The answer: game the system so that wages remain low. This creates short term profits for corporations, since their expenses decline, but in the end without people to spend money on your products and services, i.e., without any demand for your “goods” pretty soon you end up with a depression.
(Reuters) – Average salaries in developed countries are expected to have risen by no more than inflation this year, the International Labour Organization said on Friday.
Developed country wages failed to keep up with inflation in both 2008 and 2011, but remained about 5 percent above the 2000 level in real terms, the ILO said in its Global Wage Report, published every two years.
“So far as we can tell for 2012 at this stage the trend seems to be for zero percent growth — flatlining,” ILO Director General Guy Ryder told a news conference in Geneva.
Note that reference was to the “average” salary, which includes salries for the rich as well as the ordinary Joe or Sally Workerbee. Now we know some people’s salaries are still rising, even after dramatic gains over the last several decades. So, when you remove those outliers from consideration, ordinary workers (i.e., middle class and below) have seen their salaries and wages decline. Highly compensated individuals save and invest their income in securities, real estate, etc. and generally do not use their wealth to increase demand for goods and services at anywhere near the rate that the middle class and the poor do. This is the myth that the very rich are “job creators.”
I have started or helped start, dozens of businesses and initially hired lots of people. But if no one could have afforded to buy what we had to sell, my businesses would all have failed and all those jobs would have evaporated.
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 a “circle-of-life” like feedback loop between customers and businesses. And only consumers can set in motion this virtuous cycle of increasing demand and hiring. In this sense, an ordinary middle-class consumer is far more of a job creator than a capitalist like me.
So when businesspeople take credit for creating jobs, it’s a little like squirrels taking credit for creating evolution. In fact, it’s the other way around.
In the past century, even many Republicans (after Roosevelt) understood that government needed to play a role in stimulating demand during a recession, and that stimulus funding had to be paid for by taxing those who benefit the most from our economic system, by progressive taxation, i.e., higher taxes on the rich. President Eisenhower and (gasp!) Ronald Reagan both raised taxes on the wealthy during their terms in office. Nixon did as well, when he increased the capital gains tax from 25% to 35% in 1969. From the mouth of Ronald Reagan himself in 1985:
We’re going to close the unproductive tax loopholes that have allowed some of the truly wealthy to avoid paying their fair share. In theory, some of those loopholes were understandable, but in practice they sometimes made it possible for millionaires to pay nothing, while a bus driver was paying 10 percent of his salary, and that’s crazy. It’s time we stopped it….
What we’re trying to move against is institutionalized unfairness. We want to see that everyone pays their fair share, and no one gets a free ride. Our reasons? It’s good for society when we all know that no one is manipulating the system to their advantage because they’re rich and powerful. But it’s also good for society when everyone pays something, that everyone makes a contribution.
Gee, he sounds an awful lot like — Billionaire investment guru, Warren Buffet!
… Buffett downplayed the idea that higher taxes for the wealthy, as proposed by the Obama administration as part of a deal to resolve the “fiscal cliff,” would scare off critical investment for job creation. Republicans argue that raising taxes on people in higher tax brackets would choke off investment and slow the economy at a time when it can ill afford it.
Buffett disagrees. “No, and I think it would have a great effect on the morale of the middle class,” said Buffett, in the first of two live interviews with TODAY’s Matt Lauer. “They’ve had to watch guys like me pay below the rate by that paid by the people in my office.”
Demand drives the economy and job creation, as Billionaire Nick Hanauer (see link citing his speech at a TED conference in March of this year) recognized. In the short term, cutting jobs and wages creates profits, but only because a company’s costs are reduced, not because such cost cutting increases revenues.
Yet, what we are seeing worldwide, are policies demanding “austerity,” which is short for imposing the burden of the “Great Recession” on the backs of the middles class and the poor, rather than the Big Banks that were bailed out, or the wealthy corporations, such as Walmart and Apple – to name but two of the more well known companies – who have practiced outsourcing jobs and lowering wages in order to increase their profits. Take a gander at the European Union to see how well policies that require “austerity” have worked out.
Thus, it should come as no surprise that we are seeing declining wages for the vast majority of people around the world, and increasing income inequality. The result of policies that promote sustained income stagnation and/or decline, of course, is rarely a happy ending. Wars and revolutions and the rise of extremist ideologies on both the left (Communism in its most extreme forms) and the right (Fascism) are the typical endgame. We avoided such a result here in the US during the Great Depression because we had the good fortune to have FDR as our President. Other nations were not so fortunate. Economic instability is one of the fundamental causes of the rise of dictatorial regimes.
Something to ponder as we consider the divergent proposals of the Republicans (i.e., no tax cuts on the rich, and dramatic cuts to the social safety net) and the Democrats (in short, tax increases on the wealthy and little to no cuts to Social Security, Medicare and health care reform). We’ve seen the devastating effect of the Bush tax cuts over the last 12 years to our economy and our national debt. They are the single largest factor in the increase to our national debt. The end result of the so-called fiscal cliff crisis will determine whether we continue policies that threaten our economy and create more misery for most Americans, or put this nation back on the path to ending income inequality and creating the jobs and increasing wages that will fuel a more sustainable economy.
