The Weekly Sift

You’ll never get a job from a rich person with no customers.

Stop me if you’ve heard this before: A Republican president is proposing to massively cut the taxes paid by rich people. But it’s all good, because they’re “job creators”. So the tax cuts will give them money to create good jobs up and down the line, and result in so much economic growth that the government won’t even lose revenue.

One way to argue against this idea is with history: Cutting taxes always cuts revenue and leads to deficits. Both Ronald Reagan’s and George W. Bush’s tax cuts led to what were then record deficit. In between, Clinton’s tax increases created a huge surplus. This may seem too obvious to bear repeating, but apparently it needs to be said: If you cut taxes you collect less tax. If you raise taxes you collect more.

And the job creation thing only works sometimes: Reagan’s job record is pretty good (though not as good as Clinton’s), but George W. Bush’s is terrible: The economy created only 2.1 million jobs during Bush’s eight years (and was shedding jobs at a record pace as he left office). But during the eight tax-increasing Clinton years, 21.5 million jobs — ten times as many — were created.

What’s more, the purpose of cutting taxes on the wealthy is supposed to be so that they’ll have more cash to create jobs with. But if that worked, we’d have been swimming in jobs for years, because the very rich currently have as large a share of the national income and national wealth as they have since just before the Depression. If the job creators were ever going to create good jobs, it seems like they’d be doing it now, and would have been doing it since the turn of the millennium.

In fact, if you look at that graph, there seems to be an inverse relationship at work: The good old days of American jobs — when a man like my father could get a factory job, support an at-home wife, buy a house, and send two kids to college — were the 1950s and 1960s, when the top 1% was receiving a record low percentage of the national income.

But if you’ve been paying attention to American politics, you know that history — especially the kind of history you need to illustrate with graphs — doesn’t convince everybody. So in spite of hard experience, talking heads on TV are still telling us that making the rich richer will make everybody richer, because the rich create jobs for the rest of us.

You can rage about that. You can complain about how gullible and stupid the American public is, that they’re still falling for this nonsense. Or you can try to understand why: What is it that makes this particular false theory seem so much like common sense that the clear evidence against it doesn’t even register?

The answer to that is that the job-creator myth is supported by a convincing appeal to personal experience: “Do you have a job? Who pays you? Is he richer than you or not?” As the saying goes: I never got a job from a poor person.

So what’s wrong with that? You get a job because a rich person hires you, so if we want the economy to produce a lot of new jobs, we should make sure there are a lot of rich people with a lot of money to hire everybody else.

Why doesn’t that work? I mean, those of us who believe in history and graphs and stuff know it doesn’t, but why not?

The answer is that it takes three characters to create a job, not just one. For the economy to add a job, you need:

• a worker to do the job
• a customer to buy what the worker produces
• an entrepreneur to bring the other two together.

If any one of the three is missing, there’s no job.

At any given moment, in any particular part of the job market, the logjam might be in any of the three factors. It’s possible that entrepreneurs don’t have enough investable cash, and that a tax cut will fix the problem. But it’s also possible that workers don’t have the right skills, so the government ought to be investing in education and training. Or that customers aren’t buying, so the government either needs to subsidize them or to buy things itself on the public account.

What’s wrong with conservative economics is that it always assumes that the lack is of entrepreneurs: If more people were in a position to start or expand a business, they would.

In fact, they won’t, unless they are confident the other two roles will be easy to fill. Imagine, for example, that you run a restaurant, and that a tax cut suddenly gives you a windfall of money you could use to expand. Will you? Not if you’re having trouble filling the tables you have.

That’s what happened during the Great Recession: Rich individuals and big corporations were sitting on huge piles of cash, but they weren’t using it to hire people. Why would they? Nobody is going to spend money to expand their businesses or start new ones if existing businesses are failing for lack of customers. If you cut rich people’s taxes in that situation, they’ll add their new pile of cash to their old pile until the economic outlook gets better.

What the economy was missing in 2008 was the customer. In an atmosphere of widespread fear, we all wanted to hang onto our cash and until we felt more secure. In such a situation, how much money entrepreneurs have to invest doesn’t matter; they won’t invest it until they see unsatisfied customers looking for a product they can spend their money on.

In general, that’s the problem when the distribution of wealth gets too skewed towards the rich: the economy chronically runs short of customers. No matter how extravagantly the rich live, there are limits to what they can consume and how many people can be employed satisfying them. You can’t base a mass-employment economy on yachts and caviar.

Right now, cutting taxes on the rich is exactly the wrong thing to do until the distribution of wealth and income returns to more normal levels. Instead, the government ought to be creating jobs by creating customers — even being the customer if it has to. It ought to be raising taxes on the rich in order to buy things we all need: roads and bridges, health care, clean air and water, education, and a 21st-century energy system that doesn’t wreck the prospects for future prosperity. In an economy already too dominated by the top tenth of a percent, that’s the way to create jobs.

So sure, I’ve never gotten a job from a poor person. But I’ve also never gotten a job from a rich person with no customers.