Who are Job Creators?

[Gaspar]

Yesterday on the senate floor, Harry Reid summed up everything that is wrong with liberal philosophy.  The complete disconnect from reality, the total misunderstanding of the free market, and the blindness toward the private sector.  He created a mantra that sets the tone for the final and inevitable dismantling of our capitalist system, and usher in the Socialist Revolution in America.  He said: "Millionaire job creators are like unicorns.  They are impossible to find and don't exist."

Not that it matters any more, but lets analyze his statement.

Using 2007 data, there were 392,000 Americans who filed tax returns with an adjusted gross income above $1 million.  Of those Americans, 273,000 were defined as "small business owners."  This means that close to 70% of millionaires are small businesses.  Those unicorns employ 50% of the american public and create 65% of the new jobs.

The remainder of employment in the country comes from the Large businesses also owned by unicorns employing thousands of Americans.  Additionally thousands of these unicorns invest as venture capitalists for entrepreneurs looking to start businesses.  Currently, banks aren't as willing to lend to as many new businesses as in the past, and without unicorns many new businesses would never see the light of day.  

Closer to home. . . I have a family member who started a new business in October of last year.  Capital was difficult to find, but over a cup of coffee, a few unicorns were willing to write a check.  So far about 30 people have new jobs because of that, and out of that 30, 3 new business owners have been created.  Within another year that will grow to over a hundred new jobs and about 10 new business owners.

To Harry and many other Americans, your station in life is static.  You are poor, or rich, or middle class.  To Harry, each of those stations represents a voting block, and the more tension he can stir up against the minority of those groups (the wealthy), the more support he can glean from the majority.  Unfortunately, he has it wrong.   Why?  Because these stations are not static.  They move, and their primary direction is up.  

What this means is that when you look at numbers such as those that Reid likes to talk about illustrating how the incomes of the rich have grown 275% while the bottom have only grown 80% you only get a snapshot of a group over time.  The calculation they use to arrive at this, the Gini coefficient, does not apply in this country because our free market system promotes income mobility more than any country in the world.  Corrado Gini developed this calculation back in 1912 and it works very well in calculating income inequality in a static environment where young people go to work, and work the same jobs for their entire lives based on socioeconomic state, cast, class, or other static determiners. You can't apply the same logic here, because today's poor are tomorrow's middle class, and today's middle-class are tomorrow's rich.  

The more interesting part is that mobility also goes the other direction, primarily at the top levels. According to the treasury department, only 75% of the top income earners (remember, we are talking about individuals, not ratios) see their income fall over a decade.  

Using available data, the Treasury's study shows that within just under 10 years the average US worker sees his/her income increase by about 24%, and lower income individuals increase more than the higher income individuals.

Economic historian Joseph Schumpeter compared the income distribution to a hotel where some rooms are luxurious, but others are small and shabby. Important aspects of fairness are that those in the small rooms have an opportunity to move to a better one, and that the luxurious rooms are not always occupied by the same people. The frequency with which people move between rooms is a crucial aspect of the trends in income inequality in the United States.
The key findings of this study include:
• There was considerable income mobility of individuals in the U.S. economy during the 1996 through 2005 period as over half of taxpayers moved to a different income quintile over this period.
• Roughly half of taxpayers who began in the bottom income quintile in 1996 moved up to a higher income group by 2005.
• Among those with the very highest incomes in 1996 – the top 1/100 of 1 percent – only 25 percent remained in this group in 2005. Moreover, the median real income of these taxpayers declined over this period.
• The degree of mobility among income groups is unchanged from the prior decade (1987 through 1996).
• Economic growth resulted in rising incomes for most taxpayers over the period from 1996 to 2005. Median incomes of all taxpayers increased by 24 percent after adjusting for inflation. The real incomes of two-thirds of all taxpayers increased over this period. In addition, the median incomes of those initially in the lower income groups increased more than the median incomes of those initially in the higher income groups.
http://www.treasury.gov/resource-center/tax-policy/Documents/incomemobilitystudy03-08revise.pdf

So, it's not important that the poor are not amassing wealth as fast as the rich.  What's important is that over a relatively short period of time the poor and the middle-class are becoming the rich, and as a whole the total wealth (adjusted for inflation) among everyone in the United States is increasing.  We are apparently a country where everyone can be a unicorn if believe that they can.

The sad part is that the Class Warfare mime is working, and historically it always works, because it's more acceptable to some people to embrace their status as a product of the actions of others, especially when that is what they are spoon-fed by their leaders to build political power structures.

[nathanm]

Oh, the humanity.

[AquaMan]

You're a better man than me Nathan. Couldn't get past the first paragraph. Vintage Gas.

[Gaspar]

^^^ Thank you, that punctuates what I've said.

[AquaMan]

Unfortunately, at least in regards to my own view, you have exhausted whatever credibility you ever had with your repetitious Fox rants and your insistence that the world operates exactly how you see and experience it. Like Glen Beck and most narrow minded people you only surround yourself with others who share that world and then rebuke as incredulous anything or anyone who doesn't follow your leaders. You are a one way valve.

edit: Okay, I realize that sounded really rude. I still like your sense of humor and your graphic skills seem top notch. i'm suspicious of your business theories and your politics are just everyday Yahoo comments section variety stuff with some links. Now I at least feel better about myself.

[Red Arrow]

You're a better man than me Nathan. Couldn't get past the first paragraph. Vintage Gas.

Come on now.  I read your, Wevsus' and Nathan's stuff.  I have to admit to skipping most of TTC's stuff.

[Red Arrow]

Oh, the humanity.

10 minutes to respond?  You must have been otherwise occupied.

[heironymouspasparagus]

Why?  Because these stations are not static.  They move, and their primary direction is up.  

Using available data, the Treasury's study shows that within just under 10 years the average US worker sees his/her income increase by about 24%, and lower income individuals increase more than the higher income individuals.

So, it's not important that the poor are not amassing wealth as fast as the rich.  What's important is that over a relatively short period of time the poor and the middle-class are becoming the rich, and as a whole the total wealth (adjusted for inflation) among everyone in the United States is increasing. We are apparently a country where everyone can be a unicorn if believe that they can.

Traditionally the direction was up from about 1900 until about 30 years ago.  No more.

Increase in income by 24%, when adjusted for inflation over those 30 years means a decrease in standard of living by 24%* (may actually be more - just a number chosen for symmetry - but a realistic number).  Real, adjusted terms - income going down - for decades.

And the 'amassing wealth' paragraph is the Big Lie they have you hooked on.  The understanding is just not there, or the denial overwhelms all reality - increasing income at a slower rate than increasing cost to live IS actually a DECREASE!

Which is what Fox, et al just don't want you to understand.

[we vs us]

What I like about Gassie's arguments is that it constructs a tortured, elaborate theory to address an obvious problem.  To wit:

Raises Taxes On the Rich To Reward Job Creators, by Nick Hanauer, venture capitalist from Seattle.

"I'm a very rich person. As an entrepreneur and venture capitalist, I've started or helped get off the ground dozens of companies in industries including manufacturing, retail, medical services, the Internet and software. I founded the Internet media company aQuantive Inc., which was acquired by Microsoft Corp. (MSFT) in 2007 for $6.4 billion. I was also the first non-family investor in Amazon.com Inc. (AMZN)

Even so, I've never been a "job creator." I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.

That's why I can say with confidence that rich people don't create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be."

In other words -- and ad infinitum -- our problems are driven to a great degree on the demand-side.  

[heironymouspasparagus]

And when the demand is directed toward buying items from China, the situation is aggravated more.

What the world needs is a "Made in USA" web site, so people could look at items they plan to buy, and try to more toward the made here, if it is possible.

Ooops.  Too late - there is one!  Actually, several.

http://www.madeinusa.org/

[Red Arrow]

"I'm a very rich person. As an entrepreneur and venture capitalist, I've started or helped get off the ground dozens of companies in industries including manufacturing, retail, medical services, the Internet and software. I founded the Internet media company aQuantive Inc., which was acquired by Microsoft Corp. (MSFT) in 2007 for $6.4 billion. I was also the first non-family investor in Amazon.com Inc. (AMZN)

Even so, I've never been a "job creator." I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.

That's why I can say with confidence that rich people don't create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be."

So this guy is saying that all the businesses he has started or helped to start have failed.  I guess most do eventually or they just end if a family business isn't sold or passed to someone else.  In the mean time, there were jobs for a while.  Maybe a while is a couple years, maybe longer.  The days of working for one company for a lifetime are (mostly) gone.

Even if all the companies he created fail quickly, he has spread some money around trying to get them started.  Isn't that one of your goals?

[Gaspar]

Your logic doesn't work, because when you adjust for cost of living increase, you're also taking into account inflation as part of that index.

To add both would be double-dipping...Sebelious style!

[we vs us]

So this guy is saying that all the businesses he has started or helped to start have failed.  I guess most do eventually or they just end if a family business isn't sold or passed to someone else.  In the mean time, there were jobs for a while.  Maybe a while is a couple years, maybe longer.  The days of working for one company for a lifetime are (mostly) gone.

Even if all the companies he created fail quickly, he has spread some money around trying to get them started.  Isn't that one of your goals?

Indeed.  He definitely hired some people -- for a time.  IMO, the "radical" thing this guy's doing, though, is to bring demand back into the equation as an equally weighted concern.  Tragically, as he rightly points out, even the Democrats aren't talking about it.  

[AquaMan]

Red, What I got from his remarks was that consumer demand, accurately assessed and acted upon by a business, creates the jobs. Without the demand or with erroneous feedback to the businessman as to the nature of that demand, a wealthy person cannot just create jobs. It is an important distinction because it broadens the current scope of thinking as to how jobs are created.

Some would have you believe that jobs appear or disappear depending on how rich or how well treated the 1% feels,  the quality of the economy they work in, or their taxes, party affiliation, etc. It is more accurate to note that guys like Jobs and Gates were not wealthy when they started their companies. They accurately pinpointed a demand that Xerox, IBM and others had failed to exploit and seized upon it. ALCOA was another example. They were started during the depression and were not very profitable but were able to hold on till the demand created by WWII made them indispensable.

[Red Arrow]

Red, What I got from his remarks was that consumer demand, accurately assessed and acted upon by a business, creates the jobs. Without the demand or with erroneous feedback to the businessman as to the nature of that demand, a wealthy person cannot just create jobs. It is an important distinction because it broadens the current scope of thinking as to how jobs are created.

Some would have you believe that jobs appear or disappear depending on how rich or how well treated the 1% feels,  the quality of the economy they work in, or their taxes, party affiliation, etc. It is more accurate to note that guys like Jobs and Gates were not wealthy when they started their companies. They accurately pinpointed a demand that Xerox, IBM and others had failed to exploit and seized upon it. ALCOA was another example. They were started during the depression and were not very profitable but were able to hold on till the demand created by WWII made them indispensable.

A product or service with no demand will obviously fail. The wealthy can directly employ people but I don't believe that is really the subject here.  Some products will create their own demand, for a while.  Think Pet Rock.  There will always be the basement tinkerers that make it big. Maybe they needed some money to start production, maybe not.  Gates, Jobs, Hewlett & Packard are well known because their success is relatively uncommon.  Person X borrows huge sum of money, makes successful business and employs 45 people does not make the news.  The demand for personal computers was largely created by the presence of easy to use personal computers.  There were small computers before the IBM PC, Commodore/Vic series and the Apple but they were largely relegated to hobbyists and people handy with a soldering iron and screwdriver who were literate in hexadecimal.  My first computer, which dad and I shared, was a Commodore 64.  I don't remember thinking in 1977 that I really needed a personal computer.  I had my HP calculator.  Compared to a slide rule, it was fabulous.

Demand is certainly a requirement for a sustained business.  Demand without a business to supply it will go unsatisfied.  The business to supply it may exist.  If it doesn't, more often than not it will be created or financed by someone not living from paycheck to paycheck.  Are the suppliers all 1%ers?  Obviously not.  Are all the 1%ers only paying 15% on their Federal Income Tax?  Not according to Table 8, http://www.taxfoundation.org/news/show/250.html#table6  Please note some of the brackets that do not include the upper percentages.  Anticipating Heiron, closing down some of the special advantages in getting to the AGI from gross income for the really wealthy would be acceptable to me.  There are some too for "regular" people like the 401K that I use to knock my gross income down by 15%.  While that is available to the rich, it is limited by the number of dollars as well as percentage so it only becomes a small number in the noise for the really wealthy.