Corrente

If you have "no place to go," come here!

"Job creators"

Anybody propagating the "jobs creator" meme is a fool or a liar. Businesses don't exist to create jobs. They exist to create profits. And that's not necessarily a bad thing, if properly regulated. [Pause for discussion of glibertarian, anarchist, and socialist perspectives on "regulation."] But if a business could make profits without creating a single job, it would -- and its fiduciaries would insist it should.

The real job creators are the people who do the work and demand the goods. No demand, no jobs, no business. As everybody but the top 1% are discovering as the country spirals down into Osterity, a controlled flight into terrain by the elites.

0
No votes yet

Comments

okanogen's picture
Submitted by okanogen on

"a controlled flight into terrain by the elites". Not to sound harsh, but both literally and figuratively, is there any other kind?

Kidding aside, yes, labor is a cost and so only and expendible byproduct of business expansion. The nearly exclusive goal is profit. That could be amended to say that if you are starting your own business, you are probably doing it to give yourself a job. But I don't think that is what they are meaning when they put forth these proposals to increase jobs through business incentives.

It gets wearisome discussing this topic. Both sides know exactly what would create a pile of jobs right now, namely, infrastructure investments. Both sides know they aren't going to do anything about it, so the trot out the same old tired horse labelled "tax cuts".

Even truck drivers know it's all bullshit.

Aeryl's picture
Submitted by Aeryl on

Is they have to have the surplus money or evidence of lost revenue, to justify hiring somebody, in other words demand.

The Sailor's new boss, a small business doing ecologically friendly renovations, is a job creator because he was losing too much money trying to do it all himself. This expense is justified, because with an employee doing the labor, he can now go find more work. There is demand for his work, especially in a depressed economy because refinishing existing structures(like countertops) only costs a fraction of what new ones would.

My employer is about to hire a truck driver, but only because our current driver is leaving, so this isn't a new job. And right now, we don't have the excess cash flow to allow for a new hire, hell we haven't had a raise in 3 years and the owners have taken a pay cut. There is no demand for what we sell, and the only way that changes is if people have more money.

Submitted by Lex on

has it that Henry Ford took Walter Reuther on a tour of his newest plant, expressing particular glee in showing Reuther new machines that would replace labor. "Let's see you get union dues from my new machine, Walt," Ford chortled. "Good, point, Henry," Reuther responded, "But do you suppose that machine will ever buy one of your cars?"

badtux's picture
Submitted by badtux on

Businesses are in business to make profits, not as charities. Businesses that have expenses higher than their competitors don't remain businesses for long, their competitors drive them out of business. And thus every business I've ever worked for has been obsessed with reducing payroll to the smallest amount needed in order to fulfill demand. It doesn't matter whether you're talking about a pizza shop or a manufacturing business, the only thing that'll make the business hire is if there's more demand for their services than they can fulfill with the current workforce.

In other words, *CUSTOMERS* are the job creators. Any attempt at creating jobs has to put money into the hands of *customers*, not into the hands of *business*, which will just stash it away if there's no demand for their products because of a lack of customers.

Which is why WASF, because the "conventional wisdom" of business as "job creators" is exactly the opposite of what would need to be done to create jobs.

beowulf's picture
Submitted by beowulf on

That's what so aggravating about the GOP position. A payroll tax holiday would cut taxes on job holders and "job creators" alike.

CMike's picture
Submitted by CMike on

Businesses in a competitive market and whose product cannot be stored indefinitely will choose to maximize their profits in the short run regardless of the tax rates on those profits. A business will spend every tax deductible dollar it can on labor, plant, and equipment up until that last dollar fails to yield any additional profit. The tax rate on business profits does not affect whether expenditures on labor and capital equipment are profitable.

The only alternative for the assignment of that last dollar, which could be spent to increase profits, is to declare it as taxable corporate profit and pay it out as dividend income or as ordinary income paid out to the business owner(s) of an S corporation. In either case, thereafter, assuming that profit now turned into income will not be stored as cash, the earner(s) will spend it on personal consumption, gift it, or reinvest it.

okanogen's picture
Submitted by okanogen on

For the chamber of commerce and other "pro-business" lobbyists, but tax rates evenly applied across an industry have absolutely no impact on business expansion or contraction. None. They have zero influence in how anyone decides whether to expand or contract their business, hire workers, anything. Accelerated depreciation rules or waved sales/use taxes on capital equipment might have a marginal impact, but only when the demand is there and only when deciding to do it this fiscal year or next.

Demand, is it sustainable or transitory? Is it worth expanding, or should we just raise our prices or stretch things out? That is pretty much the be all and end all. That and credit, can you get it? What will it cost? That is the second most important consideration. Can we expand production without raising fixed costs? That is also a major consideration. Taxes never come into play until year end when people start deciding what to do to offset taxes with capital investment or accelerated depreciation, if they were lucky enough to have profit in the first place.

CMike's picture
Submitted by CMike on

Alternatively, Thom Hartmann explains the higher the corporate, dividend, capital gain, and S corporation (i.e. personal income) tax rates are the more likely businesses are to reinvest their profits to shelter those profits from taxes. The lower those rates are the more likely owners are to divert those profits from their core business to passive and/or more speculative investments.

okanogen's picture
Submitted by okanogen on

This is a huge topic.

There are mainly two drivers in how a company or corporation figures out compensation for investors and owners who work there. The first is tax liability, and the second is loan covenants. A distant third is investor agreements, but those are very similar to loan covenants on owner's equity, etc. and really already figured in.

So how does this figure into "creating jobs by lowering tax rates"? Well, it doesn't, which is the point. If you have a very low tax rate, if you have no profit, it doesn't help or hurt you, it is meaningless. However, if you do have a profit, then the incentive is to just keep the profit and pocket the saved money, either as cash on hand, or you pay down debt, or whatever. On the other hand, if you have a high corporate tax rate, if you have no or very little profit, again, it doesn't matter, 30% of nothing is nothing. But if you have a highly profitable business, the incentive is to do whatever you can to reduce your profit and tax liability. That means you expand/buy equipment in order to offset profits, or depreciate equipment (meaning you will go through the same math next year), you invest in worker training, you invest in infrastructure, you give out worker bonuses, etc. all of which are good for the economy.

But the main roadblock is (not to sound like a broken record) the banksters and their imposition of increasingly onerous covenants on loans/credit (if you can get it in the first place). You need ever increasing "x" profit combined with ever increasing "y" equity, or you are in breach and even though you are paying on time everytime, they can call the loan and you are hosed (and so are your employees). Just as Schwing America, luckily it worked out ok for them, and let them publicly say "fuck you" to Wells Fargo.

From the second article:

“We just have new lenders now,” says Schwing America CEO Brian Hazelton. “We’ll be making payments to Europe instead of a U.S. lender.” Wells Fargo did not reply to requests for comment.

U.S. Dept. of Justice attorney Michael Fadlovich confirms Hazelton’s assessment, saying Schwing has “basically traded one lender for another.”

CMike's picture
Submitted by CMike on

It's pretty sophisticated for comments even here at Corrente. I'll have to study on some of what you've written.

CMike's picture
Submitted by CMike on

For that matter national safety and environmental regulations and, certainly, minimum wage laws "evenly applied across an industry have absolutely no impact on business expansion or contraction." The exception in domestic production would be in the case of a product too noxious to produce profitably at all or of a particularly noxious product which can not compete with a less noxious substitute under a reasonable regulatory regime. Now, of course, if a business can circumvent national regulations and wage rates by manufacturing abroad with the right to import without tariffs or restrictions then national regulations and wage rates are quite likely to impact on business expansion and contraction in a given domestic industry.

Granted environmental, safety, and wage guarantees raise the cost of doing business but as long as they are "evenly applied" they maintain a level playing field on which profit seeking businesses compete. Any loss of consumer purchasing power should be expected to be made up by the greater total benefit afforded society by those regulations and laws, assuming they have been properly analyzed.

badtux's picture
Submitted by badtux on

According to the Federal Reserve, corporations are sitting on over $1 *TRILLION* in cash reserves right now, basically high-tech mattress money, doing absolutely nothing to foster economic growth (just making interest rates really low, which is useless if nobody's borrowing because everybody is scared for their job and thus is saving rather than borrowing).

That's reality: any money going to businesses right now is just going to be stashed, because of a lack of any worthwhile investments to spend it on. Reality simply *is*, regardless of the brilliance of your theory.

CMike's picture
Submitted by CMike on

"A business will spend every tax deductible[/tax exempt] dollar it can on labor, plant, and equipment up until that last dollar fails to yield any additional profit," regardless of the tax rates on profits -- assuming that business is in a competitive industry with short term constraints.* If business is sitting on one trillion dollars in cash it's not because they're waiting for a change in tax rates before they ramp up production with it but, rather, because they can't invest in additional labor or capital profitably, at least not any faster than they are currently accumulating profits.

There's nothing brilliant about that theory. It's rather pedestrian but true, nonetheless.

*An automobile company that fails to produce and sell today loses that opportunity for all time while a company which owns an oil field does not face that same urgency. The oil company execs who fail to pump today might be choosing, instead, to keep their finite resource in the ground until the market price for it is higher.

okanogen's picture
Submitted by okanogen on

But there's more to it than that. There is a difference between expansions that add fixed costs (in other words, increase the size of the company) and expansions that are only to meet immediate demand. For the later, you are right, they will use their last dollar to increase production until those expenses don't add profit. But realistically, that is only really at the margins, a company can only adjust how many dollars they spend by maybe 30% at most without creating a long-term commitment in fixed costs, whether that is overhead, employee costs, equipment replacement, etc.. If they judge that long term demand is there, they will step up. If they don't, they will hold on to the money in case things go south, because it is amazing how far south things can go, and how long they can stay that way.

Right now, if a company has survived the last 4 years, they are very, very cautious about expansion, especially given the tight credit market. I'm not surprised that absent some bold talk out of Obama increasing demand, they aren't interested in any long-term commitments.

Oh, and again, tax cuts aren't going to change that, but they will all say "thank you very much" anyway.

CMike's picture
Submitted by CMike on

You're talking about small business, right? Isn't it the case that triple A rated large corporations can get plenty of financing at very low rates these days?

CMike's picture
Submitted by CMike on

Paul Krugman makes the point, I won't look it up, that business investment is less sensitive to interest rate changes than the housing market (and revolving consumer credit, I think). He says that business loans are usually for five years or less and therefore the interest rates are not as important to businesses as they are to house buyers.

(Maybe I will go look it up later so you can see exactly what he says.)

Up thread, you seem to be saying that banks aren't "stuck" with their outstanding business loans and are likely to call them in at times that would be crushing to the business.

okanogen's picture
Submitted by okanogen on

That is the problem that most small businesses find themselves in, they shop rates, rather than shopping the covenants, or what is held as collateral and both are way, WAY more important to any business, but especially a small one that is almost always dependent on lines of credit or other capital.

Yes, most business loan are short term, from 1 to 7 years, but generally five years. Small business loans are almost always SBA loans, so they have a fairly rigid set of requirements and loan covenants. The bank is also 100% guaranteed by the SBA, they then need to assure you are within your loan parameters. But not all banks are the same....

Is it all incredibly complex? Of course it is, the better to protect their interests at the expense of your interests.

What happened in the case above is that Wells Fargo, finding themselves deep in shit, started using fine print in their line of credit agreements to "sweep" cash out of business' operations. Apparently they were experiencing a cash shortage about then....

Basically, if you have an account with, or do business with Wells Fargo, think again. Then again, depending on your business model, you might be welcomed....

Aeryl's picture
Submitted by Aeryl on

I've been forced to hold payments, in an attempt to wean us off our line of credit, b/c the bank feels we are over-reliant on it, and has been threatening to pull it, even though we are an established business that is still turning a (small) profit. We have very little debt and all of it has gone towards inventory or equipment. We are solvent, but that still hasn't stopped the bank.

In other related news, the bank is also now demanding that they be the lendor/lease payee on our insurance policy. Now, to be clear, this just doesn't mean that in the event of destructive catastrophe, the bank gets paid before we collect, but that everything goes to the bank. So in many ways, we are worth more to the bank burnt to the ground that up and running(millions in heavy duty fabrication equipment, like two CNCs, plus inventory vs a couple hundred thousand in loans), so I am honestly frightened that one day the banksters will take the more lucrative route.

okanogen's picture
Submitted by okanogen on

Seriously,

I don't know where you are located, but I've been in that situation. Not every bank is in the same situation or has the same attitude and some may really be excited about your business. Sometimes having a long history with a bank is a bad thing. They take you for granted.

I would look especially at small local banks, they are always looking for established business customers. Credit Unions are also your friend. You could talk to either about turning your line of credit into a term loan with no penalty for early payment and moving all of your business and all of your loans to them. They could even repackage them all as one or two SBA loans. Banks love that shit, because they are fully backed by the SBA. This resituates your business in a lot of positive ways. Get advice from your accountant about good banks or other banking alternatives.

You can't let them feel they have a gun to your head, because then they have no problem pulling the trigger.

Sorry for the thread hijack, but when banks foreclose on businesses, that is when jobs are lost.

Aeryl's picture
Submitted by Aeryl on

Unfortunately, I'm just a peon(a well placed peon that gets all the financial lowdown gossip) so I have no input with those decisions.

Our controller has been telling our owners that they need to switch banks, but they don't listen, and our CPA is somewhat timid about telling them this stuff.

It'll be one of those "wait and see" situations, and instead of being proactive they'll be reactive, like they were when one of our locations bled money for three years before they finally made the decision to close it.

Submitted by SteveInNC on

Last week I was at a small technical conference attended by a mix of scientists, engineers, and business people. The organizers had invited the chief economist of a (very) large US-based chemical company to speak on the state of the economy. I got the impression that he was a smart guy trapped in the Chicago School paradigm. He presented chart after chart, basically saying that the economy was going to continue to suck for the foreseeable future; these were conventional charts - nothing about increasing inequality or the stagnation of wages. When the time came for questions, he was besieged with questions about the debt and tax cuts and so on (those toxic memes are truly dug in deep). I didn't get my question in during the official Q&A period, but I went up to him afterwards and asked him this: "Companies have plenty of cash on hand, but aren't hiring because there is no demand for more product. On the other hand, ordinary people would buy more, creating demand, but can't because they have no jobs. What do you think should be done to get out of this dilemma?" (I may not have actually used the word "dilemma", but I said something to that effect). To his credit, he recognized that this was a significant part of the problem (a realization that capitalism itself is fatally flawed was too much to hope for). However, when it came to answers, he had nothing of value. Apparently the CEO has the ear of President FU, and they'll "be talking about this question". I'm not holding my breath.