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Monday, December 26, 2011

The Mythical "Job Creators"

Dec 26th, 2011

Business Insider's Henry Blodget writes:

"The most important reason the theory that "rich people create the jobs" is absurd, argues Nick Hanauer, the founder of online advertising company aQuantive, which Microsoft bought for $6.4 billion, is that rich people do not create jobs, even if they found and build companies that eventually employ thousands of people.

What creates the jobs, Hanauer astutely observes, is a healthy economic ecosystem surrounding the company, which starts with the company's customers.

The company's customers buy the company's products, which, in turn, creates the need for the employees to produce, sell, and service those products. If those customers go broke, the demand for the company's products will collapse. And the jobs will disappear, regardless of what the entrepreneur does.

Now, of course entrepreneurs are an important part of the company-creation process. And so are investors, who risk capital in the hope of earning returns. But, ultimately, whether a new company continues growing and creates self-sustaining jobs is a function of customers' ability and willingness to pay for the company's products, not the entrepreneur or the investor capital. Suggesting that "rich entrepreneurs and investors" create the jobs, therefore, Hanauer observes, is like suggesting that squirrels create evolution.

(Or, to put it even more simply, it's like saying that a seed creates a tree. The seed does not create the tree. The seed starts the tree. But what creates the tree is the combination of the DNA in the seed and the soil, sunshine, water, atmosphere, nutrients, and other factors that nurture it. Plant the seed in an inhospitable environment, and it won't create anything. It will die.)"

But, like the Fannie and Freddie myth, this is a lie that will not die.

One more time, it's the demand crisis which is killing us.

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