Demand

I was listening to NPR yesterday morning driving into work, and I heard a story about employment numbers finally climbing back up to where they were before the financial collapse in 2008. Yay? I guess?

While it's great that employment numbers are improving, it's kind of horrifying that it has taken over six years to climb out of the hole; it's even more horrifying when you realize that the jobs that have come back largely pay less than the jobs that were lost; and it's more horrifying still to realize that while working stiffs have been taking it on the chin since the Masters of the Universe wrecked the world, the MOUs themselves have made out just fine, thank you very much.

I thought one of the commenters in the story got to the heart of what has been going on for the past six years, but that almost nobody (outside of people like Paul Krugman) has wanted to talk about:

So what's the reason for this slow growth that's held back the job market? Here's one big reason, says Heidi Shierholz, weak consumer demand.

SHIERHOLZ: Employers are smart. They're going to hire people exactly when they need them to meet some increased demand for their goods and services. That's the missing piece. Demand is the missing thing out there. 

When the wealthy (with an assist from the political class) vacuum up all of the value of our productive labor for themselves (by keeping wages low, forcing existing workers to work longer and harder (with no corresponding pay increase) rather than hiring more workers, eliminating private sector jobs, cutting public assistance in various forms, and tilting the tax code heavily in their favor, just to name a few examples) they remove the fuel that powers our economy: consumer demand.

There is only so much stuff and so many services the small numbers of super-wealthy at the top can consume, even with all their riches. So while they may have more money to speculate with (thus necessitating the creation of ever more exotic "bets on bets" financial instruments, which is, as we saw in 2008, a problem all on its own) they do nothing to stimulate the economy as a whole.

What makes the economic engine of our country run is broad-based prosperity so that there are millions of people with disposable income who can purchase the goods and services of their fellow citizens, who then employ people to meet that demand, thus creating other consumers who create further demand, and so the virtuous cycle goes.*  It infuriates me every time I hear a politician or a pundit argue in favor of tax-cuts for the "job creators"as way to stimulate hiring.

I am a business owner, and our company hires people not when our taxes are lowered a few percentage points (although we might take a nice trip overseas), but when there are customers walking in our doors necessitating more staff to meet their needs. In other words, consumer demand.  And you get that by raising the minimum wage, keeping public sector employment strong, keeping social insurance programs strong, supporting a strong labor movement, and by clawing back some of the grift at the top by raising top marginal tax rates.

Maybe back in the 70s, when top tax rates were actually high, the labor market was tight, wages were high, and capital was not as free to slosh around the world, supply-side economic solutions to our economic problems might have made more sense. Now they make absolutely none.

* Virtuous in the sense of stimulating broadly shared economic benefits. The sustainability of a consumer-based economy, for example, is a whole different question.