The GOP Myth of 'Job-Killing' Spending

[Denny Crane]

http://online.wsj.com/article/SB10001424052702303635604576392023187860688.html

The generic conservative view that government is "too big" in some abstract sense leads to a strong predisposition against spending. OK. But the question remains: How can the government destroy jobs by either hiring people directly or buying things from private companies? For example, how is it that public purchases of computers destroy jobs but private purchases of computers create them?

http://blogs.forbes.com/charleskadl...ment-report-that-screams-spectacular-failure/

The answer is as simple as double-entry bookkeeping. Every dollar that was borrowed by the government was taken from the private sector, which no longer had the money to invest or spend. For example, study after study has shown that tax rebates do not work because typically they are roughly offset by increases in the savings rate, blunting any hoped for increase in aggregate demand. But of course: someone had to buy the incremental debt issued by the government instead of spending it on goods and services, or on other investments!

Here is the key point. The government has no resources of its own. It can only spend what it first takes from the private sector, either through taxes or borrowing. The net cash flow into the economy through deficit spending is therefore zero, nada, nothing.

 

[bluefrog]

What about government spending on R&D that private companies aren't doing?

 

[Denny Crane]

What about government spending on R&D that private companies aren't doing?

On this I agree with you. As a Libertarian, I am not opposed to some government, it should just be very limited. Even so, what constitutes R&D that the private sector won't do is nebulous. Certainly the private sector won't spend a $billion researching the mating habits of frogs, but the govt. will. And you get into issues of who the govt. buys from and the improper influences that result.

 

[mook]

What if business is sitting on nearly $2 trillion in cash and has absolutely no interest in spending that cash on anything, mostly because consumer demand is frozen?

What if corporate profits are at awesome highs because they are shifting their investment, new products, and hiring overseas?

Interest rates are exceptionally low right now. Inflation is minimal.

The problem with our economy is jobs. Nobody is hiring domestically because there is no domestic demand. There is no domestic demand because there aren't enough domestic jobs. And around and around we go. It's a craptastic log jam. Meanwhile our infrastructure is falling way, way behind other first world countries. Which is an added massive impediment to our economy.

The obvious solution is to put together massive public works projects along the lines of the WPA/Interstate Highway System. The plan also raises taxes some by cutting out loopholes and allowing Bush's cuts to expire as they were supposed to, and cuts entitlements and defense. We rack up short term debt over the next few years to break the logjam, but put ourselves on a long-term path toward solvency.

 

[maxiep]

What if business is sitting on nearly $2 trillion in cash and has absolutely no interest in spending that cash on anything, mostly because consumer demand is frozen?

What if corporate profits are at awesome highs because they are shifting their investment, new products, and hiring overseas?

Interest rates are exceptionally low right now. Inflation is minimal.

The problem with our economy is jobs. Nobody is hiring domestically because there is no domestic demand. There is no domestic demand because there aren't enough domestic jobs. And around and around we go. It's a craptastic log jam. Meanwhile our infrastructure is falling way, way behind other first world countries. Which is an added massive impediment to our economy.

The obvious solution is to put together massive public works projects along the lines of the WPA/Interstate Highway System. The plan also raises taxes some by cutting out loopholes and allowing Bush's cuts to expire as they were supposed to, and cuts entitlements and defense. We rack up short term debt over the next few years to break the logjam, but put ourselves on a long-term path toward solvency.

This is a case where we agree on the facts, but disagree on our prescription. You're 100% correct that the economy is frozen. In your mind, it's because there aren't any jobs and the solution is to create some through the government.

In my mind, it's not that there aren't any jobs; it's more fundamental than that. It's the unintentional uncertainty that the policies of this Administration has fostered in the private sector. The private sector and the investment class is scared shitless over what the Administration is going to do to them next.

And what do you do when there's uncertainty? You hunker down. You don't invest. You hoard cash or invest in commodities. You don't hire new workers. And those activities trickle down to individuals. Who doesn't feel insecure in their job right now? Hell, I'm a partner in a firm that contractually holds the money of investors for a fixed period, and we're scared to death about our futures. I couldn't imagine being an employee of a firm struggling to meet payroll.

If you want to grow this economy, you offer certainty. You end the open hostility toward those that invest and produce. You let us know that government will not continue to consume an ever-increasing percentage of GDP. You get the public debt under control and begin reducing it.

All of us in the private sector have tightened our belts. You know who's been doing well? Public employees. I agree with our President that we all need to share in the sacrifice; c'mon, public employees, you can afford to give just a little bit more. Chip in your fair share.

 

[MARIS61]

The distinction between public and private sector is is moot when it comes to providing/retaining jobs.

Both sides are to blame, as are we all.

The private sector who deliberately replaces American workers with illegal aliens and builds it's products overseas.

The government who purchases primarily foreign-made goods rather than only goods Made In America.

The American citizens who buy products made by these foreigners who stole their jobs.

 

[Denny Crane]

The one thing govt. Is good at is writing checks. The engine of the economy is small business, not those companies sitting on cash (who make up 25% of the workforce, tops).

If access to capital is strangling small business, the govt. should be providing it. That is how govt. can put people to work in a productive manner.

Their strategy of giving money to the banks failed to provide capital for the basics. 40 acres and a mule is FAR better than WPA.

 

[mook]

I own a small business. I could double the size of my company tomorrow. I've got a great cash nest egg, fantastic terms with my vendors (net 180 FTW!), and I've got awesome access to all kinds of loans. Chase just told me I can borrow $100k today at a stupidly low rate if I wanted it.

I've got "supply" up the wazzoo, so why don't I get spending?

Is it because I'm afraid of Obama? LOL!

It's because I just don't see the demand. If nobody wants to buy my stuff, what's the point in spending?

My small business is exactly what's wrong with our economy. There's absolutely nothing wrong with the supply of cash, labor, real estate or inventory. Government uncertainty isn't great--but that's why I propose a short term spending plan and long-term deficit reduction plan. Boom, no uncertainty. But even there, I don't really lose sleep about how the deficit limit might impact my sales. It just doesn't factor in my day-to-day life.

The problem is demand.

There's simply nothing government or corporations can really do that will matter on the supply side if there ain't any consumer demand. The only way I see to put spending money in hands of people who will spend it is to create jobs building roads, schools, ports and electric grids. The people who earn money on those jobs will spend it on my products, and I'll gladly start spending on my business.

 

[Denny Crane]

You sell on the Internet, no?

Where I live, there are lots of empty storefronts, but not enough businesses to fill them. However, what I see going on is successful businesses, particularly food joints, looking to open additional locations.

And it doesn't square that your business is doing so well with lack of demand.

 

[maxiep]

I own a small business. I could double the size of my company tomorrow. I've got a great cash nest egg, fantastic terms with my vendors (net 180 FTW!), and I've got awesome access to all kinds of loans. Chase just told me I can borrow $100k today at a stupidly low rate if I wanted it.

I've got "supply" up the wazzoo, so why don't I get spending?

Is it because I'm afraid of Obama? LOL!

It's because I just don't see the demand. If nobody wants to buy my stuff, what's the point in spending?

My small business is exactly what's wrong with our economy. There's absolutely nothing wrong with the supply of cash, labor, real estate or inventory. Government uncertainty isn't great--but that's why I propose a short term spending plan and long-term deficit reduction plan. Boom, no uncertainty. But even there, I don't really lose sleep about how the deficit limit might impact my sales. It just doesn't factor in my day-to-day life.

The problem is demand.

There's simply nothing government or corporations can really do that will matter on the supply side if there ain't any consumer demand. The only way I see to put spending money in hands of people who will spend it is to create jobs building roads, schools, ports and electric grids. The people who earn money on those jobs will spend it on my products, and I'll gladly start spending on my business.

You may not fear Obama's taxes and regulations on your business, but the data say that other, larger businesses disagree with you. What do you think generates demand? Certainty. If you're secure in your position, you're willing to spend. If you're not, you save. A WPA project is nothing more than temp work. People need to know they are on a career path.

Obamacare is going to hit businesses like a sledgehammer, and has already significantly raised our health care costs. We have no idea what will happen with capital gains or corporate taxes, not to mention the specter of onerous regulation.

 

[mook]

You sell on the Internet, no?

Where I live, there are lots of empty storefronts, but not enough businesses to fill them. However, what I see going on is successful businesses, particularly food joints, looking to open additional locations.

And it doesn't square that your business is doing so well with lack of demand.

Our business is growing ok. Not doubling every year, but a nice stable growth curve. Certainly better than a lot of companies.

What doesn't square in your mind? That I've got all these options for borrowing/spending money and yet I don't have the massive sales opportunities to justify doing so? Think long and hard about that, because it's my whole point.

I have access to cash to double my current investment in my company. But there's simply no reason to. There just isn't enough demand to justify it.

The original point of this thread was that taking cash out of the economy to fund government is always bad, because it robs from companies that could spend it more wisely.

I've got loads of available cash to spend on my business (and thereby foster the economy). I have no reason to spend it. So it sits there doing nothing. There are businesses and lenders all over this country in the exact same position I'm in. That's the whole problem.

maxie thinks it's all about regulation, and I guess if you deal in the world of pushing papers back and forth dealing with complex financial/real estate transactions, maybe you should.

My business is buying stuff for a buck and selling it for a buck fifty. Businesses like mine exist all over the world, including in heavily socialized countries like Germany and Finland. We tend to do fine when people want to buy stuff, and we tend to suck when people don't. That's probably 90% of the reason my business sinks or swims.

Regulation matters, but if you are smart enough to make a buck at X% tax rate, you are probably smart enough to make a buck at X+10% tax rate. For me, regulation and access to supplies of cash (the two biggies that Republicans always go on about) are drops in the bucket compared to the importance of consumer demand. There's an old saying among small business owners I know--"Sales cures most problems."