Henry Blodget, CEO and Editor-In-Chief of the Business Insider, on December 12, 2011 writes about a billionaire named Nick Hanauer who recently wrote an editorial for Bloomberg in which he destroyed the argument that the jobs in America are created by rich entrepreneurs and investors.
“In our current “class war” climate, this argument has been repeated so often that it’s now regarded as fact. And it is frequently and passionately invoked to defend the idea that we should make further tax cuts for rich people — so rich people can have an incentive to create more jobs.
“As I explained yesterday, the argument that rich people create the jobs is flawed for many reasons, starting with:
- Taxes on rich people are already historically low relative to other (very prosperous) periods, and
- Many billionaires and entrepreneurs like Hanauer have already gone on record to ridicule the idea that raising capital gains and income taxes a few points would suddenly reduce the incentive to start companies.
“(The entrepreneurs would take home slightly less money from their companies, but they’d start them anyway. So cutting taxes for rich “job creators” would just make the job creators richer.)
“But Hanauer’s more profound point, which explains one of the things that is ailing our economy, is that rich people actually don’t create the jobs.
“What creates the jobs is a healthy economic ecosystem. Specifically, a healthy ecosystem that starts with the company’s customers.
“An entrepreneur can have the most brilliant idea in the world and plenty of funding to develop and sell it, but if customers can’t afford to buy the company’s products, the entrepreneur and his or her investors won’t create a single permanent job.”
In a nutshell, full employment is not an objective of businesses. Companies strive to keep labor input and other costs at a minimum. Private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role. Over the past century there has been an ever-accelerating shift to productive capital––which reflects tectonic shifts in the technologies of production. The mixture of labor worker input and capital worker input has been rapidly changing at an exponential rate of increase for over 235 years in step with the Industrial Revolution (starting in 1776) and had even been changing long before that with man’s discovery of the first tools, but at a much slower rate. Up until the close of the nineteenth century, the United States remained a working democracy, with the production of products and services dependent on labor worker input. When the American Industrial Revolution began and subsequent technological advance amplified the productive power of non-human capital, plutocratic finance channeled its ownership into fewer and fewer hands, as we continue to witness today with government by the wealthy evidenced at all levels.
In order for an economy to grow, the consumer populous must have income in order to create demand for products and services. While the rich minority systematically concentrates more and more capital ownership in their stationary 1 percent ranks, the 1 percent are not the people who do the overwhelming consuming. The result is the consumer populous is not able to get the money to buy the products and services produced as a result of substituting machines for people. And yet you can’t have mass production without mass human consumption. It is the exponential disassociation of production and consumption that is the problem in the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic well-being.
In a democratic growth economy, based on Louis Kelso’s binary economics, the ownership of productive capital would be spread more broadly as the economy grows, without taking anything away from the 1 to 10 percent who now own 50 to 90 percent of the corporate wealth. Instead, the ownership pie would desirably get much bigger and their percentage of the total ownership would decrease, as ownership gets broader and broader, also benefiting the traditionally disenfranchised poor and working and middle class. Thus, productive capital income would be distributed more broadly and the demand for products and services would be distributed more broadly from the earnings of capital and result in the sustentation of consumer demand, which will promote economic growth, which will benefit the already rich as well. That also means that society can profitably employ unused productive capacity and invest in more productive capacity to service the demands of a growth economy.
Norman Kurland of the Center for Economic and Social Justice (CESJ.org) comments:
This highly articulate businessman points out the absurdity of those conservatives advocating lower tax rates for property-based consumption incomes for the rich. Hanauer shatters the capitalist argument that the monopolistic holdings of the rich will “create jobs,” their shallow justification for thousands of tax deductions, tax credits, tax loopholes and “tax expenditures” from politicians that achieve monopolistic access for the rich to future growth assets, future capital incomes, etc., perpetuating and increasing the ownership, power and income gaps between the top 1 percent and the poorest 99 percent of citizens.
The video makes the same case against monopoly capitalism as Karl Marx, Lord John Maynard Keynes and those who turn to government redistribution for creating jobs and redistributive taxation for supplying consumption incomes of the unemployed, underemployed and those who have left the workforce. On the other hand, Keynes and those following Marxist solutions offer non-productive income redistribution schemes that led to continuing increases in the costs of production and prices, plus a continuing transfer of power and income independence from the poor and middle class to the State, society’s only legitimate monopoly. The monopolistic power of the State, whose power is has been shifted from increasingly powerless and manipulated voters to an elite of politicians, their rich contributors for new laws to perpetuate monopoly capitalism, and an elite of government bureaucrats to “regulate” the unjust “wage slave, welfare slave, debt slave, and charity slave system” supported by Wall Street speculators, the tiny ownership class whose power and capital incomes increases at the expense of the 99 percent, especially the poorest of the poor who are the most powerless, economically dependent and hopeless victims of the modern culture.
Conservatives not only would continue the current thousands of “tax expenditures” that concentrate capital ownership for the rich but would eliminate all income and inheritance taxes on the rich based on the false premise that this “creates jobs.” Conservative policymakers would also cut government spending for the poor without offering systemic changes to “the system” that would grow the economy in ways that return economic power and provide truly equal economic opportunity to all citizens from the bottom-up through market forces, radically reduce the economic power of government, and do so without violating private property rights of current owners during their lives.
What the TED video misses is that both the left and the right have been miseducated by the “Labor Theory of Value,” which the gurus of economics, including Nobel Prize winning economists like Milton Friedman and Paul Samuelson, took for granted, whether they belong to the various socialist schools of economics, or the Austrian School of Hayek and von Mises, or the Chicago Monetarist School of economics, or the Keynesian school that dominates the economic policies of the United States and other democratic developed nations. This false theory assumes that “Labor” (all human contributions to the production of marketable goods and services) is the sole source of all production, thereby totally ignoring the growing role of all non-human physical, organizational, marketing and intangible productive assets that combine with Labor to the production and and delivery of all marketable goods and services in all market economies. By ignoring “Capital” the Labor Theory of Value ignores the fact the labor-destroying technologies and other ever-advancing forms of productive capital produce enormous capital incomes for Wall Street speculators and the capitalist elite for beyond their ability to consume what they earn as capital owners. And this false Labor Theory of Value ignores the possibility that the annual multi-trillion dollar growth of new capital assets and transfers of existing capital assets could by changes in the tax system and Federal Reserve system and policies could legitimately become owned by every citizen, from the poorest to the richest, as a new right of citizenship, comparable to universal access to the political ballot.
Louis Kelso, (1) seeing the flaw in the Labor Theory of Value, (2) conceiving of a simple overall theory based on a more realistic understanding of the dynamic nature of a true economic system and (3) offering universal principles of “Economic Justice” for limiting the greed and corruption inherent in monopoly capitalism, provided the world with a “solution” that would automatically balance the two sides of the economic equation: “Production” (or “aggregate supply” for economists) with “Consumption” (or “aggregate demand” or “mass purchasing power” for economists). Thus the “Binary Theory of Economics” challenges and transcends the theories of all other schools of economics. Kelso’s innovations in financing new capital assets and new capital incomes for consumption and retirement incomes for all citizens on “future savings” rather than current incomes also removes these costs from the costs of producing future goods and services. As pointed out by the late Walter Reuther, the legendary head of the United Auto Workers, in his February 20, 1967 testimony before the Joint Economic Committee of Congress, in favoring widespread democratization of capital ownership and profit sharing, profits do not add to costs. They are determined from the bottom-line, only after marketable goods and services are sold. Therefore, adoption of Kelso’s Capital Homestead Act across the board for all Americans would tend to eliminate production costs and stabilize prices, while increasing not only higher consumption incomes for all Americans, but also lower prices for the goods and services they consume.
I agree with Michiel Bijkerk’s’s comments on how the Nick Hanauer’s PET video can contribute to widespread public understanding of Kelso’s theory and the Capital Homestead Act for a radical overhaul and simplification of the Federal tax system, Federal Reserve policy and role in favoring future money and credit for ownership-expanding asset-backed productive capital loans and discouraging future ownership-concentrating non-productive loans for government deficits, the need for consumer loans and other loans that create added consumption incomes backed by past, not added, marketable goods and services. Creating new dollars not backed by added goods and services is the equivalent of counterfeiting and inherently inflationary:
However, I suggest we all start by sending to each person in our personal Facebook, LinkedIn and other social media networks the Summary of the Capital Homesteading Act at http://www.cesj.org/homestead/
http://www.businessinsider.com/no-steve-jobs-did-not-create-jobs-by-inventing-the-iphone-2011-12
