We regularly hear it said that government doesn’t know how to create jobs or the creation of jobs is best left up to private industry. We rarely hear anyone challenge this idea so it must be true. Right? WRONG!!!!
Let me explain myself.
Just to make sure we are all on the same page here, I am not an economist. My education is in the field of engineering, but that shouldn’t be interpreted as meaning that I have no credibility in an economic conversation. If you are running a business, the only reason to hire anyone (create a job) is because you need that labor to make more product or service to sell in the marketplace. The only reason you need more product or service is because you have more demand from your customers. Capitalism isn’t about spending more than is necessary to keep the operation running. No, capitalism is all about maximizing profit. In-other-words, you won’t hire anyone unless you think the product or service you gain from that new employee increases your profitability.
Using that exact same logic, you won’t increase an employees pay unless the market place demands it to keep that employee working for you and making your operation more profitable. At the end of the day, for a capitalist, it is all about maximizing profit. You can spin the idea in a lot of different ways and we hear it spun regularly, but the business of business is all about profit.
Small businesses in the United States are said to employ something like 70% of all workers. We should remember that a small business employs up to 500 people so some small businesses aren’t so small. A new startup business would be running on belief so the people employed by these firms wouldn’t be so clearly tied to the known demand for a product or service, but they soon will be when the marketplace starts to accept or reject that new product or service. This same uncertainty would apply to an expansion of an existing product or service.
As you operate your business, you’re not going to have a lot of hard data on which to make the decisions you will need to make just to keep being profitable. Instead, you will have a lot of uncertainty (read that risk) surrounding the decisions you will make. We hear a lot about the business community wanting more certainty from pending government regulations and here is the reason why. A new government regulation means some unknown amount of new cost for your business and that translates to less profit for you.
We hear a lot about our economy in the United States. How big is it and is it growing, and how fast is it growing? There is talk about recession and the recent so called great recession which are really describing a time period when the economy is shrinking. For me, the whole notion of our economy is best described as the total of all transactions during a particular period of time. Every time somebody buys something, the size of our economy expands. I think of it as money in motion. The size of our economy could be the result of a little bit of money moving fast or a lot of money moving slower, but either way it is the number of transactions that tell us about the size of our economy.
Now I have arrived at the point of this discussion where I can show you how the business decisions you make will support economic expansion or economic contraction. I argued above that the driver of business growth is sales growth and that will lead to job creation. It isn’t difficult to figure out that sales don’t grow if the potential customers don’t have any money to spare. It is starting to look like the old chicken and egg dilemma. In recent recessions the government tried to use a stimulus of government spending to get things moving again, but if the stimulus is too small it either won’t work at all or it will take a long time for things to improve. The private business community could have exactly the same effect if they just hire a few new workers in the belief that things will improve, but then such behavior would be counter to the idea of capitalism.
I would argue that unfettered capitalism will have our economy on the edge of recession almost all the time if there are no expansionary forces coming from somewhere and those expansionary forces don’t have to be in the form of government spending. New business startups chasing a new technology will have the same effect, but new technologies don’t come along just because the business cycle needs a boost.
The Chairman of the Federal Reserve recently announced that the Quantitative Easing program they have been following is going to be scaled back (tapered) and that means there will be less government money flowing into the economy. If the Federal Reserve takes money out of the economy and nobody else adds new money into it, you can see how a contraction starts to take place. So, now is a good time for the private businesses all over the country to start injecting some new money into the economy by hiring some new employees. If private businesses create enough new jobs, the economy will continue to grow and those businesses will be profitable.
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