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.

[Mythsaje]

1. This goes along with

my argument against "tax breaks" for potential investors rather than increased breaks for the lowest wage employees...More money in the hands of the average consumer means more money flowing through the economy. Money in the hands of the wealthy might find its way into the economy through investment, but it's just as likely that money will be taken out of the economy through foreign investment or through the purchase of expensive toys that do nothing to stimulate the U.S. economy at all.

[Digit]

2. This is what I called the "trickle UP" economy years ago...

I posted this on a local website and was beaten up royally for it.
It just always made sense to me that if people had money, they would spend it.
The wealthy just don't spend the money...oh, they may buy a boat or expensive home, but they are not out there spending day after day.
Georgie boy has no clue.

[Mythsaje]

3. I posted

this argument on the about.com message boards some time back. I didn't get beat up on it, amazingly enough. As was the case with the posts I made that were a bit too insightful, I got almost NO responses to it.

I'd rather have someone yelling at me than be ignored. I'm weird that way.

[Digit]

4. My lesson

Back in the late 80's, I learned alot about people, while having to act as a pizza delivery person.
I had always worked in more professional positions, but my ex was using the court to harass me. I would have lost any "conventional" job due to this harassment.
This job taught me the following:
The working class living in apts are the best tippers
The wealthy will turn off their lights so they can get a discount...then they will stiff you no matter what (not tip)

I remember my last day...it was Christmas Eve and it was pouring down rain. I was soaking wet. The IRS figures so many tips/gross sales. I always seemed to make WAY under that. This evening was an extreme example. There was some game on, and I was making nada....my last house was an older couple, and they invited me in. They were just so darned sweet.
Anyway, I went home to get Christmas ready for my child and found I had a foot of water in my basement.
I was up all night bailing water, and quit that damned job the next day.

Rant insert: Men make more in tips than women....studies have proven it. The IRS makes no distinction here.

[Mythsaje]

5. I'm not sure

tips should be taxed in the first place. It bothers me that the government thinks it can muscle in on what should be considered a gift.

[dajoki]

6. i think you meant...

tips should not be taxed. i hope.

[unlawflcombatnt]

7. Foreign Investment & Bonds

You made a good point about foreign investment. If consumer spending is insufficient to justify capital investment in American industry, the investment money will go elsewhere. Foreign investment is one option.

I've also considered another possibilty, which may explain a major conundrum. I think the maldistribution of wealth is increasing on a world-wide basis. The increasing maldistribution of the world's wealth favors an increase in investment capital over spendable consumer income. Thus, the demand created by that consumer income is also decreasing. With dwindling demand for goods, there would be dwindling demand for production facilities, and the investment needed to build them. This would result in a lack of investment opportunities worldwide. Warren Buffett has recently mentioned the lack of good investment opportunities.

If there's a lack of worldwide investment opportunities, where else could that capital go? It might go into government bonds and treasuries. Investors are then assured of some return, unlike the stock market or other industrial investments. Thus, with the number of good global investment opportunities dwindling, bond investment looks more promising.

I suspect this is one factor that keeps bond yields low. ( I'm guessing here. I'm definitely not an expert in this area.) It seems that if good investment opportunites were reduced globally, it would increase bond investment. This might explain the ease with which our government continues to finance our debt through bonds. There are simply a lot of people in the market to buy bonds.

I'd really like to get everyone's input on this idea. I'm a novice in this area, so I'd appreciate the help.


unlawflcombatnt
EconomicPopulistCommentary
http://www.unlawflcombatnt.blogspot.com/
________________________________
Investment does NOT create jobs. It only "allows" for their creation. Only DEMAND for goods creates jobs, because it requires workers to produce goods. Investment may "permit" job growth, but only DEMAND necessitates it.

[oscar111]

8. INVESTORS NOT NEEDED: Co-ops create wealth, no drainoff to investors

No one needs an individual risk-taker to invest his money, in order to get a business started.

the old claim "but he risked money, so he deserves all the profits now" is bunk.

When co-ops are begun with pooled savings from any source {state, credit unions, bank loans, or co-op members themselves, etc },

... the risk is so widely shared that no one exists to step up and demand "All profits must come to me alone, you employees only get enough to eat, and that at a level of .. in many cases... chronic hunger" {12 million hungry in the US, and...--worldwide,--- flat-out starvation faces 9 million.}.

SUMMARY: Individual Investors not needed.

Co-ops can create any kind of wealth.. Oil Refinery in McPherson KS, auto parts in Mondragon Spain {Assets $4 Billion, sales 3.8 Billion, 4O,OOO employees} , Credit Unions and huge "rural co-op" electric plants all over.

[unlawflcombatnt]

9. Co-ops

I remember that co-ops were receiving a lot of publicity in the late 60's and early 70's. I haven't heard much about them since that time. Do you have any more examples or references?

unlawflcombatnt