Often we are told a growing economy would follow if only we relieved the terrible burden that the government has placed on the nation’s job creators: business. Were taxes and regulations relaxed, this would reduce costs sufficiently to allow business to do what they are already dying to do, which is to expand operations.
Even if we grant the argument that business taxes and regulations are high, this ignores two crucial facts.
Employees are a cost, usually the most significant one faced by firms. For that reason, every rational businessperson’s goal is to reduce, not increase, the number of workers they have to pay. Businessmen and women have families, too, and they need to feed and clothe them. It would be irresponsible to do otherwise.
Second and more fundamentally, no matter how much you lower costs, if you don’t have more customers, you won’t hire more workers. If the demand for goods and services stays where it is today and we only cut industry taxes and regulations, there is absolutely no reason to think that firms would expand employment. Rather, they would continue to produce at the same level and simply earn higher profits. On the other hand, if we leave taxes and regulations untouched but increase demand, businesses will happily add workers. And that is the root of the problem today. The bottom line lost on many is that the real job creators are consumers. The direct route to reducing unemployment is boosting demand, not reducing costs.
Ask yourself this question: what do you really think caused businesses to lay off so many workers that unemployment jumped from 4.1% in January 2008 to 5.8% in October 2009 (remaining at 5.3% today and that’s not even counting others that desire more work), a sudden spike in business regulations and taxes, or a collapse in demand? It is impossible to imagine that anyone truly believes the former to be the case. In reality, the reason we are stuck where we are is because the willing workers lack jobs and incomes–something that will get markedly worse if we continue to try to cut government spending and balance the budget.
WE DEMAND AGGREGATE DEMAND!
This has been a remix of John Harvey’s article at Forbes magazine for an Australian audience!