Four years ago, I wrote a piece called The Job Creation Myth, in which I explained that jobs are not created by reducing taxes on the wealthy, that “trickle-down economics” has been repeatedly debunked, and that increasing the minimum wage and raising taxes on the one-percenters would not cause more people to be laid off.
Let’s do some math. If a “job creator” makes a million dollars a year, and their tax rate goes up 3%, that’s $30,000. Remember, we’re talking income tax here, not wealth, and not counting capital gains and other non-payroll income — just the stuff on their W-2s. If they don’t give that $30,000 to the government, they can afford to hire one new employee, and pay them the stunning salary of $15/hour.
That’s one person hired for each rich person who paid less taxes. At that rate, it would take 40,000,000 fat cats to employ everyone who’s out of work now (not to mention the millions more who are underemployed). And that’s assuming that they’re going to use those 3% savings to hire someone, rather than spending it on some luxury item or a vacation with the trophy wife.
So, if all of these “job creators” have been saving that 3% since the rates went down nearly a decade ago, where are all those jobs that should have been created? Because the only positions I see being filled are as lobbyists for the rich, and they make a lot more than $15/hour.
Remember, I wrote that in 2011, before the economy had really started rolling again and before the unemployment rate had dropped several percentage points, as it has by 2015. As for raising the minimum wage, new research from Seattle shows how that city’s increase hasn’t hurt the restaurant economy at all — contrary to every prediction by pro-business conservatives, who spew the same garbage every time, regardless of the actual evidence.
Now, there’s this piece in Salon by Andrew Sayer:
In the economy as a whole, the number of jobs depends primarily on the level of total or ‘aggregate’ demand. As Hanauer argues, ordinary people create jobs simply by spending their money. Job numbers are most likely to rise when people and businesses are spending more. Aggregate demand is not within the control of individual businesses: it’s their environment. Businesses can’t grow unless demand increases. The current crisis of capitalist economies owes much to the fact that aggregate demand in many rich countries has been stagnant for decades, and only buoyed up by massive expansion of consumer credit. It has therefore become harder to make profits out of producing goods and services. As both cause and consequence of this, there has been a major relative shift in investment, or rather ‘investment,’ in the last 30–40 years from so-called non-financial companies (that produce goods and services) to financial companies that make money directly from money.
But you might ask why a shift in the proportion of national income going to the rich should make a difference to aggregate demand. Isn’t it just a change in who has the spending power rather than a change in the total spending power? The answer is that the rich use a smaller proportion of their money for buying goods and services than do other people. Those on low incomes cannot afford to save because they need to spend all they have just to get by, and if they get an increase it’s likely to be spent on basic things or paying off debts. Those in the middle may be able to save a little, and if they get more, then both their spending and saving can be increased. Hanauer puts it more simply: someone who earns a hundred or thousand times more than the average person is not likely to spend it on a hundred or thousand cars and houses. Yes, they may spend eye-wateringly large sums on themselves, but it’s likely to be a considerably lower proportion of their overall income than for most people. In Keynes’ terms, the rich have a lower ‘marginal propensity to consume’ than the rest of us. So, other things equal, redistributing income to the rich lowers aggregate demand, and redistributing downwards increases it.
This means that ‘trickle down’ arguments are wrong. Yes, the rich employ a few servants and provide demand for accountants, tax advisers and luxury services, but far fewer jobs result from this than would be case if their income were redistributed back to ordinary people with a much higher propensity to consume. The best way to get money to cascade down from the rich to the rest is to tax them – or stop them extracting it in the first place! As Ann Pettifor argues, any trickle-down effect is dwarfed by the reverse ‘hoovering up’ effect of rent and interest in directing money to the wealthy.