I have a lot of respect for the folks who frequent this site. There is on constant display a parade of intellect, compassion, wit and comraderie that boggles the mind. I am, therefore, somewhat hesitant to point out the logical holes in the recent diary by Tim DeLaney - How are jobs actually created? I would normally try to air my feelings in the comment stream, but I felt that this might get a little wordy for that venue, and this is something that has become somthing of a pet peeve to me.
Speaking of pet peeves, before I get into my argument, which unfolds below the fold, I ask; Am I the only person here who has noticed that the frequently mentioned squiggle is not straight? It is rotated 3 or 4 degrees clockwise from where it should be. That is extremely irritating to a carpenter. But I digress.
With all due respect to Mr. DeLaney, who's diaries I admire, and who's work is typically well thought out and written, I think that he has fallen into what I see as one of the most-often repeated mistakes of recent economic discussions. If Mr. DeLaney is aware of this mistake and I just didn't pick up on it in his diary, then call me a fool for speaking out about something I shouldn't have. I suggest reading Tim's diary before going on.
So. If you are back, or still with me, over the COCKEYED curlycue.
In Tim's analysis, he states...
So, if I build a bakery that employs 10 bakers, have I contributed 10 jobs to the economy? No, because bakeries somewhere will lose 10 jobs. To a first approximation, humans will eat exactly the same number of loaves per capita from one year to the next, so my hiring of 10 bakers is completely neutral as far as job creation is concerned.
As long as one assumes, as I'm sure Tim did, that increased availability did not lead to overconsumption (overeating), this is something with which I totally agree. However, Tim goes on to state...
...does this mean that there is no possibility of creating jobs in the food industry? Not at all! Back in 1948 two brothers built a unique restaurant...in San Bernardino, California. They sold hamburgers for $.15 each and french fries for $.10 a serving. Their names were Richard and Maurice McDonald.
Of course it was Ray Kroc that saw the staggering possibilities and started the fast food business in Oak Brook, Illinois. If anybody is to be given credit for all those jobs, it is Kroc.
If opening another bakery will not create jobs because people will eat the same amount of bread, opening a restaurant will not create jobs because those same people will eat less bread and shift their appetites to burgers and fries. Unless one assumes that production of burgers and fries requires more labor than baking bread, then net job creation equals zero. As a corolary, if the burgers and fries
do require more labor, that means they will cost more than plain bread, not counting, for the moment, that beef (?) costs more than bread to start with. More about this below.
Tim implies that the same zero-sum game is at work in other, mature industries, but undermines his own argument by using the example of the invention of the transistor and subsequent microprocessor as creating large numbers of jobs. This is a fallacy. The transistor, as used in radios initially, effectively torpedoed production of vacuum tubes, merely shifting jobs from production of one to production of the other. No new jobs.
The microprocessor didn't create any new jobs either. It's use in computers led to vast increases in productivity but eliminated the need for uncounted numbers of other jobs. Just consider the amount of time saved by being able to backspace, copy and paste, block quote, print, edit, reprint, etc., ad infinitum. How many clerk/typist positions would it require to do the same amount of work? This was another efficiency increase that created no new net jobs, except insofar as demand went up due to decreased cost.
My final issue with Tim's thinking is when he refers to Henry Ford being a job creator.
One of the greatest of American job creators was Henry Ford. His idea revolutionized American business. The Model T Ford was just a small part of that idea, as was the notion of an assembly line. The major idea of Henry Ford was a social idea -- paying a living wage to his workers. This idea transformed America; it created an affluent middle class.
First, the Model T was not a new idea. It was a refinement of the already existing idea of a self-powered carriage. The assembly line just made production of the car more efficient and thus cheaper. And, while I don't take anything away from H. Ford, his motive for paying his workers the unheard of sum of $5 per day was anything but altruistic. He realized that other industries would be forced to raise the wages they paid in order to compete with Ford for workers, and that would mean that more people would have more money available to buy his cars.
Businesses are created for only one reason. Profit. When someone comes up with an idea for a business, being able to sell your product is central. If not, what would be the point? It would merely be a hobby.
McDonald's and Model T's were good ideas but did not create any jobs. They were refinements of existing products that captured more of the existing market share and/or expanded demand through lower cost. McDonalds provided a reasonably tasty meal for a reasonable price and they did it fast, taking market share, and jobs, from grocery stores and other restaurants.
Microprocessors allowed huge advances in efficiency in any number of markets, and they met a previously unseen demand. Daily Kos would not exist without them. How else would a carpenter like me be able to have his musings seen by so many people, merit not withstanding. If there were no demand for the things the microprocessor can do, they would be a curiosity, like leftover pet rocks from the 1970's.
The Model T succeeded because it made an attractive alternative to the horse, like other automobiles, but unlike other cars, its low price made it accessible to a much larger market. That's the key to the whole thing. Go ahead and "create" all the jobs you want to, but no sales means you have no business. Reducing cost can increase demand because it makes the product available to a larger market, but reducing the cost of a product in the absence of demand just gives you a slightly cheaper hobby. Taxes are just one cost of a product. Reducing taxes on businesses to stimulate job creation does nothing to increase demand in the long run, and so is doomed to failure. A case might be made for targeted, temporary, business tax cuts, but that's a whole new discussion.
Mr. DeLaney shows that he is aware of this fact (no sales = no business) when he states;
... The Republican "solution" is to put more dollars into the hands of the ultra rich, not into the hands of the worker. But what will the rich do with those dollars? Will they buy millions of laptops or automobiles or iPads?...To ask this rhetorical question is to answer it.
On the button, Tim. But ask the next question as well - Who will buy those laptops and autos? The answer is the larger market, provided people have the disposable income to buy them.
My contention, reduced to its essence, is that jobs are created at businesses, but they are created by paying customers. A business can take a calculated risk and start producing a new product and market it to a fair-thee-well, but without sales, the gamble doesn't pay off. Given all that, and assuming there is no flaw in my logic (dicey) how can anyone continue to parrot the right-wing meme of businesses being "job creators"?
I think it comes down to the phrase being made familiar by ad infinitum repetition, starting with the right wing noise machine, continuing with the media, and finally, it becomes common knowledge repeated by damn near everybody.
Tim DeLaney's diary has a lot of good stuff in it. The importance of unions. The need to reform the tax code. Personally, I like the idea of a shorter work week, but that's debateable. What's not open to debate is the absolute need to stop succumbing to the easy vice of adopting right-wing talking points because they have become familiar. That is a trap we we must avoid. Once we step into it, well, we've really stepped in it.
My thanks to Tim DeLaney for advancing the discussion beyond my pet peeves.
Tue Mar 06, 2012 at 5:56 AM PT: I don't know how this, or any other diary, ended up on the Community Spotlight List, but thank you to whoever put it there. I'll try to keep up with the comments today