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.