In this election, Governor Romney is running on the concept of his experience at Bain qualifying him as a “job creator”. He’s on very thin ice here for a number of reasons.
- The purpose of Bain Capital was not “job creation”. The purpose of Bain was wealth creation. Bain’s objective was to maximize profits for investors. That could be done many ways. One of the ways was through “creative destruction” of companies that would be dismantled and their assets sold off piece meal. The employees were always expendable. If a company could be profitable without laying off its work force. Fine. If not, fine. Profits for the investor can be obtained through “creative destruction” of the company in order to provide the investors with a return. The workers were always a secondary consideration at best. Mostly they are of no concern at all, and people are fired, and then possibly offered their jobs back at a lower pay scale. Their insurance is gone. Their pensions are looted.
- A Venture Capitalist is not a “job creator”. That isn’t what they do. Maximizing profits of investors is the only function. Creating jobs is not on the list of things to do in Venture Capital Private Equity companies. If you own a private equity company and you tell your clients that you are more interested in creating jobs than you are in profits, you won’t be serving your clients and you aren’t doing the job of private equity. Most certainly, your own business won’t survive. The most obvious way to maximize profit is to reduce operating costs. Employees represent a cost. A smart business man only hires people when there is a demand for his product. If he can produce the same product using fewer people it increases his profit margin.
- Some industrialists create products. However, a product is not a job. It is an idea. If the idea is good it will sell through marketing of the idea. That idea MUST be sold to somebody willing to buy it. The more people willing to buy it, the more demand there is to provide the product idea. What creates jobs is the demand made on the company to fill the orders for their product. It is the consumer demand that creates jobs.
Who exactly are the so called “job creators”? They are none-other than the public itself; the consumer who is willing to spend his money on the product or service being offered. The idea that a wealthy industrialist is a job creator is completely false. Hiring a person must always benefit the wealthy industrialist in filling the demand for his product made by the consumer. The consumer always drives the hiring of personnel. Consumer demand creates the job. A company will only hire people based on the demand for the product or service that it offers. Hiring people in hopes of having people walk through the door to buy something is like demanding that the stove gives you heat before you put in the wood. The thing that creates jobs is the demand for a product made on a company by consumers of that product. The public/consumer is the job creator. A company provides a product or a service. It doesn’t provide jobs. That is not what it’s in business for. To suggest otherwise is false, ludicrous and totally and completely illogical. No business man ever started a business with the idea of creating jobs for people. He started a business to make money from his product.
So, what happens in a recession, or worse, a depression such as that which we faced in 2008? For one thing we saw the stock market fall.
NEW YORK (CNNMoney.com) — Stocks skidded Monday, with the Dow slumping nearly 778 points, in the biggest single-day point loss ever, after the House rejected the government’s $700 billion bank bailout plan.
On October 9, 2007, the Dow closed at 14,164.43, an all-time high. However, fourth quarter GDP growth was -1%, announcing the start of the recession.(It was later re-estimated at 2.9%) The Dow started declining gradually. After the failure of Bear Stearns in April 2008, and a negative GDP report in Q2 2008, the Dow dropped to 11,000. Many analysts felt that this 20% decline was the market bottom.
However, on Monday, September 15, 2008, Lehman Brothers declared bankruptcy. On Wednesday, panicky bankers withdrew $144 billion from money market funds, nearly causing a collapse. In response, the Dow plummeted 13% in October. By November 20, 2008, it fell to 7,552.29, a new low. This was not yet the true market bottom. The Dow climbed to 9,034.69 on January 2, 2009 before screeching down to 6,594.44 on March 5, 2009. Between its peak and its bottom, the Dow dropped over 50% in just 17 months.
Added to this was the crash of the housing market. People lost nearly all the equity in their homes. Mortgages were upside down. People were now paying on mortgages that were for more than their homes were worth. Foreclosures were epidemic.
Interest rates on credit cards skyrocketed. 3.8% interest rates went to 30% overnight. A credit card payment of $250 per month was now over $1200 a month all coming out of the existing family budget. Decisions on whether to pay on a credit card or make a car payment or mortgage payment were now imposed on family budgets. Skipping a payment on one card, now affected the interest rates on other cards that a family might have. Their credit was now ruined. The only things that mattered were making a car payment and keeping a roof over a families head. The car was needed to get to a job. And the job was needed to pay for the home and the food that the family would survive on.
As credit dried up, both individually and commercially, local business couldn’t finance their payrolls. Companies were forced to lay off employees. Those people were now without a job that would pay for their cars and homes. They’d also lose their health insurance. As these numbers grew with unemployment figures reaching 10%, fewer people would be spending money that they didn’t have. Without spending, companies weren’t selling their goods and services. When companies aren’t selling their products, they lay off more people compounding the problem. The Republican solution to this was more Tax Cuts. Cutting taxes for people without a paycheck doesn’t solve the problem. What possible difference can a tax cut mean to a man or woman without a job? Cutting the taxes of a corporation won’t inspire it to hire more people. You could cut their taxes to zero and it still won’t bring more people through the doors to buy a product they can’t afford. Since people without jobs cannot afford to spend money on products, companies would not be hiring. There was no demand for the products they offered. This is a death spiral to an economy and there is no solution outside of government intervention. The government is responsible for the national security of the nation, and the economic security of this country was at stake. Since the United States is the single most powerful economy in the world, the effects of what happened here would be felt globally.
This transcends any ideological arguments over socialism vs. capitalism. Allowing the country to collapse over ideology has no logical basis. An ideology cannot demonstrate itself as being true. There is no rational basis for any ideology. Arguing over the merits of socialism and capitalism are meaningless if the country falls. Ultimately capitalism requires elements of socialism in order to exist. It depends on socialism for the infrastructure needed for its foundation. It needs roads, highways, rail systems, ports, bridges, an electrical grid; school’s to educate a work force. In order to save free market capitalism, elements of socialism that provide the infrastructure that capitalism is based on can be addressed as a focal point to restore the economic solvency of the country.
The United State along with every major industrialized nation in the world has operated on a mixed economy. We have been a blend of socialism and capitalism for decades. There is not one example of a pure capitalist society on earth. It doesn’t exist because capitalism left unchecked will devour itself. Like all systems devised by man, it’s fallible and prone to error. No man made economic system or system of government is infallible. When we find errors, an intelligent human being corrects the error and does so hopefully without compounding the error.
President Obama has come up with a logical solution for addressing the economic problems in the country. His stimulus was the right approach. Unfortunately it was too small and 40% of it went to tax cuts.
What is needed is the president’s jobs bill. We need a committed overhaul of the entire infrastructure of the United States. We need a 10 year commitment to rebuilding the roads, bridges, railways, airports, seaports, levees, schools, electrical grid, tunnels that are the foundation of a capitalistic system. Nation building begins at home.
Allowing the Bush Tax Cuts to expire will save $4 trillion dollars over the next ten years. The war in Iraq is over and the war in Afghanistan will soon be over as well. That saves the country another trillion dollars. We can apply the savings from these two things to rebuilding the nation’s infrastructure and bringing the country into the 21st century.
This will take an army of construction workers; probably in the neighborhood of 100,000. But that is only a match that lights the fuse. Those workers will need materials. They’ll need clothing, boots, gloves, hard hats all supplied by manufacturers of those things. Those manufacturers will need to hire more people to fill the constant demand for their products. They will need earth movers and graders supplied by John Deere or Caterpillar who will be selling that equipment to the companies that have contracted with the government to do the job. They will need trucks made by Ford or GM or Chrysler. Those companies will need to hire more personnel to meet the demand for those products. All the companies that supply the vehicles will need to purchase tires, batteries, windshields, and whatever else is needed to make the vehicle. Mechanics will be needed to service the equipment needed at the work sites. All the peripheral companies that support the companies that support the workers will need to hire additional personnel to meet the demand brought about as a result of the restoration of America. This even bleeds down to the small service companies that provide lunches for the workers.
The hiring of people is increased exponentially in this way. What begins with 100,000 touches 1 million people now employed to service those people directly involved in rebuilding the infrastructure of the U.S. All these people have paychecks and all these people will spend money on new cars, homes, college for their kids, computers, TV’s, washers and dryers, new clothes, food, music lessons for their kids. Each place that these people spend money at will need to hire additional personnel to meet the demand for what they sell. And those people will spend money as well.
During WWII, we employed millions in the service to the war effort. It was the massive spending on WWII that pulled us out of the Great Depression. In 1940 unemployment in the US was at 14.6%. By 1942 it had dropped to 4.7% and by 1944 it was at 1.2%; the lowest in recorded figures going back to 1920. All this was due to the war effort. According to President Truman’s address to Congress in 1948, he stated that the US had contributed about $341 Billion to World War 2. Assuming he mean 1945 dollars, that works out to be about $4.1 TRILLION in 2009 dollars.
It doesn’t take a war to do this. It takes a commitment to rebuild the infrastructure of the United States.
We can drastically reduce the unemployment numbers in this country and ignite a firestorm of consumer driven spending in this country which is what creates jobs.
Spending money is what drives the economy. It doesn’t matter who is spending the money. It only matters that money is spent. At this point in time, the public doesn’t have money to spend. You can’t spend money if you don’t have a job. And the so-called “job creators” aren’t creating jobs. A rich man isn’t interested in creating jobs. He’s interested in being rich. But then creating jobs isn’t what they’re about. The people create jobs. The consumer is the Job Creator. A demand for products is the only thing that creates jobs, and nobody is going to demand a product when they are unemployed.
The President needs to focus on Governor Romney’s claim that he is a job creator and dismantle that publicly. Romney has avoided any mention of his tenure as governor. His focus is on his career as a CEO of a private equity company. The focus of that company is profit. He has no experience that he will claim in running a non-profit, and that’s exactly what the United States Government is. It’s a non-profit organization. The President is absolutely correct in pointing out that his job is not about creating profits. Romney has no experience in that area.
The title of Job Creator needs to be defined. The Consumer is the Job Creator. The very notion of not raising taxes on the rich because they are the “job creators” is absurd. The so-called “job creator” doesn’t make decisions on hiring people based upon his personal tax rate. He doesn’t pay his staff out of his personal bank account. It comes from a business account. I doubt that any wealthy corporation CEO ever said, “My personal taxes are too high. I’m not going to hire anybody at my company”. This argument should be mocked and ridiculed for how absurd it is.
This election should be a contrast in the ideology of the conservative mind, and the philosophy of the liberal mind. We’ve seen the results of 8 years of conservatism that no conservative will claim as “real conservatism”. Republican policies have resulted in 2/3 of our national debt. We have a president in office today that will be met with every obstacle that his opposition can devise. For some, it’s vital that the first minority president be limited to one term. In doing this it will justify their argument that, “We tried that once before and it didn’t work”. The last thing that they would want is for the first African American to succeed. As a result of Citizens United, they will pour limitless amounts of money into bringing this president down.
It’s vital to deny the claim of Job Creator from their argument. Nothing could be further from the truth.