A Million Poor Job Creators

Job CreatorPaul Krugman has an excellent post regarding the incentives of marginal tax rates. He shows that marginal tax rates are highest on low income people trying to wean themselves off welfare programs. I wrote about this before: Catch-22 for Poor in America. Krugman also talks about how the rich don’t do anything special in the economy; they spend money and this (along with the spending of everyone else) is the engine of the economy, not all the people many of the rich employ.

I want to add something that I think is rarely stated—but is sometimes. I’ve had several of my own small businesses with some amount of success. I grew up in a household of small business people. And I’ve worked for a lot of small businesses. The one thing I can tell you is this:

A business owner will only hire a new employee when all other options have been eliminated.

Why is this? Because hiring an employee costs money. If you can make do with your existing resources, you will make more money. It is as simple as that.

I’ve never known a business owner who worried about what his tax rate was when making a business decision. And he would be mad to be worried about this. Here is the question: am I making money? He may not be happy that he will have to give the government a bunch of money at the end of the quarter, but that’s another question. And it is certainly not the case that an employer worries about the cost of an employee one or two or three years from now. If the employee is no longer a profitable investment, the employer will just lay him off.

At the heart of this is the fact that the employer will not hire anyone unless someone else is buying what he has to sell. That means when you buy can of soda or a screwdriver, you are a job creator—every bit as much as someone who explicitly employs people. Because here’s the thing: when you buy that Coca Cola, you are hiring the Coca Cola Bottling Company to provide it. Yes, there are a lot of middlemen between you and the employees who actually make and bottle the stuff, but that doesn’t matter.

I find this so aggravating! Every time I hear the clause “job creator” I have to stop myself from screaming. It’s true that the rich are job creators. The problem is that since the rich don’t spend all their money (Why else would they invest in bonds with negative real interest rates?) they are actually far less effective job creators than the poor.

A million poor people create a hell of a lot more jobs than one billionaire.

Update (13 July 2012 8:30 am)

Paul Krugman backs up my basic argument in today’s column, although he doesn’t go as far:

Yet somehow $20 million-plus in annual income isn’t enough. They want to be revered, too, and given special treatment in the form of low taxes. And that is more than they deserve. After all, the “common person” also makes a positive contribution to the economy. Why single out the rich for extra praise and perks?

Furthermore, if you’re really concerned about the incentive effects of public policy, you should be focused not on the rich but on workers making $20,000 to $30,000 a year, who are often penalized for any gain in income because they end up losing means-tested benefits like Medicaid and food stamps… By the way, in 2010, the average annual wage of manicurists—”nails ladies,” in Romney-donor speak—was $21,760.

So, are the very rich V.I.P.? No, they aren’t—at least no more so than other working Americans. And the “common person” will be hurt, not helped, if we end up with government of the 0.01 percent, by the 0.01 percent, for the 0.01 percent.

Image reduced from a nice big one on Thurman’s Notebook.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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