer spending of government salary dollars, not the other way around.

    If you listen to Republican loudmouths, you would think that government jobs ( teachers,cops, firemen, judges, prosecutors, etc.) aren't "real" jobs, whereas being a barista at the local Starbucks is. But a moment's thought is all that's necessary to see the idiocy of that position.

    Bottom line: the economy is in the doldrums because of inadequate demand. Cutting taxes on suppliers will not do anything to stimulate demand and next to nothing to increase employment.

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    • "If you listen to Republican loudmouths, you would think that government jobs ( teachers,cops, firemen, judges, prosecutors, etc.) aren't "real" jobs"

      Not only are they real Jobs, they are very good paying with lavish benefits that put those of most (non-Union) U.S. company employees to shame!

    • > Another article of faith is that "small business" is the ultimate job creator.

      Yep, an article of faith -- just like "intelligent design."

      However, the fact is that NEW businesses create jobs,
      while the vast majority of "small businesses" create
      very few jobs after the first year or two.

      But facts and math are anathema to TrueBelievers™.

    • Agree in general with the article. However, on Jobs ... he destroyed many good jobs while created the Foxcons in China. For all the jobs Jobs created for Apple and his alliances, he had destroyed many, such as those in the record/CD industry, PCs and last generations phone titans as RIMM/Nokia/Motorola.

      Jobs succeeded by proprietizing iPod and excluded mp3/wma/au formats; iPhone exclusively to AT&T who was forced to subsidize iPhone costs; ditto with iPad; Apps that charges vendors 30%; Apps that ban competitors like Flash; squeeze suppliers for lowest cost without passing savings onto consumers ...

      Honestly, some of his business practices are so arrogant, brutal and predatory that takes a leader without compassion to dream up.

    • And then there's that trillion dollars that businesses how have saved in the bank. It's not yet being used to increase production, develop new products, or to hire anyone. Investing in businesses now would just add to their pile of cash, and not grow the business or hire new employees.

      Demand and business growth must begin before that cash or any business investment can result in new jobs.

      Businesses used to spend some of their cash during economic downturns to develop new products and production capacity in order to be ready for the next upturn in sales and the economy. That doesn't seem to happen now (Again Apple is an exception). Business investment used to result in a growing company and new jobs, back when demand was growing, but not now.

      • 1 Reply to vt_investor
      • vt,

        The multinationals have indeed a ton of cash, but they are parked overseas waiting for another tax holiday like 2005. e.g. msft is sitting on a ton of cash but they had to sell bonds to raise their latest dividend and stock repurchase program. Not one net job was created DOMESTICALLY selling all those Windows and Kinect controllers.

    • Morning, GOP. This article touched on a complex subject.

      Business investment DOES create jobs because a company has to commit capital and hire labor to PRODUCE a product before anyone is able to BUY it. Capital always PRECEDES labor.

      However, labor is required to SUSTAIN capital. Once a factory or retail operation is up and running people have to have money to buy what it produces or sells. In order to have money people have to have jobs that pay a wage adequate to enable them to purchase the products of their labor.

      So both labor and capital have to have balanced purchasing power to keep the eonomy humming.

      IMO it's safe to say that the Great Recession has validated your idea that labor is holding the short end of the stick right now. The economy is flagging because workers don't earn enough income to buy what their employers produce. You are probably right that more business investment won't solve this problem, at least not in the present circumstances.

      • 3 Replies to langosta_fla
      • I wrote a response a minute ago, but for some reason Yahoo didn't post it. It had NOTHING offensive in it, so I have no idea why it got scrubbed.

        I'll try again: Our biggest problem is that the recovery in the job market is so slow. There are many causes of this problem, but one big one is that many professional jobs have effectively been transferred to India or elsewhere. For instance, my tax return was prepared in India by an accountant hired by my US-based accounting firm. That Indian accountant displaced an American accountant and that job isn't coming back.

        I said in my scrubbed post that you should send a copy of your book to everybody in Congress and the White House because your ideas are much better than the ones they are kicking around.

        Refugee

      • lang,

        They do create jobs, but largely overseas while changing domestic ones from good paying manufacturing to lousy service jobs.

 
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