Hillary Spoke the Truth
Hillary Spoke the Truth
“Don’t let anybody tell you that it’s corporations and businesses that create jobs. You know that old theory, trickle-down economics. That has been tried; that has failed.”
Hillary Clinton spoke those words at a campaign rally in Boston on October 24, 2014. If people would simply calm down, and examine the evidence, they would see the truth in what Hillary was saying.
Hillary was not deriding the efforts of entrepreneurs. She was not deriding the hard work of business owners and management. If you own a business, or plan to do so in the future, then I’m sure Mrs. Clinton would agree with my sentiments of support. If you are proud of the success of your business, then good for you, and I hope your employees as well as your customers appreciate your success.
Hillary was not deriding the efforts and importance of businesses in our economy. She was not deriding the role that businesses play in innovation. She was definitely not deriding competition or a market-based economy. She was merely speaking truth to the nature of job creation and the effects of economic policy on job creation.
Successful businesses become successful because they are able to convince potential customers to spend more of their budgets supporting these businesses. In the private sector, it doesn’t matter whether the businesses in question are retail, wholesale, industrial, whatever – the ultimate customer is the household consumer. The combined budget of potential customers is a fixed amount. Whatever money a customer spends supporting one business is money that doesn’t go for some other purpose. From the prospective of one business, the economy is a pie with a fixed size, and the business in question wants a bigger slice of that pie.
When one business becomes successful enough to grow, then hopefully it will hire more workers. When it does so, it can claim that it “creates jobs,” and it can point to the number of people on its payroll as proof. But what this really means is that the company has managed to increase its share of a fixed pie. If you focus on that one company, you can see jobs being added, jobs being “created.” But as long as the pie remains a fixed size, there is more job substitution than job creation going on.
Of course, the goal of a business is profit-maximization, not the size of its slice of pie or the number of employees. Increasing market share (the size of a slice of pie) is only a strategy towards the ultimate goal of profit-maximization. Profit has two components: revenue and cost. Profit-maximization is another term for increasing the amount that total revenue exceeds total cost. Gaining a bigger slice of the pie only focuses on the revenue side of the equation. Reducing total cost is the other side. A successful business will have a strategy (long-term, short-term, or a combination) of dealing with both sides of the equation. Such a strategy will direct efforts towards increasing revenue while at the same time keeping costs as low as possible in order for the increase in revenue to also equate to an increase in profits (long-term or short-term). When it comes to cost control, “job creation” is generally not something that a company will look for. In other words, jobs represent a necessary cost – not a goal – of the business.
One business, regardless of its size, UNILATERALLY can do very little to increase the net number of jobs in the economy. It can only increase its slice of the overall pie by taking from other slices of the same pie. With cost saving as a strategy, it is very likely that any increase in the number of people it hires will be smaller than the company’s increase in the slice of the economic pie. One company, acting unilaterally, cannot increase the size of the overall economy, the size of the pie. The number of jobs in the economy cannot increase significantly without increasing the size of the pie. Gaining a larger slice of the pie won’t accomplish that trick.
How do you create jobs in the economy if individual businesses can’t do it? Remember, the ultimate customer is the household consumer. The size of the pie will increase only if, cumulatively, consumers are willing and able to contribute more in terms of spending their money in the economy’s businesses. The consumer is the impetus for job creation.
Hillary DID deride trickle-down economics as a tried but failed theory. Advocates of trickle-down economics do not support policies which will provide the consumer-driven impetus necessary for job creation. They do NOT support:
- Incentives for businesses to share their gains with employees in the form of higher wages, which would increase consumer demand and provide an impetus for job creation
- Incentives for keeping profits in the country and circulating throughout the economy
- Equal market power between customers and businesses, so that the “invisible hand” of the free market can work its magic
- Equal market power between workers and businesses, in the form of collective bargaining and regulation, which is necessary for the same “invisible hand” to work
- Increasing benefits paid to people on fixed incomes; such as retired people on Social Security, disabled people, and veterans – which would increase consumer demand
- Benefits for people who are down on their luck, whether due to economic conditions or other reasons, which create consumer demand and jobs
- A living minimum wage – which would correct for the type of market failure caused by a lack of balance in market power between buyers and sellers and between employees and employers
Instead, advocates of trickle-down economics DO support:
- Deregulation and tax breaks for businesses in order to guarantee that businesses get the benefits of being “job creators” without having any incentives to actually create jobs
- Deregulation that effectively eliminates competition, giving large corporations monopoly powers
- Policies which give more and more market power to businesses and employers at the expense of customers and employees, presumably under the false notion that a “free market” means one side of transactions rather than equal market power between each side of every transaction
- Cutting benefits to the most vulnerable citizens in the name of budget cuts, and doing so by blaming the victims for their own plight – without noting that budget cuts also mean cutting consumer demand
- Cutting or eliminating the minimum wage, which would put more people in poverty, decrease consumer demand, and not save the government any money
- Corporate-friendly and consumer-unfriendly policies in Washington created by unlimited corporate access to government
The historical record is very clear. Before the implementation of trickle-down policies, all income groups gained as economic production increased. Those at the top gained more than everybody else (reflecting expected free market results), but everybody gained at the same rate that productivity increased. A large middle-class was formed, and a larger percentage of workers earned a living wage. Government debt was minimal by today’s standards, except for wartime expenses.
Since the implementation of trickle down policies, all income gains have gone to those at the very top. The average worker has gained nothing even though production gains have continued. Millions of workers are earning poverty wages. The middle class is disappearing. Government debt has skyrocketed to historical records, with no end in sight (despite claims by advocates that the opposite would happen).
These results are in the historical record. There is a clear-cut difference in economic results between the “before” and “after” of trickle down policies. Advocates continue to justify these results.
“They get it because they earn it.” Why should this logic apply only after a change in policies, but not before? Is it a mere coincidence that those at the top suddenly started “earning” all of the nation’s income gains, while everybody else barely made enough to get by, at the same time as the change in policies? As if the policies had nothing to do with who receives the income, people get what they “earn?” Why didn’t the workers “earn” what they received prior to the change in policies?
“If you want your share, just work harder.” As if policy changes had nothing to do with the results, but somehow people suddenly got lazier at the same time as the policy changes. Right – and people become lazier during a recession. But this is a great way to blame the victims, without addressing the fact that the actual results do not benefit the average citizen.
“Any other policy is socialism”. This ignores the fact that proposed policy changes are only designed to (at least partially) restore the economic policies that worked in the past. These policies were not socialist then, and they aren’t socialist now. Calling them socialist is a distraction from the truth.
Hillary Clinton spoke the truth. Consumers provide the impetus for job creation. Trickle-down economics has been tried, and it has failed. When enough people realize this truth, we can go about fixing the problems that these failed policies have created.
See on blue-route.org