Wednesday, August 31, 2011

Debunking the Job Creation Hoax

True Or False?  Providing stimulus funds, tax cuts, and financial incentives to major corporations and wealthy individuals will lead to extensive job creation that will be a boon to our sagging economy.  At least, that was one of the premises of our government's economic stimulus plans -- the "trickle-down" theory.  How has this premise worked out?  Not very well, apparently. Our unemployment rate still hovers above 8% despite the stimulus funds and financial incentives.  Meanwhile, corporations are piling up huge cash balances, while the rest of the nation languishes in one of the biggest recessions in our history.  Conclusion:  The opening statement is false.  

A Billionaire Debunks the Job Creation Myth. Some of the best voices of reason and sanity regarding job creation have come from the so-called job creators themselves. Nick Hanauer, a self-made billionaire, is a member of the top one percent. Here is what he has to say about wealth, corporations, and job creation.
"It is a tenet of American economic beliefs, and an article of faith for Republicans that is seldom contested by Democrats: If taxes are raised on the rich, job creation will stop.”
Trouble is, sometimes the things that we know to be true are dead wrong. For the larger part of human history, for example, people were sure that the sun circles the Earth and that we are at the center of the universe. It doesn’t, and we aren’t. The conventional wisdom that the rich and businesses are our nation’s 'job creators' is every bit as false."
I’m a very rich person.” … “Even so, I’ve never been a 'job creator.' I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.”
That’s why I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be.”
It is unquestionably true that without entrepreneurs and investors, you can’t have a dynamic and growing capitalist economy. But it’s equally true that without consumers, you can’t have entrepreneurs and investors. And the more we have happy customers with lots of disposable income, the better our businesses will do.”
When we have a tax system in which the greatest benefits are enjoyed by the richest at the expense of the middle class and the poor, We don't get job creation. All that happens is that the chasm between the top 1% and the bottom 99% just gets bigger and our economy eventually collapses around us..

Trickle-Down Economics Doesn't Work.  Let's look at  the "trickle-down" theory that  was the hallmark of the Reagan administration and is still trumpeted by conservatives today. Here is how one source describes Trickle-Down Economics: "Proponents of this theory believe that when government helps companies, they will produce more and thereby hire more people and raise salaries. The people, in turn, will have more money." (Ref:: This is all just theory, of course, and not an established fact, as we have observed in our present economic situation. As a matter of fact, capital doesn't produce jobs.  It's jobs that produce capital.  A company doesn't create jobs just because it has sufficient capital to do so.  Companies normally create jobs only when these jobs have a reasonable expectation to produce more capital for the company -- either directly or indirectly.  Jobs are the foundation and the backbone of capital and the basis upon which capital is achieved, not the other way around..

An Analogy.  When I think of the term "trickle-down," I envision some liquid running down a wall.  As it runs down, most of it tends to evaporate or soak into the surface.  Much of what doesn't, dries on the wall and becomes a stain.  In the end, very little usually reaches the bottom.  I think of the trickle-down theory as it applies to job creation in a somewhat similar manner.  In this case, the liquid  consists of the liquid assets of the company that are available for job creation. The assets that disappear (evaporate or soak in) are those that are absorbed on the way down by other parts of the company for projects of their own. The stains left behind represent money that is wasted in the trickle-down process, and the small amount of liquid that reaches the bottom represents the few jobs that are produced by that flow of assets.

Why Should Corporations Create Jobs?   We gave huge chunks of money to a large corporations at a time when demand for their products was down, partly because of the lack of money available to spend due to high unemployment.. And the cycle begins to feed on itself.  Companies create jobs to provide products or services that are in demand.   It doesn't benefit companies to create jobs if there is no market for their goods or services.  There will be no additional sales, and no additional profit, so why would they do that?  The answer is:  They won't. 

What Happened To That Stimulus Money?    In true "trickle-down" style,  much of it has never been accounted for.  It is as though it just evaporated, with no measurable results at all.  We have good reason to believe that at least a few of the companies used those funds wisely (such as the auto industry), and have even been able to pay back some or all of the money provided to them. And these few have been able to create or save hundreds of thousands of jobs for the American people, thereby keeping a very serious problem from getting even more serious.

But Then There Are The Others.  We can only speculate on where their funds might have gone.  Some of it may have gone to investors in the form of stock dividends.  Some of it could have been used to buy back outstanding stock, thereby raising the value of that company's stock to the financial benefit of that company's executives who have massive options.  Some of it might have been used to provide huge salaries and bonuses to some of the very people who contributed to our economic disaster.  I am sure that at least some of it did reach the bottom, where it was used to create some jobs. But I think a great deal of it just sitting amid corporate cash reserves and short term liquid assets, growing to massive levels.

Suffice it to say that, regardless of where that money went (or didn't go), we now know that huge handouts to large corporations have not succeeded in stimulating the economy with the desired and even expected level of new jobs.  Here is a statement on this situation from The Economic Populist: "What is astounding is the massive amount of cash corporations have for investment. Net cash flow increased $83.8 billion from Q1 and corporations now have over $1.8 trillion dollars available for domestic investments and hiring people, which everyone in America is aware they are not doing, astounding." (Source:

The Bottom Line.  Very little of the stimulus money is trickling down to the ranks of the unemployed in the form of new jobs.  This means that our unemployment rate will continue to hover around 9% until there is a turnaround outside those corporations, even though they have the fund to do something about it.  Building from the bottom with a strong foundation does work, and it does create capital.  Working from the top down does not create many, if any, jobs.  We need no better proof than clear, simple logic and what we have witnessed in the past three years.. Economic wealth does not trickle down, and neither do jobs.

How Many Unemployed Are There, Anyway? According to the figures cited by the Bureau of Labor Statistics (, we have a 9.1% unemployment rate, but this applies only to the unemployed who are still considered to be“in the labor market” (i.e., those who are actively seeking work). This amounts to about 13.9 million people. However, in addition to this, there are approximately 8.4 million who are underemployed or part-time, 2.8 million who are long-term unemployed and not actively seeking work, and 1.1 million discouraged with their situation and have given up their job search altogether. Using all the different definitions for unemployment, that amounts to 26.2 million total unemployed. Keep that in mind as we go onto the next few paragraphs.

Huge Corporate Cash Balances. The Federal Reserve reports that U.S. non-financial corporations have hoarded liquid assets amounting to $1.93 trillion, as of September, 2010.. These are the biggest corporate cash reserves in the past 51 years. (Source:

What If?  If this money had been invested in jobs at an average annual cost of $50,000 per employee ($33,000-40,000 in salary and an additional $10,000-17,000 in benefits and support costs), that $1.93 trillion surplus could have created approximately 38 million additional jobs in our country (as long as we could keep those same corporations from adding those jobs overseas instead of in their own country). Contrast that with the official unemployment figures of 13.9 million unemployed.  Those 38 million jobs are 45% greater than all the unemployed in all of the categories! That's 100%+ employment! Think of the impact that would have on our economy, and how much stimulus our economy would receive if $1.93 trillion of additional purchasing power were put into it. Just imagine the decreases in unemployment benefits, home foreclosures, bankruptcies, and all the personal grief presently endured by the American people.

Unrealistic? Impractical?  Unfortunately, that is probably true.  So, let's lower our sights a quite a bit. Let's say that the corporations were to keep about $1.25 trillion of their gigantic cash balance for the time being.  That would provide $680 billion  which could be used to create 13.6 million jobs, which would reduce the official unemployment rate to almost zero and reduce total unemployment by around 50%.  Wouldn't that be at least a good step in the right direction?  Isn't that better than having these funds essentially sit idle while people are starving, having their homes taken away from them, and declaring bankruptcy?  And the corporations would still have an excess of riches in their $1.25 trillion reserves. And throughout this period,the companies could be training these new employees to step into truly productive, profit-generating jobs when the economy picks up and demand increases.  Pie in the sky?  Perhaps.  But I would rather have pie in the sky than pie in my face, and that is how our country looks right now. .

Job Creators Or Capital Hoarders?  Many major corporate CEOs are guilty of hoarding their company’s cash, and this is the worst possible time to do so -- while their country suffers from one of its biggest recessions in its history.   So much for the political claims that corporations are “job creators.” “Just give them lower taxes loopholes, deductions, and other incentives,” the politicians say, “and they will create more jobs.”. This huge cache of corporate cash totally refutes that theory. In fact, it would be more correct to refer to these entities as "job preventers" rather than job creators. To call these people and these corporations “job creators” goes beyond being a myth . It is tantamount to fraud against the American people.  This is just one example of how corporate wealth, left unchecked and unregulated, exerts a tremendous amount of control over the economy to the severe detriment of the country.

Generosity Begins At Home. There is one area, however, in which corporations are most generous. That is with the pay of their top executives. While the average American's income, purchasing power, and economic well-being are plummeting sharply, corporate executives' already-huge compensation packages are skyrocketing.

Highest-Paid CEOs. A New York Times article published on April 10, 2011, stated that the highest paid CEO in 2010 was Philippe P. Dauman of Viacom, who made $84.5 million in just nine months. Second was Ray R. Irani of occidental petroleum, with $76.1 million last year (up 142% from 2010), and third was Lawrence J. Ellison of Oracle, with a total of $70.1 million.(Source:

Surprise! The Rich Are Getting Richer. In 2010, there were huge gains in executive compensation in nearly every sector of the economy. "The average pay package of a majority of CEOs at S&P 500 companies was $11.4 million in 2010, an increase of 23% from2009" (Source:, while the rest of us have had to face salary freezes, wage cuts, decreased benefits, and unemployment due to our severe economic crisis.

More Jobs. It is a matter of simple math to see that $11.4 million X 500 = $5.7 billion. And it is still simple math to calculate that, at an average annual cost of $50,000 per employee, this amount of money alone could add more than a million jobs to the economy. Of course, we would not expect these executives to work for nothing, so let's say we just cut their compensation packages down to a mere $5 million a year. That should allow them enough to eke out a decent standard of living, but it would still be enough to create more than 600,000 new jobs.  That would bring our official unemployment figure down to just over 6%. In these rough times, when many of these executives already have total wealth in the billions of dollars, wouldn't this be the patriotic thing to do for their country that has done so much for them? Or are they personally hoarding money (along with the power and prestige it brings), just as they do for their corporations, at the expense of the working class? It is indeed a sad day for America.
For more information on corporate cash hoarding, go to

Corporate Profits for Q2 2011 up 3.0% | The Economic Populist

Treasury Strategies | The Power of Experience

For more information on executive pay, go to:

CEO pay up 23% in 2010: Labor union - MarketWatch

Executive PayWatch: Trends in CEO Pay, where you can search by:

Coming Up Next:  Money Talks, And Politicians Listen! -- and it all favors the wealthy at the expense of the lower economic classes.


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