Economics is not politics and shouldn’t be treated as such. But then, neither is healthcare, but we’ve managed to polarize them both into political prolate pinballs on a helter-skelter journey.
Businesses do not lay off workers or restrict hiring when goods cost more. Businesses downsize only when customers are not knocking on the door. When demand for products is high, employment and production go up. When demand slacks off, employment goes down regardless of business costs.
In 1961 Joseph Heller published Catch-22 a satirical and absurd novel set during World War II. The title emerged from the story and into common usage as the reason for a problem being unsolvable due to a condition within the problem itself. Specifically–pilots may not be excused from flying bombing missions due to insanity because to request such relief in and of itself proves one’s sound mental health.
Supply side economists force an unnecessary Catch-22-like conundrum. The theory suggests that taxes and regulations be cut and lucrative incentives be given to big business. Those monetary gains will then trickle down creating jobs and the economy will flourish. President George H. W. Bush rightly called it “Voodoo economics.” Big businesses create record profits due to government actions, whether they sell anything or not. But, they will not hire and expand. Instead, they keep the money because demand remains low.
If the economy is sluggish, big business, even if they are receiving record profits to line the coffers, will be queasy about hiring and expanding due to the–wait for it–sluggish economy. As sure as a two-ton bag of flour making a big biscuit, a Catch-22.
Here’s another look from a different angle. “Sesame Street” occasionally airs a segment of the show called, “Which one is not like the others?” They will show an apple, an orange, and a carrot. Which one is not like the others?
In economics, the three posers are: personal debt, small business debt, and national debt. National debt is not like the others because it is a shared debt, much of which is owed to ourselves. The government will not go out of business just because of debt. Both small businesses and individual families will.
When business is unwilling to spend money the government must. That is the function of government in a capitalistic society–do what business cannot or will not.
Due to sheer numbers, the people who buy most of the stuff are the middle and lower classes. They spend 100 percent of their earned income to survive. Supply side economics doesn’t create demand because the jobs haven’t “trickled down” yet, ergo, no money to spend resulting in keeping demand low.
This iteration of a Catch-22 is avoidable by simply eliminating the middleman. Don’t give the money to the already rich and wait for it to percolate–get the money directly into the hands of the two economic entities whose debts are like one another. Get money into the hands of common citizens and small businesses in any manner possible–first as welfare to kick-start the economy and then by business paying workers a living wage.
At low minimum wages, workers cannot rise above the poverty level and cannot take advantage of a night out on the town, a newer car, or even a video game. Demand stays low and welfare high. This means that business taxes are going back to their own workers as welfare–in effect keeping their workers poor, but giving them an ort through welfare tax payments. Why not just pay them in the first place? More importantly, it isn’t just corporate taxes paying for welfare. Individual taxes are going to the same place.
We-the-people are subsidizing the workforce of minimum wage businesses that are already mega profitable.
If companies paid a decent wage–in the vernacular of Bernie Sanders when donning his aw shucks persona, “fifteen bucks an hour”– that would allow workers to rise above poverty, go off welfare, and spend those bucks on “stuff” creating more demand and more jobs. Then the taxes formerly used for welfare could be used to improve infrastructure, creating even more jobs and even higher demand for business’s products resulting in a humming national economy.
Hillary Clinton’s suggestion of incremental steps, first moving to a minimum of $12 per hour before jumping to $15 is a good compromise for business. But, I fear we have dawdled too long on this issue and we need to take a Bernie Sanders-type action and do it now.