Recent statements by leading Democrats (Clinton, Warren, Reich) would have us believe that the only way to create jobs is to put more cash in the hands of consumers. Of course the only way to put that cash in their hands is to take it from the ‘rich’ and give it to them in the form of some welfare program.
Elizabeth Warren and Hillary Clinton have both stated that businesses owe their success to government in some form or other.
It’s kind of a chicken and egg question. Which did come first the consumer or the product (that created a job)?
It is pretty obvious that without consumers there would be no jobs. It’s also pretty obvious that some products create a demand that didn’t exist or we didn’t know we had before the product was introduced. (Think wireless phone.)
It seems to come down to answering the question: Would a product be produced if there were no money to buy it (consumers)?
In my mind the answer is YES it would be developed even though it might be produced at very low levels. Why do I believe that? Simple, look at all the failures. If products were only produced to meet a demand there would be few if any failures.
Products are developed to meet a ‘perceived’ demand. Only the marketplace can determine if it will really be accepted.
I believe these Democratic leaders have it 100% backward.
Here is how I see consumption developing.
1. We all have basic needs and we trade our efforts to meet those needs.
2. When we see a product that will help us to meet those needs we extend our efforts to produce more value that we can then trade for that product. It may help us meet even more of our desires in the future by increasing our output thus giving us more value to trade for even more products.
Societies develop from individuals being totally independent and self-sufficient to specializing and trading that special skill for those things that are needed or wanted in life. Satisfaction and comfort were achieved through increased effort and/or increased skill. As individual skills increased the society as a whole gained. Although some accumulated more ‘wealth’ than others, everyone gained. Some individuals were so good at their skill and in such demand that they trained others to meet the demand. Jobs are created.
I don’t know where the idea developed that consumers come first. Perhaps it is the result of our being so far removed from that initial self-sufficient state. Or maybe it is due to the pervasiveness of credit which makes it so easy to ‘consume’ on other peoples money (even though, at least in theory, that money must be repaid with interest). Credit has, I suspect, created the demand for constantly increasing wages. As people rely on credit the repayment creates a need for more productivity to repay the interest. And it becomes harder and harder to achieve increased productivity, especially if that credit has been used to purchase non-productive products, the individual wants to increase his value. The easiest way to increase his value is to have his wage increased without requiring more effort. If he is successful at this he has literally ‘stolen’ from everyone else. To get a higher wage without increased productivity that higher cost must be absorbed by everyone buying the product of his effort.
That is exactly what is wrong with a minimum wage. It forces employers to pay more for the same productivity and that cost is either absorbed by the employer as lower profit or passed on to consumers in higher product cost. In either case the society as a whole loses. It is a ‘hidden’ tax or redistribution of wealth. In no case does it add to overall productivity or societies wealth.
So what about the argument that the increased wage will increase consumption and thus lead to more jobs?
How can that possibly be? There is no increase in productivity. There is only an increase in money and an increase in money simply devalues the money that exists. More money that is not created with productivity simply lowers the value of that money. It buys less. To maintain a desired level of comfort means that those who didn’t directly benefit from the raised wage must expend more effort to achieve that same level of comfort.
Each individual may see minimal impact but overall society loses value on their labor and their standard of living will decline. Perhaps imperceptibly at first but as this process continues it will inevitably get worse and worse.