MYTH OF THE "JOB CREATORS"

‘Job Creators’ is the latest label bestowed upon the wealthy by the GOP leadership. Romney’s plan would cut taxes and regulations for those he calls the ‘Job Creators’. Speaker Boehner’s recent comments parroted the same theme.

Who really creates jobs?

The supply side economists claim that people have an inherent propensity to spend if there is supply of goods and services. They postulate that cutting taxes for the wealthy will entice them to invest in creating supply. That was tried in 81 when the top tax rate was cut from 70.1% to 28%. The tax code was simplified and many loopholes were eliminated. When the unemployment increased to 10.4% in 1983 (source: Wikipedia) it was the expansion of government and rebuilding of infrastructure that gave the kick needed to lower the high unemployment rate. In the process, President Reagan left the largest deficit, $2.1 Trillion, even though he raised taxes seven times, cancelling half the cuts.

If it is the supplies we need to create jobs, then how come many small businesses are closing and stores are liquidating their stocks and the big corporations are not hiring. Where are those who benefited from President Bush’s tax cuts of 2001, 2003 and 2004? How come they are not building supplies? Since 2010, the corporations have accumulated $1.3 trillion of profits and interest rates are bottom low – a very friendly environment for investing. They should be lining up to expand their operations or upgrade their infrastructures.  

But none of this is happening. Why?

Real wages have been declining since the 80’s. It was home equities and two earner families that had been driving the consumption. Then came the subprime mortgage bubble burst causing the collapse of the financial institutions resulting in wholesale credit freeze and large scale layoffs. Presently, 12.7 million, 8.2% of the workforce cannot find work and the majorities of those who are working make minimum wages and therefore can only afford to purchase the bare necessities.

In 2010, the Republicans/Tea Party suddenly developed a conscience about the deficits. Government expansion and deficit spending has been the hallmark of Republican Administrations since Eisenhower. The newly elected Tea Party supported state governments, refusing to accept Federal Stimulus, have laid off 610,000, teachers; police officers; firefighters; and other service personnel while cutting taxes for their favorite constituents, the corporations. This has further diminished the already shrinking DEMAND at a time when we need more of it. At the same time these newly unemployed are no longer paying taxes resulting in further reduction of revenues for the government.

Warren Buffet tells us that motivation for investments is profits and not taxes. The profits come from demand. In 1914, Henry Ford understood this well. His efficient production line was producing more cars than he could sell. In January of that year he doubled the daily wages of his employees so they could also become his customers. His action created DEMAND. The rest is history. Another example, crude but true to the principle, is the illegal drug trade. Although criminal, the drug cartels are shrewd businessmen who stay one step ahead of the mighty DEA to satisfy the DEMAND of their products and make profits.

We had a spurt of hiring earlier in the year due to stimulus and growth in exports. However, that did not last very long because of the Euro crisis and slowdown in DEMAND in China and India. The Republican’s eagerness to cut expenses and implementing austerity is prolonging our Great Recession, the worse since the Depression.

Europe offers a clear example that austerity during a recession is a prescription for failure. The IMF has studied 173 cases of austerity packages since the 1970s and all led to recession not growth. Republican Romney reminds us that we are heading to the same fate as Europe. His prediction will come true unless we focus on creating demand. Germany, presently dictating austerity to others, did not gain economic stability by practicing what it preaches. Immediately after the 2008 crisis, Germany revived its auto industry through aggressive financial stimulation. We followed their model to revive our own auto industry after the reorganization of GM. If GM had seized to exist, thousands of suppliers would have had to cut their operations resulting in unemployment for millions more. Germany has also been subsidizing (a bad word in the Republican language) its clean energy industry and has taken the lead in solar panel technology.    

Time and again history has demonstrated that in a time of recession, the economic pump can only be primed by governments. They renew nation’s infrastructures and invest in industries of the future. The resulting employment creates demand that encourages the investors to invest in the ensuing growth.   

It is the people earning decent wages who are the real JOB CREATORS.  

When Romney and his surrogates want to give 25% tax cuts to the so called ‘Job Creators’, ask them a simple question: Would you invest if there is no DEMAND? The likely answer will be, “No, but demand will follow investments.” It has never happened.  

             

AFFORDABLE CARE ACT

In 2009, during the debae for the Patient Protection and Affordable Care Act I happened to be seated at a table with group of people including a retired military man. During our small talk somebody  to mentioned about the discussion in the Congress about the health care legislation. I was shocked to see a sudden transformation in the demeanor of my military friend. Appearing very distraught, he stated, “They are going to create ‘death panels’ that will determine how long us seniors can live.” I was disappointed that my fellow citizen has no clue about the Constitutional guarantees for life and liberty. Later I discovered that Death Panels was how Sara Palin defined end-of-life counseling provision of the bill. This is typical strategy of the GOP (Grand Oligarch Party) to instill fear and then appear to be the white knight that will make it all better. But it never gets better for the average Americans. 

The bill has been a law since 2009 although Tea Part controlled GOP refused to acknowledge it. After three years of legal challenges and falsehoods, the Supreme Court has upheld the law to the consternation of the Republican base. Some of the Republican leaders in a meeting immediately after the announcement have likened the Court’s decision to the September 11 attacks. They were expecting the court, in following the Citizen United ruling, to declare the law unconstitutional. The Court's decsion has enraged the Republican base and unemplyment and the economy is about to take back seat as an election issue by the Republicans. It is important for the President to explain to the voters the benefits that ACA provides to the middle and low income citizens. Detail of the benefits can be seen here.

Rest of the industrialized nations, while supporting the capitalist economic model, have a safety net for their citizens that includes not-for-profit healthcare. By upholding the law, the Supreme Court has positioned the United States to join the other industrialized nations. The insurance companies will not be able to refuse insurance because of pre-existing conditions. Insurance companies will not be able to cancel insurance in the event of lingering illnesses. College bound children can stay on their parents’ insurance. GOP will tell you that all this will increase the cost of health insurance. But that will be a lie. Here is why.

There are estimated 50 millions Americans without any health insurance. About 20 million are covered by Medicaid but the rest either do not feel they need health insurance or their empoyers do not offer one. And when they end up in the emergency rooms, their costs are paid by inflated charges by the hospitals and higher premiums by the insurance companies. Because of the mandate clause, millions will be added to the rolls of insureds allowing the insurance companies to spread the risk and therefore lower the cost of health insurance. The new law make sure that the premium is lowered because it requires the insurance companies to spend 80% of their premium revenues on direct medical services to the patients. Majority of economists and the CBO, the Congressional Budget Office agree with this assessment. ACA’s emphasis on prevention will lead to further reduce the number of patients with serious illnesses in the later years thereby reducing the cost of future Medicare participants.

Republicans, fearing breaking their pledges to their mentor, Norquist, are  outraged that the Supreme Court called the penalties as taxes and the House of Representatives wasted 80 hours to stage a useless vote in order to repeal the ACA. But it really does not matter whether it is a tax or a penalty. The affordable health care idea was first proposed by the conservative Heritage Foundation. ACA, including the mandate clause, is similar to the one signed into law by Governor Romney in the State of Massachusetts where emergency room visits have tangibly reduced. If it had been a Republican President we would not be having this discussion. It is becoming clear by the day that Republican Party is hell bent on undoing whatever Obama does no matter what their actions hold for the average American.

Matt Miller, a Washington Post opinion writer, aptly puts it, “Only in America could a Democratic president pass Mitt Romney’s health plan and fund it partly through John McCain’s best idea from the last campaign (taxing some employer-provided plans) and be branded a “socialist.”

Next Week: WHO ARE THE REAL JOB CREATORS

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