Labor, Taxation, & Wealth Creation

[unlawflcombatnt]

LABOR, TAXATION, & WEALTH CREATION

Financial commentators often claim that investment creates wealth. This is NOT true. Investment alone does not create wealth, or jobs. Demand for production is also necessary. Production will not continue if no one buys the products. If capital is abundant, like it currently is, there is NO benefit to increasing it through tax cuts to the rich. That doesn't increase production or wealth any. However, if you taxed away some of the excess capital from our over-invested industry, and gave it to consumers, PRODUCTION would increase.That's because it would have increased the demand for production.

Progressive taxation is often assailed as simple "redistribution of wealth." In fact, redistribution of wealth may lead to INCREASED wealth production. It may serve to improve the balance between the "means of production" and the "means of consumption."

Widget production is oftened used to describe economic concepts. I'll use it here. How many widgets could a widget-maker sell to someone with no money, because he had no job? None. How many could he sell to 1,000 people with no money because they have no jobs? None. He can't sell widgets to anyone, if they have no money.

Let's change some factors in the above case. What if we gave the widget-maker $1 million to invest in widget making? How many widgets would he produce? None, because he can't sell them. He still has no market for them. No one has any money to buy them, because they have no jobs. What if we gave the $1 million to the 1,000 people who had no widgets, and no jobs.They'd start buying widgets. The widget maker would start selling widgets. He'd sell his current supply for a large amount of money. Then he'd hire people to make more widgets, using the profits he made from selling his original widget supply. As a result, the widget-making laborers would have more money to buy widgets. The demand for widgets would increase, as aggregate widget-maker income increased. Further hiring would take place, because the increased widget demand would increase the demand for workers to produce them. More widgets would ultimately be produced.

Wealth WAS created. The widget-making workers increased the value of the raw materials used to make the widgets. Where did this increase in wealth actually come from? From LABOR. Labor increases the value of raw materials. If labor is underutilized, there is less wealth created. The Great Depression was a classic example. Factories laid idle while workers were unemployed. There was reduced demand for production. So there was reduced demand for labor. The value-increasing ability of labor was underutilized. Years of under-utilization lead to millions of dollars of lost potential wealth creation. No amount of capital investment would have changed this any. Production picked up only when the government started re-distributing wealth to consumers, stimulating demand for production. This happened, in part, as a result of the government taxing those who had wealth, and employing those who did not. In this way, excess, unused potential capital was converted into labor income. This provided the consumer income & demand necessary to jumpstart American industry. Americans again had enough income to buy American production. As demand for production increased, American labor was put back to work, and wealth production accelerated. This jumpstart was a direct result of wealth redistribution from the affluent, where it contributed nothing to the economy, to the consumers, where it contributed greatly to the economy.

In this case, wealth redistribution from the rich to the less affluent DIRECTLY contributed to WEALTH CREATION. Maximum use of labor is necessary for maximum wealth creation. Capital was not in short supply, nor were production facilities. Consumer income WAS in short supply. As a result, the wealth-creating effect of labor was under-utilized during the Depression. And we all became poorer as a result.

If there is an imbalance between the "means of production" and the "means of consumption", less wealth will be created. If investment capital is excessive in relation to consumer income, less wealth will be produced. That's because decreased consumer income decreases consumer demand, as well as the demand for labor to produce goods. Less labor demand causes less employment, and underutilization of labor's ability to increase the value of raw materials used in production.

Capital investment is certainly necessary to build production facilities. But its benefit, like that of labor, is limited by demand for production. When capital investment is excessive, money is better utilized if "redistributed" into consumer income. Unutilized production facilities help no one. In this case, increasing capital investment has no benefit. Increasing consumer income does. It provides the demand to stimulate utilization and increased production.

Our economy is driven by consumer demand. Investment capital is worthless, unless consumer demand necessitates that investment. Demand stimulates production, but production does NOT stimulate demand. No amount of capital investment makes up for lack of consumer demand. FDR understood this. As a result, we recovered from the Depression. Redistribution of wealth did not hurt capitalism. It saved it.

unlawflcombatnt

EconomicPopulistCommentary
http://www.unlawflcombatnt.blogspot.com/

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Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.

Building a factory does NOT create jobs. Demand for production DOES create jobs. Goods are not produced if there is no demand for them. Without demand for goods, there is no demand for workers to produce them. Without demand, no amount of investment creates jobs.

[TahitiNut]

1. Yep. Corporate profits are higher, relative to employee compensation, ...

... than at any time since the Great Depression. The working class is being raped for the increased comforts of the "ownership class."

[Karenina]

2. Kick!

:kick:

[TahitiNut]

3. Welcome, unlawflcombatnt!

Your well-thought-out post deserves greater attention, imho. :thumbsup:

[notadmblnd]

4. It doesn't take an ecomomist to fo figure out.....

that you you take away the jobs of the people who buy your products, then you'll have no one to sell them to.

[DuaneBidoux]

5. Excellent post--this has been essentially my take for years.

This also explains why, historically, the country does better under Democrats while "business" does better under Repugs.

Example: there was a similar analysis done by economy.com on the value of President Bush's "Jobs and Growth" tax cuts which showed that, essentially, that of every dollar spent only 60 cents of growth occurred, essentially flushing 40 cents down the toilet.

He showed that if the money for tax cuts had been limited to the middle and lower classes in tax cuts, and the money that had gone to the rich had gone to state governments instead there would have been 1.60 in growth for every dollar the government spent.

Even Jack Welsh (sp?) former CEO of GE (?) in an interview on CNBC said if he were CEO now it wouldn't matter how many tax cuts he got, he is not going to build a factory if the demand isn't there.

The above is the same concept as when Henry Ford realized that if he would pay his workers a living wage it would expand the market for cars because then his own workers could buy cars.

When EVERYONE does better, the country (ironically, even the rich) do better. This is one reason why there is a strong correlation between stock market performance (better) and democratic presidents.