[Nesster]

Finally, A Rich American Destroys The Fiction That Rich People Create The Jobs | Daily Ticker - Yahoo! Finance

The most important reason the theory that "rich people create the jobs" is absurd, argues Nick Hanauer, the founder of online advertising company aQuantive, which Microsoft bought for $6.4 billion, is that rich people do not create jobs, even if they found and build companies that eventually employ thousands of people.What creates the jobs, Hanauer astutely observes, is a healthy economic ecosystem surrounding the company, which starts with the company's customers.

The company's customers buy the company's products, which, in turn, creates the need for the employees to produce, sell, and service those products. If those customers go broke, the demand for the company's products will collapse. And the jobs will disappear, regardless of what the entrepreneur does.

Now, of course entrepreneurs are an important part of the company-creation process. And so are investors, who risk capital in the hope of earning returns. But, ultimately, whether a new company continues growing and creates self-sustaining jobs is a function of customers' ability and willingness to pay for the company's products, not the entrepreneur or the investor capital. Suggesting that "rich entrepreneurs and investors" create the jobs, therefore, Hanauer observes, is like suggesting that squirrels create evolution.

(Or, to put it even more simply, it's like saying that a seed creates a tree. The seed does not create the tree. The seed starts the tree. But what creates the tree is the combination of the DNA in the seed and the soil, sunshine, water, atmosphere, nutrients, and other factors that nurture it. Plant the seed in an inhospitable environment, and it won't create anything. It will die.)

So, then, if what creates the jobs in our economy is, in part, "customers," who are these customers? And what can government policy do to make sure these customers have more money to spend to create demand and, thus, jobs?

The customers of most companies, Hanauer points out, are ultimately the gigantic middle class — the hundreds of millions of Americans who currently take home a much smaller share of the national income than they did 30 years ago, before tax policy aimed at helping rich people get richer created an extreme of income and wealth inequality not seen since the 1920s.

The middle class has been pummeled, in part, by tax policies that reward "the 1%" at the expense of everyone else.(It has also been pummeled by globalization and technology improvements, which are largely outside of any one country's control.)

But, wait, aren't the huge pots of gold taken home by "the 1%" supposed to "trickle down" to the middle class and thus benefit everyone? Isn't that the way it's supposed to work?

Yes, that's the way it's supposed to work.

Unfortunately, that's not the way it actually works.

And Hanauer explains why.

Hanauer takes home more than $10 million a year of income. On this income, he says, he pays an 11% tax rate. (Presumably, most of the income is dividends and long-term capital gains, which carry a tax rate of 15%. And then he probably has some tax shelters that knock the rate down the rest of the way).

With the more than $9 million a year Hanauer keeps, he buys lots of stuff. But, importantly, he doesn't buy as much stuff as would be bought if that $9 million were instead earned by 9,000 Americans each taking home an extra $1,000 a year.

Why not?

Because, despite Hanauer's impressive lifestyle — his family owns a plane — most of the $9+ million just goes straight into the bank (where it either sits and earns interest or gets invested in companies that ultimately need strong demand to sell products and create jobs). For a specific example, Hanauer points out that his family owns 3 cars, not the 3,000 that might be bought if his $9+ million were taken home by a few thousand families.

If that $9+ million had gone to 9,000 families instead of Hanauer, it would almost certainly have been pumped right back into the economy via consumption (i.e., demand). And, in so doing, it would have created more jobs.

Hanauer estimates that, if most American families were taking home the same share of the national income that they were taking home 30 years ago, every family would have another $10,000 of disposable income to spend.


That, Hanauer points out, would have a huge impact on demand — and, thereby job creation.

It's time we stopped mouthing the fiction that "rich people create the jobs."

Rich people don't create the jobs.

Our economy creates jobs.

[Nesster]

No, Entrepreneurs Like Steve Jobs Do Not 'Create Jobs' By Inventing Products Like The iPhone

The logic in the smarter arguments about why rich people DO create the jobs sounds persuasive, but it's wrong. This logic, too, has also been repeated so often that it is regarded as fact. So it's worth exploring.

The smarter arguments about why rich people DO create the jobs boil down to this:

Just look at the number of jobs created in Silicon Valley, where there is a unique combination of a highly developed venture capital system, an entrepreneurial culture, and brilliant entrepreneurs.
Brilliant entrepreneurs like Steve Jobs create products that create demand. No one knew they wanted an iPhone before Steve made one. Therefore, Steve created all the jobs that are required to make and sell and service the iPhone.
Again, these arguments are seductive, but they're wrong.

In both cases, what actually created the jobs were the combination of the companies and the customers of the products and services that the companies created and the ecosystem in which those companies operate. Without the customers, the iPad and hundreds of other Silicon Valley products would have remained little more than cool prototypes. And the jobs of those who made them, which were initially funded with investment capital, would quickly have disappeared. And the invested capital would have disappeared, too.



Read more: No, Entrepreneurs Like Steve Jobs Do Not 'Create Jobs' By Inventing Products Like The iPhone

But how about Steve Jobs? Didn't he single-handedly create tens of thousands of jobs when he invented the iPhone and iPad? After all, no one even knew they wanted an iPhone or iPad before Steve and Apple invented them.

No, Steve Jobs didn't create those jobs.

Steve and Apple did invent a couple of awesome products that about a hundred million people have bought, and he and his team deserve tons of credit for that.

But they didn't "create the jobs."

Why not?



First because, if the 100+ million people who bought iPhones and iPads had not been able to afford iPhones or iPads, Apple wouldn't have sold any of them.

It doesn't matter how much "demand" is created by a product that is so awesome that everyone wants it. If no one has the money to buy it, they won't buy it. (Unless they can borrow the money to buy it, which is another story, and is another part of the problem with the U.S. economy.)

Furthermore, the money used to buy iPhones and iPads was not created out of thin air. When the money used to buy iPhones and iPads was spent on iPhones and iPads, it was not spent on something else. In other words, if Steve Jobs and Apple had NOT invented the iPhone and iPad, the money used to buy them would likely have been used to buy something else — and the companies that made the something else would have "created" the jobs.

Apple's building of a better mousetrap, in other words, did not suddenly "create jobs." It moved the jobs. It moved the jobs from the companies that were making the older mousetraps to the one that was making the better mousetrap (and, in this case, it mostly moved them to Asia, which is another issue). In fact, to the extent that Apple created a more efficient manufacturing process for its better mousetraps, Apple and Steve Jobs may actually have destroyed jobs, not created them.



Read more: http://www.businessinsider.com/no-steve-jobs-did-not-create-jobs-by-inventin...#ixzz1gdaXP0c1

[falconeye]

I must say, both arguments are seriously flawed.

They completely ignore complexity of matters. I'll mention one here: all parties in an economic systems are linked by interdependencies. No single party "creates" jobs. Job creation is what is called in complexity theory an "emergent system property". And creating jobs not even is a goal by itself. Producing and fairly distributing wealth is a goal. The amount of work (aka jobs) required to participate at the wealth is no constant of nature which is why creation of jobs cannot be a primary goal and would obfuscate any in-depth analysis of a nation's economic performance. The international trade bilance is a much better indicator. Of course, everybody who wants to work should be able to. But that's a different story.

Now, if producing wealth is one half of the goal, and if automation means that the same wealth can be produced with less labour, then saying that product innovation doesn't create jobs (labour) is obvious nonsense! I mean, it is really trivial, isn't it? Because the jobs (labour) would otherwise be lost by automation progress (process innovation).

So therefore, innovative jobs like the iPhone do create (in the sense of keep) jobs. Or alternatively, we would have to live in a static world which means in caves. Many jobs but little wealth. The sole focus on jobs is a big trap, folks. Get out of it...

[snkenai]

Rich people create jobs by simply spending money for products and services. It takes people to provide those, therefore, jobs. Simple.

[Jasvox]

Took slaves to pick the cotton for the wealthy landowners too. Good ol' Plantation owners.

Jason

[jolepp]

Rich people create jobs by simply spending money for products and services. It takes people to provide those, therefore, jobs. Simple.

Sure. But the piece posted - quite convincingly, IMO - claimed that by giving 1000 middle class persons $1000 each there will be much more spent on products and services than when a one person, an alleged job creator, gets $1 000 000.

[GeneV]

I must say, both arguments are seriously flawed.

They completely ignore complexity of matters. I'll mention one here: all parties in an economic systems are linked by interdependencies. No single party "creates" jobs. Job creation is what is called in complexity theory an "emergent system property". And creating jobs not even is a goal by itself. Producing and fairly distributing wealth is a goal. The amount of work (aka jobs) required to participate at the wealth is no constant of nature which is why creation of jobs cannot be a primary goal and would obfuscate any in-depth analysis of a nation's economic performance. The international trade bilance is a much better indicator. Of course, everybody who wants to work should be able to. But that's a different story.

Now, if producing wealth is one half of the goal, and if automation means that the same wealth can be produced with less labour, then saying that product innovation doesn't create jobs (labour) is obvious nonsense! I mean, it is really trivial, isn't it? Because the jobs (labour) would otherwise be lost by automation progress (process innovation).

So therefore, innovative jobs like the iPhone do create (in the sense of keep) jobs. Or alternatively, we would have to live in a static world which means in caves. Many jobs but little wealth. The sole focus on jobs is a big trap, folks. Get out of it...

I would agree that "Producing and fairly distributing wealth is a goal." However, the discussion discounting jobs is unrealistic at this point. Jobs and wages are how we distribute most of the money in a primarily capitalist society. Only if one embarks on a discussion of a completely different type of economic system can one get past jobs as a necessary aspect of distributing wealth. That might be an interesting philosophical exercise, but not all that practical in today's politics.

[Wheatfield]

Rich people create jobs by simply spending money for products and services. It takes people to provide those, therefore, jobs. Simple.

Only simple to a simpleton.
Will one person with 10 million dollars create as many jobs by spending money as 10 people with a million each? How about a thousand people with 100K each? Will they create, by spending, more jobs or fewer jobs than one person who has all of that money?

[eddie1960]

Only simple to a simpleton.
Will one person with 10 million dollars create as many jobs by spending money as 10 people with a million each? How about a thousand people with 100K each? Will they create, by spending, more jobs or fewer jobs than one person who has all of that money?

Only if they start a company and use that money to pay salaries (yeah right like that will happen)

[pxpaulx]

Sure. But the piece posted - quite convincingly, IMO - claimed that by giving 1000 middle class persons $1000 each there will be much more spent on products and services than when a one person, an alleged job creator, gets $1 000 000.

Completely agreed. If 10,000 average middle class people were handed each $1,000.00 - a small fraction may be able to save all or half. a large majority would either save less than 20% (and most far less than that, if any). It would all be spent. On the other hand if 1 person receives $10 million dollars, they would save a vast majority of it (even more so for a person who already has this kind of wealth). The consumers that each received $1,000.00 might not create one job, but each of them would be paying a fraction of the salary of many workers through purchasing goods and services. when you multiply those fractions by 10,000 people who received and spent that $1,000.00, you have many jobs wholly paid for, not by any one person but by the collective society.

[Nesster]

Only if they start a company and use that money to pay salaries (yeah right like that will happen)

...the point being, the only reason to start a company is because there is or will be a market for the product. Getting rich is (should be) a side effect, not the other way around.

Someone with 10 mill income has extracted the money from whatever business. The idea is, the company would do better if the dude/dudette made 1 mill and they spread the other 9 mill into salaries for the small people and/or plowed it back into the business.

Completely agreed.

Not to mention, IF we are concerned about the safety and fairness of social security, the 10 mill salary will only generate 1 max contribution, whereas 10,000 making $1k more per year will put a lot more money in.

[eddie1960]

...
Someone with 10 mill income has extracted the money from whatever business. The idea is, the company would do better if the dude/dudette made 1 mill and they spread the other 9 mill into salaries for the small people and/or plowed it back into the business.



Not to mention, IF we are concerned about the safety and fairness of social security, the 10 mill salary will only generate 1 max contribution, whereas 10,000 making $1k more per year will put a lot more money in.

I get it completely neglected the*snark* in my original post. sometimes i'm too smarmy for my own good

Hell I'm working at a high end hotel and wearing an EAT THE RICH T-shirt today

[jolepp]

...
Hell I'm working at a high end hotel and wearing an EAT THE RICH T-shirt today

Doesn't sound like a front-line customer service role then or at least you probably aren't counting on making a fortune on tips.

[eddie1960]

Doesn't sound like a front-line customer service role then or at least you probably aren't counting on making a fortune on tips.

hahaha, nope I'm the Purchaser, solitary job with my own office, only deal with people who want to sell me stuff or back of house who need stuff

When I was a bellman years ago I sniveled and grovelled with the best of them

edit : there are a couple of hipster boutique hotels in Toronto where this shirt could be front of house.

[falconeye]

But the piece posted - quite convincingly, IMO - claimed that by giving 1000 middle class persons $1000 each there will be much more spent on products and services than when a one person, an alleged job creator, gets $1 000 000.

I tried to provide an idea that one has to consider the entire network of interdependencies.

If one does so, one sees that a rich can trigger the creation of more or less jobs than the same amount of money distributed over many would.

It depends on the particular rich person.

The rich person would trigger above-average creation of jobs if:
- he consumes more innovative products than the average / makes more informed buying decisions.
- he directly sponsors innovation.

E.g., it is strongly believed that in Germany, rich and very demanding buyers of Mercedes, BMW and Audi make the innovations happen which then trickle down to more affordable products. I would say the same for Apple in the USA.

The rich person would trigger below-average creation of jobs if:
- he consumes fancy products no one would otherwise need or sends lots of money to foreign countries.


In summary, w/o further knowledge it is just a zero sum game.

I would agree that "Producing and fairly distributing wealth is a goal." However, the discussion discounting jobs is unrealistic at this point. Jobs and wages are how we distribute most of the money in a primarily capitalist society.

I actually made an economic computing model before coming up with my model. The majority of money is NOT distributed by jobs and wages. Not anymore. That's part of the problem we are facing because only very few people have an idea how to properly deal with that situation. If we aren't careful, then we are reaching a point where more work means less wealth (for an individual, because of missed windfall profits). And if we reach this point, the economy must collapse. That's part of the reasoning behind my model: it more or less ensures that more work leads to more wealth (for an individual).

And I don't discount jobs. I only said jobs aren't the primary goal. I say jobs are a secondary means to distribute money but not the only one.

And my model allows for a smooth transition at whatever pace. It can easily be applied to an ultra-capitalist economy and then let parameters evolve as the country prospers and its people wish. It would even push towards more and lower-value jobs and less well-fare etc. if a country falls behind in international competition. I know most of the counter arguments and took them into account. But it is far too complex for a few posts here ...

What I only wanted to say is that IMHO the two articles miss the point.