Consumers Create Jobs, NOT Businesses

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A widely held economic misconception is that businesses and entrepreneurs create jobs and economic growth. It’s easy to see why people believe this myth – businesses do indeed employ people, and they do pay salaries. But just because businesses are at the front line of employment, doesn’t mean that they are ultimately responsible for job creation. The job of the wing in a rugby game is to leap over the try line, but we do not attribute the success of a rugby team to just two players – the wing can’t do what he does without a full team of hardworking players behind him.

In order to understand where jobs and economic growth really come from, we first need to dispel a couple of common conservative myths.

1. Spending is the lifeblood of the economy, not saving

Many people believe that savings are the source of economic growth, because they fund capital investment. Nothing could be further from the truth. Economists have long proven that the source of economic growth is what they call Aggregate Demand, a technical term for spending. If you think of money as the lifeblood of the economy, you can think of Aggregate Demand as the flow – the more of it we have, the faster the economy can grow.

2. The rich are hoarders, not providers, of capital

Studies have shown that the rich spend a much smaller percentage of their income than the poor. Conservatives will claim that this income is used for capital investment, but as we now know, Aggregate Demand, not capital investment, is the source of economic growth.

Now that we know that savers, businesses and rich people, are not in fact the heroes that conservatives make them out to be, we can start to ask, where does economic growth really come from? Well, the answer is, you! You are the source of economic growth in this country. Whenever you buy a new TV, whenever you buy your weekly groceries, whenever you eat out, you are creating Aggregate Demand! Sure, businesses hire people, but where do they get the money to hire people? From you! You are the enablers of the rich – you are the reason that Bill Gates can enjoy his mansion. You are the reason that Larry Ellison can tour the world in his private jet. Without your spending, these people would be nobodies! So next time some conservative, or libertarian extremist tries to tell you about ‘job creators’ or ‘entrepreneurs’, just remember that these people are not the saints that they are made out to be – they are simply enjoying the benefits of your spending.

1 COMMENT

  1. Government can also create jobs.

    Government, through history, has a solid track record for creating jobs. Furthermore, Government employees are compensated and given more benefits compared to the average person in the private sector for two main reasons: 1. Government work attracts the most educated and talented people from the country. 2. Its only fair that the tax payers should generously compensate the most educated and talented people who have decided to dedicated their life to serve the people.

    This is why Government Spending, especially during economic downturns, is always the best remedy for a strong recovery.

    • Well said Robo. Government is yet another source of high quality jobs and economic growth that conservatives refuse to acknowledge. As the private sector collapses and cuts pay across the board, government jobs remain some of the best paying jobs out there, which clearly demonstrates the resilience of the public sector vs the private sector.

      • yes, exactly. This is as liberal and progressive economists have been saying for some time. The great inventions of the past century were made by consumers, not businesspeople or inventors. Spending is what makes an economy run, there should be no safe harbor for savers. Who are these unpatriotic people who believe in this antiquated practice of saving? It’s like witchcraft or something. These extremist savers should have their savings taken away and given to the poor to spend. And if there aren’t enough poor, then we should import many more from Africa and give the money to them so that they may also become drivers of our economic growth.

        With government employment, I’m not sure I see a need for businesses anymore. The government can simply employ everyone and pay them a million dollars a year. This will level the playing field and level the economy completely. I am a firm believer in raising the minimum wage primarily for oppressed minorities and women, who have long been denied “access” and are “underserved.” Government is what moves the economy forward and consumers are who drive growth. And minorities and women have always been the innovators until patriarchal white males steal knowledge from their brains and use it for their own purposes.

      • … – neither of you is thinking *far enough* outside the box here:… – there is *so much* bloat and inefficiency in the private sector (~$43Tn debt, *minus* the derivatives complex; continued energy sector investment in climate change-inducing fossil fuels, etc., etc.,…) – simply outlaw the private sector & use the savings to establish an SOE along the lines of fannie/freddie/sallie to *directly finance* consumer consumption! – no more so-called “productive” (read: – unnecessary & illegal hoarders & wasters of raw-materials) rentier middle-men! – no more wastage!…

        – the SOE, as a government-run and officially accredited representative of consumers (ie: ‘the people’s’) rightful will, would work with the major banks to finance and thus, synergetically invigorate *direct consumer investment in the means of production*: – give consumers a living income *PLUS* an allocation of total GDP in terms of a ‘personal investment budget’, so that they can *CHOOSE* to directly invest in *ONLY* those products & services which they desire… – *TRUE DEMOCRACY*!!…

  2. Ah, spending is the lifeblood of an economy, got it. The thing is, ultimately, you can only spend what was before earned and/or saved (not necessarily by the same persons). Q: When credit is maxed out and the debt numbers cannot even be displayed anymore for their sheer size – where is the spending, eg. lifeblood, going to come from? And before you say: the fed will print it, I have news: Lifeblood can never be printed. Money can, ad nauseum. But that is no lifeblood. Rather, it will act as poison down the road and the more you print, the sicker the economy will get.

  3. Interesting. Though I don’t agree with everything, I do agree with some. As far as the argument of whether businesses create jobs or the customer does, it’s a bit like the question of what came first, the chicken or the egg. As long as everyone involved is participating voluntarily, all will be pleased with the results.

    What I can’t agree with is the notion that the government creates jobs. Of course they do, but they come at the expense of private jobs. With all the money spent, we should have created heaven on earth – but is it? For some people (corporations) it is, but for the average person I think not.

      • Trav you are progressing along the right lines with your suggestion but I feel you have misunderstood something. We should leave the thinking to accredited government employees ONLY. They are the only ones we can trust to be impartial. Universities still tolerate too much freedom of expression and the public should be protected from negative and retrogressive opinions and attitudes.

    • “… it’s a bit like the question of what came first, the chicken or the egg…”

      … – Fortunately John, the ever-erudite Dr. Krugman has shown us that we do not, in fact, need chickens, – *ever*… – Only the eggs… – & preferably, *broken* ones, at that (necessary for making tasty and nutritious omelettes)…

      🙂

  4. Welcome back, Comrade MDB! The solution of course is simple – if everyone worked for the Government, then we would in fact have full employment! Q.E.D.

    “Full Employment” is the common structural discourse of the people like us who actually care about the oppressed underprivileged.

    If one examines neocultural narrative, one is faced with a choice: either accept subtextual dialectic theory or conclude that reality is created by communication, but only if consciousness is distinct from narrativity; otherwise, Sartre’s model of structural discourse is therefore intrinsically meaningless.

    We have to choose between patriarchialist desublimation and prematerial theory. It could be said that the use of neocultural depatriarchialism to challenge sexism.

    You would be well aware that several structural discourses concerning the premise of neocultural depatriarchialism where what is considered by elderly wealthy white male art observers is used to oppress the underprivileged.

    Anyway, welcome back, Comrade, and give these Neocons an utterly craptastic outing!