Monday, September 12, 2011

Demand Creates Jobs

10 Years Of Capital Gains Tax Cuts Proves: Rich Win, You Lose, by Dave Johnson
  • Why are "capital gains" taxes so much lower than taxes on other income? 
  • The reason capital gains taxes are lower is because most of the income of the rich is from capital gains.
  • And the reason most of the income of the rich is from capital gains is because capital gains taxes are lower.
"Capital gains" are the gains, or profits, made from the investment of capital -- the big pools of money that a few of us have the great responsibility and burden of being stuck with. The theory is that the few among us who have bundles of money (capital) use that money to start businesses or buy stocks or property (or race horses) and thereby "create jobs." (For more on how businesses and the wealthy "create jobs," click here and then click here.)

Demand Creates Jobs
A job is created when demand for goods or services is greater than the existing ability to provide them. When there is a demand, people will see the need and fill it. Either someone will start filling the demand alone, or form a new business to fill it or an existing provider of the good or service will add employees as needed. (Actually a job can be created by a business, a government, a non-profit organization or just a person doing the job, depending on the nature of the good or service that is required.)

So a demand creates a job. A person who sees that houses on a block need their lawns mowed might go door to door and say they will mow the lawn for $10. When houses start saying "Yes, I need my lawn mowed" a job has been created!

Demand also creates businesses. The person who is filling demand by mowing lawns for people might after a while have a regular circuit of houses that want their lawns mowed every week, and will buy a truck and a new mower and hire someone to help. A business is born!

Businesses Want To Kill Jobs, Not Create Them
Many people wrongly think that businesses create jobs. They see that a job is usually at a business, so they think that therefore the business "created" the job. This thinking leads to wrongheaded ideas like the current one that giving tax cuts to businesses will create jobs, because the businesses will have more money. But an efficiently-run business will already have the right number of employees. When a business sees that more people are coming in the door (demand) than there are employees to serve them, they hire people to serve the customers. When a business sees that not enough people are coming in the door and employees are sitting around reading the newspaper, they lay people off. Businesses want customers, not tax cuts.
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Blogger Bob Warfield writes:
"It’s been well established for a long time that small companies are the engines of job creation in America. This is not just supposition, and it’s not just a little bit true, it is well-documented and a huge difference... The OECD has a particularly in-depth white paper on how public policy impacts the small firms that are the drivers of growth. There are many other such write ups.

...Isn’t it ironic that small and decentralized is so much more efficient than big and monolithic?

...if you want to create a real plan for action, get rid of all the red tape ...Put your tax credit scheme into effect, but instead of giving those credits to Big Companies for building plants here, give them in the form of tax breaks for the little guys. That’s right, slash what they pay, give them cash incentives to hire, and make the Big Guys who outsourced pay for it all so we don’t drive the National Debt any higher. ...With a positive enough environment for small business, maybe some will wind up being the next Intels..."

Other reading:
Capital Gains Tax Rates Benefiting Wealthy Feed Growing Gap Between Rich and Poor
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  1. There's apparently more demand in the office of Christy Clark. Another well paid position was created today in the appointment of an assistant to Pamela (overworked) Martin. Let's not forget how Christy campaigned on change & Families First.
    Will it ever end Norm ?

    Guy in Victoria

  2. I don't know much about Ms. Martin but I hear that when she raises her eyebrows her socks go up.



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