I have been bombarded with the nonsense that job creation is stimulated with tax cuts. Can this thread be a list of links about the role the rich have on job growth?
First you have to define what you mean by 'rich'. In general the point is that the state stifling the opportunities for production created by private investment through its crowding out of resources and taxing its subjects results in a lesser degree of prosperity than would exist otherwise, including opportunities for productive employment (as opposed to the busy-work of state created 'jobs').
The top 1%
You realize the top 1% is going to include people who make anywhere from about $400,000 - over $1,000,000,000 a year, right?
Do you think that is a fair characterization of the "rich" in this country?
No, but it is the percent that is frequently used with the increase taxes rhetoric.
Is $400,000 not enough to make you rich?
Consumariat:Is $400,000 not enough to make you rich?
Compared to what?
Just because someone has a nominal $400K in income doesn't necessarily make them rich. Consider a man who works for 5 years on a project that finally pays off in one year. In that year, he's "rich", but when averaged out over the 5 years, he was actually only earning about $80K per year, which is definitely not rich.
Clayton -
Although I don't really understand the question/tone in the OP because you seem to both call it nonsense and ask for cases where it has happened. But at any rate. Tax cuts certainly will create jobs in the short run so long as there are no cuts in government spending/increases in uncertainty as a result. Until prices adjust upwards then fewer taxes mean more money is spent by people and is therefore an effective increase in demand for goods and services without an immediately corresponding increase in input prices. This means that it will almost certainly increase employment, all else equal. I don't think that many libertarians quite realize that tax cuts, for the above reasons which are in no way contradictory to Austrian opinions of the subject, have always been one of the three main weapons in the Keynesian arsenal.
As for decreasing taxes on the rich, this is more positive as the rich almost always spend a larger amount of their money on investments. More money for them, lower interest rates. Lower interest rates, higher long term growth and standard of living.
I mistyped the title, I meant to say "Tax Hikes Create Jobs". In the American economy, the federal reserve determines the interest rate, so it doesn't create long term economic growth if the rich is allowed to keep more of their income. I guess what I am asking is do the rich create jobs and can I have some links to illustrate it better.
It's just an oversimplification to say "the rich create jobs" - the only reason we even need to say something like that is that the statists say we need to "tax the rich to create jobs". How silly that is when the rich already create jobs.
The non-rich also create jobs through demand and investment (stock shares, joint investment, small businesses). "The rich create jobs" just plays to the "economies of scale" meme that suggests that capitalism is synonymous with scale and growth and, therefore, unsustainable. The cause of variation in wealth holdings that result from peaceful (voluntary, non-aggressive) exchange is not capitalism, it is variation in circumstance, including the propensity of individuals (and their ancestors) to accumulate wealth. The revolt against this variation is a revolt against nature.
Exluding the moral and ethical argument for a moment, if the wealthier Americans and middle class Americans both create jobs, what would you tell a statist advocating the redistrubution of wealth from the upper class to the middle class arguing that it would create more job growth?
I'm not even sure what kind of taxes we're talking about here. Corporate taxes? Capital gains taxes? Income taxes?
These taxes all punish different types of behavior and take money from different points in the process so I think they need to be thought about differently in terms of their effects on job creation.
One does not find it hard to imagine how letting a business keep more money could lead to job growth in that business. But then it could go for other things as well. That money could go to reinvestment in the company or it could be paid out in dividends to its stockholders.
If you take money from individuals and then give it to people to do some form of job then yeah you've spurred job growth but it hasn't come at no cost. You've just screwed with the capital formation process. You've eliminated money that might've been saved for further consumption or gone to a potentially more productive venture.
Cause and effect you see. Nothing is free.
In addition to the other points raised here, we have to distinguish between parasitic and productive jobs. Sure, if you tax Mr A and use the money to pay Mr B a salary, you may argue that you have created a job.
But the job is a govt job, and/or a job that would admittedly would not exist if not for the tax money creating it. Which means it is a parasitic job. The fellow getting the tax money, Mr B, is doing something nobody wanted him to do, if they were free to choose. After all, nobody was hiring him, right?
Of course there is also the other problem. Every job created by taxes for Mr B means there is no money in the hands of the taxed to hire Mr C to do what they need to get done. A Tax wipes out a productive job to create a parasitic job.
Now one may make the argument, foolish at it is, that absent a tax, the rich would just squirrel their money away, hiding it under their mattresses forever, so that all that money won't be used to create any jobs, parasitic or otherwise. But such an argument is of course the height of folly. I'm too carb coma-ed right now to explain why, but if anyone expresses an interest , I'll get to it later.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
saw this video today... kinda fits this thread
1) The middle class are the job creators
This has the unfortunate attribute of being partly true. What he misses is that the entire economy is an interconnected web of relationships, all of which without exception, are responsible for the ultimate outcome. So, the rich, the poor and the middle class are what creates jobs.
2) Deification of capitalists
Simply not true. Capitalism is villified. It is true that every particular rich man (capitalist or not) is followed around by an entourage of money-worshippers and since he claims to be rich, it's no surprise if he thinks that we all feel the same way as his groupies.
3) Taxing the rich "to create jobs for the middle class" is a great deal for the middle class and the rich
"I own three cars, not three thousand" despite the fact that he makes hundreds or thousands of times as much money as the average American. He can't "pick up the slack" in demand.
There is no slack in demand. His contribution to demand along with all of our contributions to demand is the demand. We don't need him to demand more cars because he has more money. In fact, quite the opposite. By sitting on his piles of cash, he is making us all richer.
4) The underlying fallacy of the entire talk is the zero-sum fallacy. By having thousands of times as much money as other people, he has "gobbled up" more of the money pie. By his own admission, he does not spend it on consumer goods, so he's not crowding out consumers. We could seize his assets and those of everyone in his income bracket and above and redistribute it and everyone else would benefit a little from that but the primary effect is that the prices of things would rise in response to the conversion of money held in cash balances to money spent for consumer goods.
If he's just burying the money, I already pointed out how he's doing us all a favor.
If he's investing the money, well, we all know what that means: jobs!
5) Each person who transacts with a rich man (voluntarily) has already benefitted to the extent he intended to be - there are no "imbalances" in the system that need to be rectified. In fact, it is this guy who is guilty of geocentrism - he blatantly confuses is and ought in the first few sentences of the lecture when he says that people who don't think that taxes should be raised on the wealthy is in the same category as an astronomer who holds a geocentric model of astronomy. Srsly?
Sorry, no checkmate here, just amateur hour.
*sigh
Great response, Clayton. This is what I was looking for.
What kinds of investments in the middle class consumer is he talking about?
LOL
He uses the chart from this recent thread. Come to think of it...It looks like this video is where the guy got it from.
Clayton:1) The middle class are the job creators This has the unfortunate attribute of being partly true. What he misses is that the entire economy is an interconnected web of relationships, all of which without exception, are responsible for the ultimate outcome. So, the rich, the poor and the middle class are what creates jobs.
Yeah...it's kind of funny how he literally mentions the "feedback loop" between customers and business twice in the 5 minute speech...yet insists (also more than once) that it is the customers that create the jobs.
2) Deification of capitalists Simply not true. Capitalism is villified. It is true that every particular rich man (capitalist or not) is followed around by an entourage of money-worshippers and since he claims to be rich, it's no surprise if he thinks that we all feel the same way as his groupies.
Right. And this asshole has figured the way to get the best of both worlds...being rich while vilifying the rich. Notice the standing ovation he gets at the end of his anti-capitalism, pro-"tax the rich" speech. Same reason leftists love Buffett. And Michael Moore. It doesn't matter who you are (as in, you can be exactly the kind of person that they are against), and as long as you stand beside them and vilify rich people (like yourself), you're their hero.
In fact, you're even more of a hero because you're like a white man denouncing racism against blacks, or a man arguing for higher wages for women.
3) Taxing the rich "to create jobs for the middle class" is a great deal for the middle class and the rich "I own three cars, not three thousand" despite the fact that he makes hundreds or thousands of times as much money as the average American. He can't "pick up the slack" in demand. There is no slack in demand. His contribution to demand along with all of our contributions to demand is the demand. We don't need him to demand more cars because he has more money. In fact, quite the opposite. By sitting on his piles of cash, he is making us all richer.
Yeah when he said that the first thought in my mind was "why does he need to buy anything? Why can't he just give the money directly to the people without jobs? Wouldn't that cut out a lot middle men?" His entire premise is "I can't buy enough stuff to warrant more businesses hiring more of you unemployed people to make more products and thus get you a paycheck." Well hell. A) why does he need to buy anything...he could hire these people himself...to work at one of his businesses, or to count grains of sand on the beach. B) why do these people have to "work" at all? If there isn't a real market demand for whatever they would be "hired" to do, why doesn't he just save them (and himself) the time and just give them the money?
Clayton:4) The underlying fallacy of the entire talk is the zero-sum fallacy. By having thousands of times as much money as other people, he has "gobbled up" more of the money pie. By his own admission, he does not spend it on consumer goods, so he's not crowding out consumers.
That's one way to look at it. I was thinking more along the lines of Keynesian aggregate demand. We need more demand to make the economy grow. He even says "only consumers can set in motion this virtuous cycle of increasing demand and hiring."
My question to him is...where does the demand come from? In economics the term "demand" implies a means to acquire the good. This generally means money. "Demand" without a means to acquire is just "desire" or "want". It doesn't count. So this guy claims "demand" is what essentially drives economic growth...but what he really means is "human wants" are what drive growth. But earlier in the talk, he actually admits that "if there was no one around who could afford to buy what we had to sell, all those companies and all those jobs would have evaporated."
ORLY! Ya don't (JB) Say!
What kills me is that someone could be (apparently) so good at working within the market process, and create so much wealth, and yet have such a distorted (and ultimately opposite) understanding of how it all happened.
P.S.
I was wondering why this video was posted on an SPA and couldn't seem to be found in the official TED channels...apparently there's a reason...
Gah, young turks is fucking annoying. "Every sane person thinks that..."
Oh, yeah? You might as well start a sentence "From my perspective, with the limited knowledge I have, I think..."
Great job JJ and Clayton. +1
Aristophanes:Gah, young turks is fucking annoying. "Every sane person thinks that..." Oh, yeah? You might as well start a sentence "From my perspective, with the limited knowledge I have, I think..."
Yeah that guy is a complete moron. As far as I can tell, he's never even heard the fact that correlation isn't causation. The best is his (as far as I can tell, fairly original) theory that tax cuts caused the Great Depression. Not kidding, he's said this on multiple occasions. Watch how he stumbles around and goes into his "get animated" routine when he spouts this on MSNBC and the (somewhat) sane Dylan Ratigan questions him on correlation/causation.
But this may make you feel a bit better. They're old, but still.
Which...remember in the video in the post above, Cenk Uygur is praising Hanauer. Hanauer says that businesses don't create jobs, it's the demanding consumers that do that. He says that the problem is he doesn't spend enough of his fortune to generate the demand that would (supposedly, according to him) lead to more jobs. Yet Cenk Uygur in that MSNBC clip at 4:44, claims that businessmen taking out their profits from business for personal consumption is the problem...and the solution is to have tax rates really high so that the business owners will be more inclined to keep reinvesting the profits in their own business.
Seriously? Basically the guy just agrees with anything that says "raise taxes, the rich are too rich, income disparity", even if it directly contradicts his own reasoning for holding that position.
Correlation/causation is so crucial. Someone needs to do a study on the effect of solar eclipses on economic prosperity (BTW, we had an awesome solar eclipse visible here on the US West Coast today!). I'm willing to bet money there's some kind of non-random correlation. But so what?
Hanauer begins the speech by drawing an equivalence between geocentrism (a fact about the way the world is) and being opposed to taxing the rich (a position on the way the world ought to be) - a blatant confusion of clearly separate categories. And the rest of the talk is just an unfolding of the confused introduction.
As for how wealthy businessmen can be so confused about why they are wealthy, I think there are three big reasons that account for much of it:
1) They have an interest in being "confused". For example, no one ever considers the possibility that Buffett actually benefits from increased taxation by a greater degree than he loses. Buffett calling for increased taxation is no different than a King or Lord calling for increased taxation. To paint it as some kind of altruistic act of self-sacrifice is exasperatingly absurd.
2) They got lucky. A lot of people who get wealthy in the market didn't so much have any greater skill, diligence, knowledge, discipline or anything else than other people so much as they happened to be the right person at the right place at the right time.
3) They're rent-seekers, not capitalists. Many of the most wealthy "businessmen" work in highly cartelized industries - defense industry, financial industry, law, etc.
This doesn't explain all of it but I think it explains a great deal of it.
Jevons is 140 years ahead of you:
http://www.economictheories.org/2008/08/jevons-sunspots-and-commercial-activity.html
Clayton:Someone needs to do a study on the effect of solar eclipses on economic prosperity
That was one of Jevons' early explanations for the business cycle (not exactly solar eclipses, but sunspot activity and their effects on crops).
If I had a cake and ate it, it can be concluded that I do not have it anymore. HHH
You beat me to it by two... minutes...
Clayton:Correlation/causation is so crucial. Someone needs to do a study on the effect of solar eclipses on economic prosperity (BTW, we had an awesome solar eclipse visible here on the US West Coast today!). I'm willing to bet money there's some kind of non-random correlation.
You mean something kind of like this?
Hanauer begins the speech by drawing an equivalence between geocentrism (a fact about the way the world is) and being opposed to taxing the rich (a position on the way the world ought to be) - a blatant confusion of clearly separate categories.
Well...not exactly. His comparison was to the refute the claim that "if taxes on the rich go up, job creation will go down." That's how he begins the presentation. He says this notion is "an article of faith for Republicans, seldom challenged by Democrats and is indeed shaped much of the economic landscape."
He goes on..."But sometimes the ideas that we are certain are true, or dead wrong." That's where he brings in the geocentrism comparison.
So your characterization here isn't very accurate.
I understand that completely, but that would imply that they aren't actually "confused" at all, but rather sly like foxes. I don't doubt that successful businessmen are sly like foxes, but I seriously doubt they are feigning ignorance here.
Again, I don't necessarily disagree. I wasn't really questioning "how" one could be so successful and not understand why, I was more just commenting on the fact that it kind of bugs me when I see examples of it.
Government spending or stimulus creates jobs as well as spending on a credit card makes an individual rich.
The government is like the young step mom coming home from the mall with hands full of bags fulled with stuff that will never be used.
@Aristippus, Old Guy, JJ: Wow! The Jevons study is perfect to my point and the temp graph link is saved... this is precisely the kind of statistical hyperbole that illustrates the ultimate absurdity of randomly searching for correlations in data.
In today's scientific climate, if you want to prove something for which you can give absolutely no causal mechanism, you start data-mining statistical categories until you find some kind of correlation (e.g. difference in average pay between men and women). Then you publish a statistical study on that correlation, carefully avoiding any claim that there is a causal link but strongly insinuating it. Then you sit back and watch the journalists do their job of butchering any distinction between correlation and causation. Problem solved.
So this moron is gonna be on The Peter Schiff Show today. This ought to be fun.
Tune in at SchiffRadio.com
10am-Noon ET
"Today's guest is Nick Hanauer, founder of the Seattle-based venture capital firm Second Avenue Partners, on why consumers and not wealthy businessmen create jobs, as argued in his now notorious TED talk."
I'm listening to it now, it's just intolerable. I wouldn't even know where to start refuting him; it is only his very best arguments that are wrong, and the rest are just plain meaningless. He's one of those guys who, in analyzing an economic problem, will turn to ecology, systems theory, mathematics, trendy game theory, historical pseudo-empiricism--anything but actual economics. And Peter, for all his strengths, simply doesn't have the strongest grasp of Austrian economic theory and it shows whenever he tries to argue with these kinds of cranks.
Edit: As I listen more, Hanauer, in addition to being a crank, also seems to be genuinely unintelligent. I think it's obvious that intelligence and reliable judgement are not at all the same thing; there are many highly intelligent people who use their well-developed abilities in abstract reasoning to continuously deceive and outsmart themselves (Orwell pointed out that doublethink requires a quick and agile mind). Hanauer is not one of those people. He uses name-calling and hysterical shouting; he repeats himself over and over again; he refuses to listen or even appear to listen by waiting his turn to speak; he makes things needlessly personal (telling Peter to move his family out of the country); he talks over Peter more than Peter has ever talked over a guest (and that's saying something... I'm astonished that Peter hasn't lost his temper); he "misunderstands" (probably deliberately) simple arguments by, for instance, "confusing" economic growth with the overall state of an economy (as in his response to Peter's point about the economic growth of the 19th century United States): in short, he is a complete idiot.
Stuff like this makes me think that Bob Roddis is absolutely right: all anti-libertarians and anti-Austrians inevitably have zero understanding of even basic Austrian concepts, and they are extremely intellectually lazy which leads to extreme intellectual dishonesty.
My humble blog has a rebuttal of Hanauer's speech:
http://smilingdavesblog.blogspot.com/2012/06/is-economy-ecosystem.html
I finally found the Mises quote I was looking for. This one is from Socialism:
That the social life of men resembles the biological process is an observation of ancient date. It lies at the basis of the famous legend of Menenius Agrippa, handed down to us by Livy. Social science did itself little good when, inspired by the triumph of Biology in the nineteenth century, voluminous works developed this analogy to the point of absurdity. What is the use of calling the products of human activity "social intercellular substance"?[2] Who was enlightened when scholars disputed which organ of the social body corresponded to the central nervous system? The best comment on this form of sociological study was the remark of an economist, to the effect that anyone who compared money with blood and the circulation of money with the circulation of blood would be making the same contribution to economics as would be made to biology by a man who compared blood with money and the blood-circulation with the circulation of money. Modern biology has borrowed from social science some of its most important concepts — that of evolution, of the division of labor, and of the struggle for existence. But it has not stopped short at metaphorical phrases and conclusions by analogy; rather has it proceeded to make profitable use of what it had gained. On the other hand biological-sociology did nothing but play a futile word-spinning game with the ideas it borrowed back. The romantic movement, with its "organic" theory of the state has done even less to clear up our knowledge of social interrelations. Because it deliberately cold-shouldered the most important achievement of social science up to that date — the system of classical Political Economy — it was unable to utilize the doctrine of the division of labor, that part of the classical system which must be the starting point of all sociology, as it is of modern biology.[3]
Okay I finally listened to the debate...
part 1, part 2
"Painful" is a good word. You just have to listen to it.
It's just remarkable. Two incredibly wealthy guys who could not possibly have more polarized understandings of the world. It's just incredible.
The only thing that hurts the entertainment value is the way (ironically) Peter's guest doesn't stop talking and Peter has a hard time getting a word in to make it a conversation.
(Usually it's Peter who doesn't stop talking...especially when he's a guest. On that note I really think he has a hearing problem that makes it difficult for him to know when the other person is talking when he's hooked into the sound as a guest on a tv show. The equipment limitations and settings can cause enough problems, but it happens to Schiff so much I have to believe he has a physical issue. There's no way he could just keep talking like this and not even get flustered. I don't think he's that rude in the first place, but even if he was, I don't see how anyone can just power through their own statements without even flinching while someone else is talking in their ear the entire time. I'm surprised the host didn't consider that possibility. That was definitely the worst example I've seen but it's quite often he obviously doesn't know the host is trying to switch gears or ask a question.)
Getting back to this interview....I was definitely right when I mentioned how someone could be (apparently) so good at working within the market process, and create so much wealth, and yet have such a distorted (and ultimately opposite) understanding of how it all happened. This guy is quite possibly insane. Granted there are a couple of times when Peter confronts him logic and he recognizes the fallacy of his position and has to try and dance around it (like when Peter asks if jobs are created by people buying stuff, where did the buyers get the money...and Hanauer has to backtrack to his "feedback loop" thing...which as I said before, directly negates his entire notion of jobs being created by buyers. It's either a loop, or it's linear. This moron really thinks he can have it both ways.)
Then he calls says Peter's comment is "nutty". I kid you not.
The golden nugget...possibly one of the best lines in this year of radio comes at 6:52 when Nick Hanauer says, and I quote: "Peter, if there was a shred of truth to your argument, then the most prosperous on Earth would be the places with the least government."
I cannot tell you how I almost hurt myself from the physical laughter reaction that spontaneously occured the second he finished that sentence.
(What's even more, what Peter was talking about at the time really didn't even have much to do with government. It's like Hanauer is the most perceptive idiot on the face of the earth, or he got kind of sideways lucky and accidentally picked up on a point Peter would make.)