POLITICS - JOBS ARTICLE
01-03-2012 (updated 08-15-2012)
"The Logic behind the Republican Job
Creation Plan & Why it Won't Work"
Pre-1970's ... the Republican Plan might have worked many years ago (part of it) ... but not now!
The Republican plan is to help the private companies profit and as a result, jobs will be created. That makes perfect sense and is easy for a voter, an average citizen, to buy into. That's why the Republican candidates for President and Republican legislators continue to spout the logical lie.
Before the 1970's, trade between countries did exist, but there were heavy tariff fees on imports. U.S. companies could easily compete with imported goods because of the quality of U.S. workmanship.
Middle Class was Growing
People were working and earning decent wages. Thanks to unions, wages and benefits were increasing for the average worker. The dream of owning a home in the peaceful suburbs was becoming true for more and more U.S. workers. The middle class was growing.
Consumer Demand drives Job Creation
People spent money on U.S. made goods. Good jobs and decent wages created consumer demand. Corporations hired more people to meet the demand and at the same time were more and more profitable.
Smart Investors put their Investments in the Path of Consumer Demand
Wealthy investors watched the spending. They could see where consumer demand was heading ... where the growth in the U.S. economy would be ... what products and services were about to blossom. Electronics combined with entertainment was one of the coming growth areas. The middle class had enough money for necessities and now they wanted a taste of leisure and entertainment ... a few affordable luxuries. Better televisions, VCR's, stereo equipment for the home and car ... computers in the workplace and eventually at home. And if these were to be reality, what goes into making these items. Manufacturing of these items required electronic components, metal and plastics. so as a smart and wealthy investor, this was one segment of the economy you wanted your money invested in for a high profit margin ... growth industries.
Invest in Existing Corporations or invest in New Promising Start-ups?
That was the question for investors at that time and now. As an investor, you could put your money into an existing company and get a reasonable return on your money or you could take a little risk, but a well examined and well calculated risk, and put your money into building a company with an idea and plans for something new and exciting in this area of the economy. Typically only wealthy investors have the kind of money it takes to fund a start-up company if it is to have the funds to grow and prosper. So as an investor, you put your money into this promising start-up and when the product begins to sell and you can now demonstrate its value to the common investor, you put your company on the stock market. You keep half or more of the shares and sell off the other half. Assume you ahve already invested one million dollars in this company. You now issue one million shares and the stock market goes crazy. Due to publicity, good marketing, salesmanship and the resulting demand, the stock ends up selling at $18.00 per share by the end of the day ... with promise that it will likely sell higher in the coming days and weeks. You've kept 500,000 shares. You've invested one million dollars. Your shares are now worth what the market says they are worth ... $18.00 per share or $9 million.
$9 million is $8 million in profit over and above your original investment and that equals 900% profit. That's alot better than 5% or 7% profit with an existing company.
Natural for the Wealthy to Get Wealthier
Now if you want to lower your risk even more, perhaps you find an already existing profitable corporation that has developed some new innovative gadget in this growth industry. The company is not going to just build it. They want new funding for the product so they decide to create a spin-off company to develop and build this product. They already have a profitable history, so the risk tends to be less for the investor because of the experience of the corporation. The profit margin factor would still be the same, and probably higher because the parent company already has a good solid reputation in the stock market. These are opportunites that only wealthy investors can take. Money acquires more money ... the rich get richer by means of leveraging their wealth, contacts, and know-how.
Now all this is great for the average worker. Every dollar invested backs a company making goods and offering services. People buy the products and new jobs are created. The investor jumped in front of the moving profit bus and got hit head on ... only getting hit with the profit bus is a great thing. So we have a nice cycle going here.
Cash Flow Cycle
People buy things. Businesses sell these things and need workers to make and sell products and services. Jobs are created, wages earned. Investors create new businesses based on consumer demand expectancies and calculations. Existing demand is sparked further. More spending occurs. More consumer demand creates jobs at these businesses. Wages are earned by workers; profits earned by the corporations and investors. Taxes are paid by workers and by corporations and by the investors. Taxes fund safety net programs, infrastructure needed by all citizens and corporations to operate normally, our military for protection against foreign threats and more.
So the Logic of the Republican Job Creation Plan seems valid ...
but it's not ... not with today's current trade laws!
Their basic idea is "Help corporations and investors become profitable and as a consequence, jobs will be created, workers will have good wages and benefits. People will buy things and corporations and investors will profit. All is right with the world" ... or All WAS right with the world until after the decade of the 1970's as trade policies began changing ... Free Trade rather than Fair Trade.
THE BIG TRANSITION DOWNHILL ... The 1970's and after ...
In the 1970's, corporations started to experiment more with using resources in foreign countries. Big corporations would use parts or supplies from foreign company resources to make, manufacture, and assemble products made in the U.S.A. Why? ... it was cheaper to use foreign labor earning pennies on the dollar to provide the components of goods made in the U.S.A. More and more companies followed this method of operation. By doing this, the corporation could price their products cheaper than their competition and get a greater share of the market ... more sales, more profits. At first this didn't impact U.S. employment negatively because other U.S. jobs were growing due to the large consumer demand. No one missed the jobs that were created in foreign markets at that time. It was a balance ... jobs lost and jobs created (in America).
Trade Policies liberalized ... Free Market, Free Trade Spin
Corporations saw the potential for them in using more foreign labor at cheap labor costs. They wouldn't have to deal with unions and U.S. workers who had come to expect a decent wage for their work. They wouldn't have to deal with the cost of regulations that kept the consumers, workers and enviroment safe. They could outcompete any "all U.S." company based on price while still making a large profit margin due to decreased costs. The only thing standing in their way, was the current trade legislation that charged fees on imports. The fees took away the potential giant profit margin they were drooling for. They paid millions to lobby legislators to change trade policies. They demonized tariffs that protected U.S. workers and the U.S. economy. They called in "Protectionist" and said it like it was a bad thing ... a persuasion or propaganda trick of communication. They demonized "protectionist trade policies" while praising the virtues and values of open Free Market Trade. "Protectionist" comes from the word "protection" ... obvious. Why is protecting U.S. workers and the economy a bad thing? It's not ... unless you are a corporate CEO or CFO and realize you can multiply your profit margin if you can get rid of the "protection" of import fees to the U.S.
Peace ... One Positive Benefit to Trade, not Free Market Trade
Corporate lobbyists persuaded legislators and citizens via paid for media coverage that Free Trade would create peace between countries ... and "Trade" does to a great extent. Financial leverage could be applied to trading countries that were causing trouble and jeopardizing the peace between countries. This does work to a great degree. ... but why Free Trade and not Fair Trade?
What about U.S. Jobs and Workers ... and the Myth
of Creating Greater Prosperity in America with Free Trade
Not to worry said the lobbyists. Not to worry say the Republican legislators today. With Free Trade and U.S. ingenuity and workmanship, we will open up new markets with millions and millions of new consumers overseas. We will be able to export more than we will import creating greater prosperity in American. Does Free Trade really create more export jobs? Yes ... there are now more exports and export jobs than before Free Trade. ... but we import far, far more than we export. Why? ... because our standard of living in the U.S., which is what makes us such an attrative country to live in, is good. Most people have jobs with decent wages and can (or used to be able to) afford a decent standard of living in the U.S. So to maintain our decent standard of living requires decent middle class wages and good job opportunities. Most foreign markets we sell to have a lower standard of living and citizens live a poverty lifestyle and if they have a job, earn a small percentage of what U.S. workers earn. So if we make a product in the U.S. paying decent wages, the cost of the products will be higher than if these same products were made in the low wage foreign countries. Because of this, we can only export goods that other countries are not making at lower costs and wages. If these other countries cannot make these goods now, they will soon find a way to make them, thereby eliminating the need for U.S. made exports. If the foreign country can't do it on their owns, typically, a multi-national company (usually a former U.S. company) will build the facilities overseas and hire low wage workers to make these U.S. exported products so they can acquire a significantly higher profit margin for investors and large bonuses for CEO's and other officers. The name of the game is to be able to price your goods slightly lower than any other competition while increasing your profit margins. This requires trade laws that do not interfere with corporate profit making (even if made using foreign labor) and using low cost facilities, low cost regulations, and low cost wages in economically depressed countries while eliminating decent jobs and wages in the U.S.
How did they sell this new Free Trade legislation to the public?
They focused there corporate media message on two things. First they said it would lower the price of your products and you could therefore buy more than you could now with the same wages your are already earning. That means you could live a better, more enjoyable lifestyle for the same money you are already earning -or- if you were feeling a pinch in your household budget with too many debts or bills, you would not pay less for the things you normally bought, leaving more money to pay down your bills.
The second part of the message was partly a lie, a big and deadly lie. Export jobs would increase. True. Export jobs would give workers more job opportunities. A half-truth. What wasn't said was that it would mean a massive loss of current U.S. jobs to other countries and export jobs would not match anywhere near the amount of jobs lost to low wage workers in other countries.
What this also meant is that with more people looking for work, less wages/money to buy things, consumer demand in the U.S. would drop. Consumers would have to buy lower priced goods typically made in other countries by the same people that were now doing the jobs they used to do in the U.S. Less consumer demand for U.S. made products meant more job layoffs and small U.S. companies that were now being outcompeted by foreign made, low cost goods, faced record numbers of business failures and closings ... more job loss. This also meant that with more workers available for jobs and more desperate for an income, these workers would be willing to work for less thereby driving down the wage levels of existing U.S. workers who still had jobs.
Five Giant Sized Reasons Why Free Trade Doesn't Work
The problem is that ...
(1) we import more than we export which means we lose jobs in the U.S. while jobs are created in the importing countries.
(2) Dollar volume of trade ...We now have over a $900 billion dollar deficit in trade between the U.S. and China. That doesn't take into account the deficits in trade between other third world countries and the U.S. This is real money that was once in the pockets of American workers, spent on imports in U.S. stores by consumers because that is all that is on the shelves, and has now left our country creating consumer demand and jobs in foreign countries, not ours.
(3) Big U.S. corporations have created factories overseas and have now become Multi-National or Trans-National corporations. Over 450 of our Fortune 500 companies have set up shop in China. Result ... U.S. jobs are closed and moved to countries with low-wage workers. This allows U.S. corporations and their investors to make huge profit margins by exporting to the U.S. consumer and other markets as well. Example: A Woman's suit sold in the U.S. with an American Brand Name label was made in Pakistan. The worker who made the suit got paid $1.67 and the jacket was sold for over $160 in U.S. money. A sports sneaker with a popular U.S. label was made in a foreign country. The worker made less than a dollar to make a pair of sneakers. The sneakers sold for over $110 U.S. money. That's a pretty good profit margin.
(4) U.S. companies loyal to the U.S. worker are now trying to compete with these Multi-National Corporations for business both in the U.S. and in other countries. ... but the multi-nationals can underprice to outcompete any U.S. company and still make a high profit margin. This is all due to the low-wage labor and costs of goods made in third world countries ... and because Free Trade policies require that we have no fees or just small tariff fees on imports due to our new trade policies and legislation.
(5) So where does the wealthy investor go. They go where they have always gone. They go where they can make the highest profit margin. They see where the money is flowing and get in front of it. That's the wealth building investment principle.
So if you use the idea of supply side economics of the Republican Party leadership, the government reduces cost of doing business by eliminating regulations (putting consumer, workers and environment in jeopardy) so they can have a larger profit margin. The government reduces taxes on corporations and provide other tax breaks (reducing the revenues to government that provide essential programs, infrastructure maintenance, safety net programs for the public in need) so corporations can increase their profit. The government reduces labor laws (so corporations can get rid of unions, union wages, the leverage of higher wages to non-union jobs, and worker benefits, allow corporations to demand mandatory overtime from workers) so corporations can increase their profit. The government reduces taxes on the wealthiest of citizens both on earned income and capital gains from investments. This takes money out of the governments revenue needed to pay down deficits but Republicans say they believe it will encourage more investment in new businesses. All the increased profit will provide money to hire new employees. The new investments in business will create jobs as well. (this is Mitt Romney's job growth plan for the U.S. ... pay less than minimum wage to workers; eliminate regulations that protect consumers, workers and the environment in order to lower corporate costs; have corporations and wealthy investors pay low tax rates; eliminate programs like unemployment, medicaid, medicare, social security; layoff public workers, ie. public school teachers, firemen, EMT's, and police to save the government budget; sell off everything owned by "we the people" which is anything they say is owned and operated by the government - sell it off to private industry because private industry knows how to make a profit ... leaving the middle class workers who are no longer middle class, to pay the bulk of the taxes to pay down the deficit created by Bush Era polices and moving everything now owned by "we the people/our government" to private companies meaning we lose many of our freedoms. If roads, parks, bridges, infrastructure, pubic lands are then owned by private companies whose job it is to make a profit for investors, how do you think you will be able to drive these roads, use any infrastructure, access public lands, parks, rivers, etc. without having to pay a huge fee to do so. Mitt and the Repubican leadership sell this plan as "freedom" but what it does is give more freedom to the already wealthy while taking away everything that the majority of our citizens currently have ownership of. That's not "Freddom."
BUT IT WON'T CREATE JOBS! ... and here is Why?
(1) No corporation will hire a single person, regardless of how much profit they make, regardless of what rules are changed in their favor ... UNTIL CONSUMER DEMAND EXCEEDS THE OPERATING ABILITY OF ITS CURRENT WORKERS. Why would they? Every worker above and beyond what is needed to fill the demand for products and services is just COST .. and that is a distasteful word to CEO's and CFO's.
(2) No amount of reduction of taxes and rules will allow U.S. workers to compete with imported goods from low-wage countries ... unless workers in the U.S. are willing to work for equivalent wages ... like pennies or maybe a dollar a day. A third world country worker can feed their family for a day with these wages ... but a U.S. worker can't even buy a cup of coffee a day for these wages.
(3) By reducing all these taxes and regulations, our country has to eliminate safety net programs. This means alot of people out of work no longer have money to spend. Less money to spend lowers consumer demand. Lower wages from business friendly jobs means less taxes paid into funding public programs and reduces spending. Less spending reduces consumer demand. It's like a domino effect. As spending decreases, there is less consumer demand, less consumer demand means workers laid off creating more unemployment, even less spending ... and the U.S. economy goes spiralling down the rabbit hole as it creates its own Third World Country U.S.A.
Then we end up with desperate workers willing to work for low low wages ... and that may make coporations happy for a short time ... but consumer demand cannot drive jobs and more profits unless people first have money to spend ... wages from work.
(4) Let's say we do find a way to generate alot of spending in the U.S. economy. Until that consumer demand is going to be met by U.S. workers in U.S. factories and offices, concumer demand will just cause more of our money to flow out to the countries where the imports are being made.
(5) Investors can get all the tax breaks in the world, but they will invest where the big money, the big profit margins exist. That is in foreign country factories ... until our trade laws are changed to equalize the cost of manufacturing goods between trading countries.
... and That is the myth of Free Trade creating prosperity in America for American workers!
... and That's Why the Republican Job Creation Plan will not work in today's world ... Remember how the U.S. economy grew, workers, corporations and investors profited? That was before Free Trade policies created a giant sized hole in our economy ... a hole that is sinking our economic ship and taking our U.S. workers down with it. Consumer demand is the main driver of job creation. The Republicans believe in supply side economics. That means if the corporation makes it, you will buy it. ... and that is a giant sized economic falsehood ... the big lie they are trying to sell to the middle class. That is exactly how U.S. companies fail and investors lose money. They fail to pay attention to consumer demand. They are either not paying attention at all or they are being very shortsighted to make profits NOW and worry about the future as it comes. In essence, they are destroying the wage levels of the workers, the majority, and by doing so, will destroy consumer demand that cannot be replaced by the consumer demand from low wage earners in other countries. We are th biggest domino in the economic game, and if we fall, we will take every other country down with us ... all because of Corporate greed and their ability to influence the U.S. legislation on trade policies, labor laws, consumer protection, etc.
Consumer Demand drives both Job Creation and Investment ...
Investment does not drive Job Creation without Consumer Demand
Not only does consumer demand drive job creation with existing companies, it drives or directs where wealthy investors will invest their money. Investors don't just say, "this is a good idea ... I think I'll invest my millions of dollars." They look at where the money is flowing ... where their is consumer demand and how they can meet that consumer demand in the most profitable manner. ... and where is that?
Investment money only creates jobs when there is already large consumer demand and where it can be met most inexpensively ... in foreign country factories ... until we change Free Trade to Fair Trade.
Additional Parts to the Republican Job Creation Plan
Social Security and Medicare
The Republican job creation plan wants states to be "business friendly." One aspect of business friendly is to lower the cost of labor. That means lower wages, less or no contribution of corporations into any social security or medicare plan (in other words, a hidden pay decrease).
Employees and employers pay into social security and medicare like you would pay into a retirement annuity and a disability insurance program. These programs are funded by workers so they can count on an income when they retire or if they are disabled. The part of the contribution from the employer is considered a non-taxable part of the workers wages. These are not hand-out programs. Workers are entitled to these programs because it was their money that was invested into these programs.
Forgive me for this Next Analogy
The creation of regulations...and why?
The Republican job creation plan also says they will do better when government eliminates regulations that cost them money, making it hard to compete with foreign corporations.
When a person eats, their body uses the nutrition from the food and eliminates the non-essential waste. That waste has to go somewhere to protect the rest of society from bacteria, illness and disease. So we have plumbing and that plumbing is connected to an infrastructure of incoming fresh water and outgoing sewage. The public pays a water bill and a sewer bill because of this. Now ... a corporation makes things and in the making of things, there are parts and pieces it uses for the product and other stuff not needed for the making of these products. What does it do with these waste products? Corporations used to either dump the waste into the air, water or countryside ... or they hired someone to haul it away and the hauling company did the same thing. This is not good for anyone, for any citizen. Corporations could have found a way to dispose of this waste in a way that was not harmful or less harmful to society, but that would cost them money and anything that cost money, cuts into the profits.
Corporations have No Moral or Social Responsibility
(and regardless of the Supreme Court decision, they are not "people")
This is according to Milton Friedman economic theory stating that the only responsibility of a corporation is to optimize profits for the investors. That is like saying each individual has no social or moral responsibiity to any other citizen. If that's true, let's abolish all civil and criminal laws and let us see what happens. What is the natural course of things to come when people have no rules to follow that protect fellow citizens?
The Problem with taking the leash off Capitalism/Corporations
So what is the natural course of events when capitalism or corporations have no regulations, no rules that protect citizens ... consumers, workers, communities, environment. Consumers will be taken advantage of. Workers will be treated less and less like people and more like machines that can be forced into maximum productivity, then dumped when showing signs of wear and tear. Communities will have to pay for the infrastructure used by corporations which means everybody pays more taxes because the corporations aren't paying their fair share. The environment will get trashed because no rules are enforced that keep corporations from strewing their garbage over the landscape we citizens live on, landscape that sustains us and much of our food sources and the air we breath, the water we drink and wash in. That's why there are regulations ... and government is the only entity large enough, supposedly representing the people and protecting the people, that can stand toe to toe and above the corporation ... although that is in question lately.
SUPPLY SIDE ECONOMICS DOESN'T WORK FOR THE U.S. OR ITS WORKERS ... BUT IT DOES WORK FOR CORPORATE AND INVESTOR PROFITS.
For "We the People"
### MCV Editor
"Think it Through"
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