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Economics 101

Let’s say you are a bigwig corporate exec (a proverbial “job creator”) and your company produces widgets.  Right now you are selling 1000 widgets per week.  That’s what economists call “demand” — that’s the demand for your product, your widgets.  It’s how many widgets customers currently can afford to buy.

Now the only reason why you would ever hire more people (“create jobs”) is if you needed to produce more widgets.  And clearly you are not going to start producing more widgets until the demand increases somehow.  There’s a direct correlation between hiring more people and demand for your product.  As demand goes up, you need more workers to produce widgets.  As demand goes down, you need fewer workers.  Quite simple.

So let’s say Congress slashes your taxes as a lot of politicians are advocating — that’s great for you, as now you make more profit, and so get richer.  But that doesn’t change demand for your product one bit — everyday people don’t have any more money than before, so they aren’t going to all of a sudden start buying more widgets.  Demand is still sitting at 1000 widgets per week.  So no way are you going to hire more people just because you are paying less in taxes.

Or let’s say Congress does away with all kinds of government regulation — they kill off the EPA, they stop checking on worker safety, they stop inspecting food, etc., again as being advocated by many politicians.  So now you can dump all the toxins you want in to the atmosphere and water when you produce your widgets, and that’s going to save you a lot of money, and so — here we go again — you get richer.  But again, this doesn’t change demand for widgets at all.  So again, no way are you hiring more people.

Or let’s say Congress reduces the national debt by slashing government spending on social security, medicare, unemployment benefits, firing government workers, etc., as also being advocated by a lot of politicians.  Once again, that’s not going to affect the demand for widgets one bit.  In fact, if anything, demand is going to go DOWN since what you have done is taken money away from the people who are buying widgets.  And guess what that means — you don’t need all the people you currently have employed, so you are going to start firing people!  Not only are you not “creating jobs”, you are eliminating jobs!

Are you starting to get the picture here?  The only way the so-called “job creators” are going to create jobs is when demand for their product goes up.   Cutting taxes is not going to increase demand, cutting government regulation is not going to increase demand, cutting government spending is not going to increase demand.  The only way to increase demand is through some type of stimulus to the economy.  And the only available option for stimulating the economy right now is for someone who doesn’t have to worry about bottom-line profit to step up to the plate and start spending money.  Which is exactly why we need a huge government stimulus program right now.  The government creates jobs, working class people have more money to spend, and they start buying more widgets.  They also start buying more TVs and so the TV manufacturers and sellers have to hire more people to meet that increased demand.  And people also start going out to restuarants more often, and so restaurants start hiring more people.  And this snowballs throughout the economy — more people buying stuff, which means more people working and making more money, which they turnaround and spend, creating more jobs.  And once everything is back to being hunky-dory then the government can scale back the stiumulus and let the economy jug along on it’s own.

But it’s got to start somewhere.  And that somewhere is with government spending.  Not tax cuts for the rich, not decreased government regulation, not decreased government spending.  It really is that simple.

End of Economics 101.