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Rich People Actually Don't Create The Jobs


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By Henry Blodget, Business Insider

 

As America struggles with high unemployment and record inequality, everyone is offering competing solutions to the problem. In this war of words (and classes), one thing has been repeated so often that many people now regard it as fact.

 

"Rich people create the jobs."

 

Specifically, by starting and directing America's companies, entrepreneurs and rich investors create the jobs that sustain everyone else. This statement is usually invoked to justify cutting taxes on  entrepreneurs and investors. If only we reduce those taxes and regulations, the story goes, entrepreneurs and investors can be incented to build more companies and create more jobs.

 

This argument ignores the fact that taxes on entrepreneurs and investors are already historically low, even after this year's modest increases. And it ignores the assertions of many investors and entrepreneurs (like me) that they would work just as hard to build companies even if taxes were higher.

 

But, more importantly, this argument perpetuates a myth that some well-off Americans use to justify today's record inequality — the idea that rich people create the jobs.

 

Entrepreneurs and investors like me actually don't create the jobs -- not sustainable ones, anyway. Yes, we can create jobs temporarily, by starting companies and funding losses for a while. And, yes, we are a necessary part of the economy's job-creation engine. But to suggest that we alone are responsible for the jobs that sustain the other 300 million Americans is the height of self-importance and delusion.

 

So, if rich people do not create the jobs, what does?

 

A healthy economic ecosystem — one in which most participants (especially the middle class) have plenty of money to spend.

 

Over the last couple of years, a rich investor and entrepreneur named Nick Hanauer has annoyed all manner of other rich investors and entrepreneurs by explaining this in detail. Hanauer was the founder of online advertising company aQuantive, which Microsoft bought for $6.4 billion.

 

What creates a company's jobs, Hanauer explains, is a healthy economic ecosystem surrounding the company, which starts with the company's customers.

 

The company's customers buy the company's products. This, in turn, channels money to the company and allows the the company to hire employees to produce, sell, and service those products. If the company's customers and potential customers go broke, the demand for the company's products will collapse. And the company's jobs will disappear, regardless of what the entrepreneurs or investors do.

 

Now, again, entrepreneurs are an important part of the company-creation process. And so are investors, who risk capital in the hope of earning returns. But, ultimately, whether a new company continues growing and creates self-sustaining jobs is a function of the company's customers' ability and willingness to pay for the company's products, not the entrepreneur or the investor capital. Suggesting that "rich entrepreneurs and investors" create the jobs, therefore, Hanauer observes, is like suggesting that squirrels create evolution.

 

Or, to put it even more simply, it's like saying that a seed creates a tree. The seed does not create the tree. The seed starts the tree. But what actually grows and sustains the tree is the combination of the DNA in the seed and the soil, sunshine, water, atmosphere, nutrients, and other factors that nurture it. Plant a seed in an inhospitable environment, like a desert or on Mars, and the seed won't create anything. It will die.

 

So, then, if what creates the jobs in our economy is, in part, our companies' customers, who are these customers? And what can we do to make sure these customers have more money to spend to create demand and, thus, jobs?

 

The customers of most companies are ultimately American's gigantic middle class — the hundreds of millions of Americans who currently take home a much smaller share of the national income than they did 30 years ago, before tax policy aimed at helping rich people get richer created an extreme of income and wealth inequality not seen since the 1920s.

 

She'd like to create jobs. But she can't afford to anymore. Click to see how extreme inequality has gotten. America's middle class has been pummeled, in part, by tax policies that reward "the 1%" at the expense of everyone else. It has also been pummeled by globalization and technology improvements, which are largely outside of any one country's control.

 

The prevailing story that justifies tax cuts for America's entrepreneurs and investors is that the huge pots of gold they take home are supposed to "trickle down" to the middle class and thus benefit everyone.

 

Unfortunately, that's not the way it actually works.

 

First, America's companies are currently being managed to share the least possible amount of their income with the employees who help create it. Corporate profit margins are at all-time highs, while wages are at an all-time low.

 

Second, as Hanauer observes, America's richest entrepreneurs, investors, and companies now have so much money that they can't possibly spend it all. So instead of getting pumped back into the economy, thus creating revenue and wages, this cash just remains in investment accounts.

 

Hanauer explains why.

 

Hanauer takes home more than $10 million a year of income. On this income, he says, he pays an 11% tax rate. (Presumably, most of the income is dividends and long-term capital gains, which carry a tax rate of about 20%. And then he probably has some tax shelters that knock the rate down the rest of the way).

 

With the more than $9 million a year Hanauer keeps, he buys lots of stuff. But, importantly, he doesn't buy as much stuff as would be bought if his $9 million were instead earned by 9,000 Americans each taking home an extra $1,000 a year.

 

Why not?

 

Because, despite Hanauer's impressive lifestyle — his family owns a plane — most of the $9+ million just goes straight into the bank (where it either sits and earns interest or gets invested in companies that ultimately need strong demand to sell products and create jobs). For a specific example, Hanauer points out that his family owns 3 cars, not the 3,000 cars that might be bought if his $9+ million were taken home by a few thousand families.

 

If that $9+ million had gone to 9,000 families instead of Hanauer, it would almost certainly have been pumped right back into the economy via consumption (i.e., demand). And, in so doing, it would have created more jobs.

 

Hanauer estimates that, if most American families were taking home the same share of the national income that they were taking home 30 years ago, every family would have another $10,000 of disposable income to spend.

 

That, Hanauer points out, would have a huge impact on demand — and, thereby job creation.

 

So, if nothing else, it's time we stopped perpetuating the fiction that "rich people create the jobs."

 

Rich people don't create the jobs.

 

Our economy creates jobs.

 

We're all in this together. And until we understand that, our economy is going to go nowhere.

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You sound like a guy who has never done a loan.   Most definitely someone who hasn't worked with a lot of mortgage brokers.   A 6th grade reading level is going to know what this verbage means, eh?

Yeah, and it had nothing to do with people buying shit they couldn't afford and stacking up debt. Must have been the fault of the evil banks who gave the retarded middle class exactly what they asked

By Henry Blodget, Business Insider   As America struggles with high unemployment and record inequality, everyone is offering competing solutions to the problem. In this war of words (and classes), o

Brucewayne

Out sourcing and inexpensive imports destroy any incentive to build or maintain any type of industry in the USA.

The real culprits are the lawmakers who relaxed the US trade laws so outside companies could sell their junk instead of taxing the crap out of them so the competition would more fair.

It causes inflation, but inflation is good, it causes an economy to rise as long as it isn't "runaway" inflation which needs to be kept in check.

Keeping inflation in check is not terribly complicated, the raising of interest rates does slow inflation down a bit, but only temporarily.

There are other ways to have controlled inflation, but the greedy rich tend to fight most of those measures.

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lifeisgood

 

 
Rich people don't create the jobs.
 
Our economy creates jobs.
 
We're all in this together. And until we understand that, our economy is going to go nowhere.

 

 

That is kind of a bullshit article.  Of course there needs to be someone who wants to buy your product/service in order for that business to grow and create more jobs.

 

Talk about a "duh" moment.

 

Rich people don't create jobs because many of the people starting businesses aren't rich until their businesses make them so.  

 

Also, the availability of cash infusions is essential for businesses to expand.  Look at Amazon for a good idea of what I'm talking about.  I don't think they are making much of a profit still because they are reinvesting everything.  Rich people investing in the stock market does create jobs because that is giving businesses the resources to expand and create jobs.   There should be incentives like lower tax rates on these investments.

 

Even if our economy is good, without available cash, there won't be any jobs.  

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cebubird

Out sourcing and inexpensive imports destroy any incentive to build or maintain any type of industry in the USA.

The real culprits are the lawmakers who relaxed the US trade laws so outside companies could sell their junk instead of taxing the crap out of them so the competition would more fair.

It causes inflation, but inflation is good, it causes an economy to rise as long as it isn't "runaway" inflation which needs to be kept in check.

Keeping inflation in check is not terribly complicated, the raising of interest rates does slow inflation down a bit, but only temporarily.

There are other ways to have controlled inflation, but the greedy rich tend to fight most of those measures.

 

 

"Greedy Rich"

I have always hated that term-and now mostly it is used by uber wealthy ozero people to create class warfare..

I have always just been a working class guy, but I have NEVER denigrated folks because they are wealthy,

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Majorsco

How many companies and industries were created by entrepreneurs with an idea of what they thought would sell even if there were no customers wanting the product.  Were there thousands of people beating down the doors to buy PCs before Jobs and his partner created their Apple PC?  What about the iPod, nothing like it existed before.  What about the Pet Rock ( :) ), that sold wildly for a while.  The products were built by the founders in some cases in garages until the customer base was built up.  As the customer base built up on those new companies' products, jobs were created as the expansion of the sales built. 

 

The entrepreneur and some capital came first, followed by customers, followed by more capital, followed by more customers, etc.  Jobs increased during the expansion, but it all started with the entrepreneur who started off in a garage and only after success became millionaires.  They didn't start millionaires.

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Nangulo

 

 

If that $9+ million had gone to 9,000 families instead of Hanauer, it would almost certainly have been pumped right back into the economy via consumption (i.e., demand). And, in so doing, it would have created more jobs.   Hanauer estimates that, if most American families were taking home the same share of the national income that they were taking home 30 years ago, every family would have another $10,000 of disposable income to spend.   That, Hanauer points out, would have a huge impact on demand — and, thereby job creation.

 

So why doesn't he just give all of his money away to those who would create the jobs?  Or, at least half of it.  By his own admission, he doesn't spend it but instead it goes straight to the bank.  Those bastard-big banks that Occupy Wall Street rail against.  Jeez, a guy who has all of the solutions yet doesn't act on them.

 

I wonder why.

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Brucewayne

"Greedy Rich"

I have always hated that term-and now mostly it is used by uber wealthy ozero people to create class warfare..

I have always just been a working class guy, but I have NEVER denigrated folks because they are wealthy,

 

But we are discussing the greedy rich.

I am not biased against the wealthy, just the "GREEDY RICH" bastards who seem to thwart the common man at every turn.

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cebubird

But we are discussing the greedy rich.

I am not biased against the wealthy, just the "GREEDY RICH" bastards who seem to thwart the common man at every turn.

 

Yep---"whitey" holds the black man down-"greedy rich" holds the "common" man down.

Sounds like good communist rhetoric to me.

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Majorsco

 

 

"GREEDY RICH"

 

What exactly is your definition of Greedy Rich?  Is it anyone making more than you? 

 

And how exactly do these rich people "thwart the common man"?  Do they prevent them from getting an education, working to get experience, use their education and experience to rise up to further successes?  People get rich by hard work, willingness to risk their money and time, and they make the hard choices. 

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Brucewayne

Yep---"whitey" holds the black man down-"greedy rich" holds the "common" man down.

Sounds like good communist rhetoric to me.

 

Okay, tell me this, who caused the big crash in 2008 which we are still trying to overcome?

A group of VERY GREEDY RICH.

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Brucewayne

What exactly is your definition of Greedy Rich?  Is it anyone making more than you? 

 

And how exactly do these rich people "thwart the common man"?  Do they prevent them from getting an education, working to get experience, use their education and experience to rise up to further successes?  People get rich by hard work, willingness to risk their money and time, and they make the hard choices. 

 

Ambition is not the same as greedy and what you described has nothing to do with the greedy who ruin a lot of country's economies.

A person can become wealthy without stealing, swindling or being so greedy they don't care about anything but money.

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Majorsco

 

 

Okay, tell me this, who caused the big crash in 2008 which we are still trying to overcome? A group of VERY GREEDY RICH.

 

If only it were that simple.  Banks, mortgage companies, and other financial service firms had a role in the crash to be sure.  However, you  ignore the government's role who during the last 20 years or longer set the stage for banks to offer the mortgage products they did, and for the pressuring/forcing of the issuance of mortgages to people who could not qualify.  That has been going on by the Democratic party since Carter's presidency till the time of the crash.  Bush's team warned of the impending crash but the Democratically controlled congress (and in particular Rep Barney Frank) refused to hear of it.

 

Then you have the people themselves buying what they know they can't afford.

 

 

 

There is a lot of blame to go around, but many lay the blame solely on the bankers.

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lifeisgood

Okay, tell me this, who caused the big crash in 2008 which we are still trying to overcome?

A group of VERY GREEDY RICH.

 

Yeah, greedy rich people are the worst.  Or are they?

 

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Okay, tell me this, who caused the big crash in 2008 which we are still trying to overcome?

A group of VERY GREEDY RICH.

Yeah, and it had nothing to do with people buying shit they couldn't afford and stacking up debt. Must have been the fault of the evil banks who gave the retarded middle class exactly what they asked for. We must feel bad and protect the poor middle class who can't make wise financial decisions or read the fine print.

 

I hope no one is expecting sympathy for losing a house/car/big screen TV they couldn't afford in the first place. I don't think the banks were holding a gun to anyone's head saying, "take this loan or else you die". No, it was the greed, desire and stupidity of the lower and middle class that got everyone else into this mess.

 

People give shit to the politicians about the National debt, but isn't spending more than you make and living above your means a national pastime in the US? I have had a total of maybe 10k dollars of debt over my ENTIRE life. I feel bad for nobody that racks up debt (and then loses everything) for reasons that do not constitute emergency or need. They got exactly what they deserved. I only feel bad for their children who have to suffer for their parents bad financial decisions.

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Davaoeno

  Banks, mortgage companies, and other financial service firms had a role

 

, you  ignore the government's role That has been going on by the Democratic party since Carter's presidency

 

Then you have the people themselves buying what they know they can't afford.

 

 

 

There is a lot of blame to go around, but many lay the blame solely on the bankers.

 

obviously not anyone who thinks the mortagage companies, other financial service firms, the government, the Democratic party or the people themselves  had a role   !!!! LOL  [  according to your post ! ]

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