Since rich people don't create jobs, why are conservatives taken seriously on economics?
by David Atkins
Henry Blodget at Business Insider points out again, using data, what many of us grow tired of repeating over and over: rich people don't create jobs:
As America struggles with high unemployment and record inequality, everyone is offering competing solutions to the problem.This isn't he-said-she-said economic theory. This is known fact, demonstrable time and again through empirical evidence just like evolution or climate science.
In this war of words (and classes), one thing has been repeated so often that many people now regard it as fact.
"Rich people create the jobs."
Specifically, by starting and directing America's companies, rich entrepreneurs and investors create the jobs that sustain everyone else.
This statement is usually invoked to justify cutting taxes on entrepreneurs and investors. If only we reduce those taxes and regulations, the story goes, entrepreneurs and investors can be incented to build more companies and create more jobs.
This argument ignores the fact that taxes on entrepreneurs and investors are already historically low, even after this year's modest increases. And it ignores the assertions of many investors and entrepreneurs (like me) that they would work just as hard to build companies even if taxes were higher.
But, more importantly, this argument perpetuates a myth that some well-off Americans use to justify today's record inequality — the idea that rich people create the jobs.
Entrepreneurs and investors like me actually don't create the jobs -- not sustainable ones, anyway.
Yes, we can create jobs temporarily, by starting companies and funding losses for a while. And, yes, we are a necessary part of the economy's job-creation engine. But to suggest that we alone are responsible for the jobs that sustain the other 300 million Americans is the height of self-importance and delusion.
So, if rich people do not create the jobs, what does?
A healthy economic ecosystem — one in which most participants (the middle class) have plenty of money to spend.
Over the last couple of years, a rich investor and entrepreneur named Nick Hanauer has annoyed all manner of rich investors and entrepreneurs by explaining this in detail. Hanauer was the founder of online advertising company aQuantive, which Microsoft bought for $6.4 billion.
What creates a company's jobs, Hanauer explains, is a healthy economic ecosystem surrounding the company, which starts with the company's customers.
The company's customers buy the company's products. This, in turn, channels money to the company and creates the need for the company to hire employees to produce, sell, and service those products. If the company's customers and potential customers go broke, the demand for the company's products will collapse. And the jobs will disappear, regardless of what the entrepreneurs or investors do.
Yet while there's general agreement on treating the consensus around evolution and climate science as known fact regardless of the moneyed interests who would prefer otherwise, there's no such consensus on economics. In fact, much of the economics profession seems, as Paul Krugman often laments, to contradict its own basic models in service to the propaganda interests of the wealthy.
Trickle-down economics is a known and proven failure. The experience of record stock market highs, record corporate profits, low effective tax rates and record income inequality in the context of a stagnant economy is all the proof anyone should need that the conservative theory of economics is a sweeping failure.
So why does it still constitute a valid opinion in the public square, even as creationism and climate denialism are increasingly laughed out of it?
Conservatives get very upset when liberals accuse them of racism and prejudice as their basic underlying motives. But even discounting plain evidence of said prejudice, it's simply too easy to draw the conclusion that some form of prejudice must be the underlying motive for refusing to attempt to boost demand-side growth rather than supply-side growth. Boosting supply-side growth is such an obvious and dramatic failure that the only rational explanation for the insistence on refusing demand-side growth is that some folks just don't like the idea of certain kinds of people getting demand-side help.
Without that prejudice, the supply-side position wouldn't just be laughably weak under peer review, it would be risible politically as well.