Monday, 22 December 2014 / TRUTH-OUT.ORG

The Cost of Trickle-Down Government Job Creation: $1.5 Million Per Worker

Sunday, 08 January 2012 10:51 By Ravi Batra, Truthout | News Analysis
The Cost of Trickle-Down Government Job Creation 15 Million Per Worker

(Photo: Gamma Man)

Suppose I were to tell you that for the past two years the federal government has been spending nearly $1.5 million to create one job, what would your reaction be? Would it be one of disbelief and bewilderment? But suppose I were to prove my statement by citing official data, then how would you react? Well, you make up your own mind, but my response is that the administration's advisers should rethink their approach. Does it make sense to spend so much money to generate one job when the average wage is less than $50,000 per year? In fact, this policy is so foolish that it might even be better just to hand over the average salary to the unemployed so they stay calm, make both ends meet and create consumer demand.

Let me prove my point. The administration's tack is that we should keep spending money at the current rate to preserve jobs, even though the annual federal budget deficit has been around $1.4 trillion over the past two years. In fact, the government even plans to increase its shortfall by raising the size of the payroll tax cut. It seems apparent that the main purpose of excessive federal spending is to preserve or generate jobs. This is a point emphasized by every American president since 1976, and especially since 1981 when the federal deficit began to soar. This is also how most experts defend the deficit nowadays.

In 2010, according to the Economic Report of the President, as many as 800,000 jobs were created, and the government's excess spending was $1.4 trillion, which when divided by 800,000 yields 1.7 million. In other words, our government spent $1.7 million to generate a single job. The economy has improved this year, providing work to 1.1 million people for the same expense. So, dividing 1.4 trillion by the new figure yields $1.3 million, which is now the cost of creating one job. Thus, the average federal deficit or cost per job over the past two years has been $1.5 million.

To be sure, a part of the red ink arose from financing the wars in Iraq and Afghanistan. Their expense each year was about $100 billion. This reduces the government cost of job creation somewhat, but then we should add the trillions that the Federal Reserve has spent since 2008, presumably to stabilize the financial system and preserve employment. In 2011, the Fed spent at least $600 billion in a program known as QE3 (Quantitative Easing 3) in order to stimulate the economy and revive the job market. If you do the math, the federal job creation cost is a minimum $1.5 million per worker. So, a trillion here, a trillion there, and pretty soon you're talking real money. Is it prudent to be wasting our precious resources like this? I don't think so.

The trillion dollar question is this: where is it all going, when the annual average wage is no higher than $50,000? Obviously, it must be going to the so-called 1 percent group or what the Republican Party calls the job creators, i.e., the mostly male CEOs and other executives of large corporations. See how generous these people are; they only want and get chump change from the government so as to offer work to the unemployed. Nearly the entire federal deficit goes to enrich the Big-Business-Big-Bonus CEO, yet he claims to do us all a favor by providing jobs, and demands all sorts of tax breaks.

Let us see how the main culprit for the mushrooming incomes of business magnates is our own government. This is how the process works and has been working since 1981. The CEO forces his employees to work very hard while paying them low wages; this hard work sharply raises production or supply of goods and services, but with stagnant wages, consumer demand falls short of growing supply. This then leads to overproduction and threatens layoffs, which in turn threatens the re-election chances of politicians. They then respond with a massive rise in government spending or huge tax cuts, so that total demand for goods and services rises to the level of increased supply. As a result, either those layoffs are averted or the unemployed are gradually called back to work. This way, the CEO is able to sell his entire output and reap giant profits in the process, because wages are dwindling or stagnant even as business revenue soars. In the absence of excess government spending, companies would be stuck with unsold goods and could even suffer losses. In other words, almost the entire federal deficit ends up in the pockets of business executives.

How does government spending generate demand for goods and services? Many administrative departments, such as defense, directly buy goods from the private sector. The government also pays employee salaries, Social Security pensions, unemployment benefits, among other things. Here, the generation of demand is indirect, as the recipients of such money also add to total spending. Both the direct and indirect government spending generate demand in the economy, absorb unsold goods and thus add to business revenues.

So, CEOs are very, very happy, and when they are happy, politicians of all persuasions are happy. After all, corporate America is ultra generous to the political class. No wonder, both Republicans and Democrats alike have been busy adding to the federal deficit in the name of creating jobs. We all need to understand the process through which our system works for the 1 percent clique, and how mega deficits are mainly responsible for enriching the rich.

We don't need higher government spending or tax cuts. We need fundamental economic reforms so that wages rise proportionately with ever-growing labor productivity. This is what used to happen in the United States until 1980, when consumer demand equaled supply without much government debt. But at that time. we did not have trade deficits, outsourcing and merger manias. Back then, the minimum wage was allowed to catch up with rising prices. However, ever since 1981, the official economic policy has been designed to keep wages stagnant even as people work hard and students take large loans to educate themselves to hone their skills. Consequently, almost the entire fruit of soaring productivity has gone to the 1 percent group, while millions of students are stuck with college loans.

From 1940 to 1980, there was little change in income and wealth disparity in the United States. However, ever since then, inequality has been soaring, leading to a shrinking middle class. The culprits: huge federal deficits and faulty official policies. And how are we financing these deficits? We are borrowing money from China and other countries, which in effect means that the wealthy prosper as never before, while the nation becomes a beggar to the world. Unfortunately, this system will continue unless the masses, the 99 percenters, revolt and demand fundamental economic reforms. The Occupy Wall Street movement opposes the interest of the Big-Business-Big-Bonus CEO, and in its success lies the revival of America and the middle class.

All the economic policies adopted by various administrations since 1981 have to be abandoned to fix our comatose economy. The system needs an overhaul, not bigger government. We need free markets, not monopoly capitalism. We need to break up business conglomerates and generate competition among companies, especially in the oil and health care industries, in order to bring down the cost of their products. We need to get rid of the trade deficit and outsourcing and link the minimum wage with the cost of living. Hats off to the Occupy Wall Street movement.

Ravi Batra

Ravi Batra is a professor of economics at Southern Methodist University, Dallas. This article is based on his two books, "The New Golden Age" and "Greenspan's Fraud." His web site is ravibatra.com.

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Trickle-Down Cruelty and the Politics of Austerity
By Henry A Giroux, Truthout | Op-Ed
End Trickle-Down Economics to Pay Off Debt
By John Horton, Robert Weiner, The Miami Herald | Op-Ed

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The Cost of Trickle-Down Government Job Creation: $1.5 Million Per Worker

Sunday, 08 January 2012 10:51 By Ravi Batra, Truthout | News Analysis
The Cost of Trickle-Down Government Job Creation 15 Million Per Worker

(Photo: Gamma Man)

Suppose I were to tell you that for the past two years the federal government has been spending nearly $1.5 million to create one job, what would your reaction be? Would it be one of disbelief and bewilderment? But suppose I were to prove my statement by citing official data, then how would you react? Well, you make up your own mind, but my response is that the administration's advisers should rethink their approach. Does it make sense to spend so much money to generate one job when the average wage is less than $50,000 per year? In fact, this policy is so foolish that it might even be better just to hand over the average salary to the unemployed so they stay calm, make both ends meet and create consumer demand.

Let me prove my point. The administration's tack is that we should keep spending money at the current rate to preserve jobs, even though the annual federal budget deficit has been around $1.4 trillion over the past two years. In fact, the government even plans to increase its shortfall by raising the size of the payroll tax cut. It seems apparent that the main purpose of excessive federal spending is to preserve or generate jobs. This is a point emphasized by every American president since 1976, and especially since 1981 when the federal deficit began to soar. This is also how most experts defend the deficit nowadays.

In 2010, according to the Economic Report of the President, as many as 800,000 jobs were created, and the government's excess spending was $1.4 trillion, which when divided by 800,000 yields 1.7 million. In other words, our government spent $1.7 million to generate a single job. The economy has improved this year, providing work to 1.1 million people for the same expense. So, dividing 1.4 trillion by the new figure yields $1.3 million, which is now the cost of creating one job. Thus, the average federal deficit or cost per job over the past two years has been $1.5 million.

To be sure, a part of the red ink arose from financing the wars in Iraq and Afghanistan. Their expense each year was about $100 billion. This reduces the government cost of job creation somewhat, but then we should add the trillions that the Federal Reserve has spent since 2008, presumably to stabilize the financial system and preserve employment. In 2011, the Fed spent at least $600 billion in a program known as QE3 (Quantitative Easing 3) in order to stimulate the economy and revive the job market. If you do the math, the federal job creation cost is a minimum $1.5 million per worker. So, a trillion here, a trillion there, and pretty soon you're talking real money. Is it prudent to be wasting our precious resources like this? I don't think so.

The trillion dollar question is this: where is it all going, when the annual average wage is no higher than $50,000? Obviously, it must be going to the so-called 1 percent group or what the Republican Party calls the job creators, i.e., the mostly male CEOs and other executives of large corporations. See how generous these people are; they only want and get chump change from the government so as to offer work to the unemployed. Nearly the entire federal deficit goes to enrich the Big-Business-Big-Bonus CEO, yet he claims to do us all a favor by providing jobs, and demands all sorts of tax breaks.

Let us see how the main culprit for the mushrooming incomes of business magnates is our own government. This is how the process works and has been working since 1981. The CEO forces his employees to work very hard while paying them low wages; this hard work sharply raises production or supply of goods and services, but with stagnant wages, consumer demand falls short of growing supply. This then leads to overproduction and threatens layoffs, which in turn threatens the re-election chances of politicians. They then respond with a massive rise in government spending or huge tax cuts, so that total demand for goods and services rises to the level of increased supply. As a result, either those layoffs are averted or the unemployed are gradually called back to work. This way, the CEO is able to sell his entire output and reap giant profits in the process, because wages are dwindling or stagnant even as business revenue soars. In the absence of excess government spending, companies would be stuck with unsold goods and could even suffer losses. In other words, almost the entire federal deficit ends up in the pockets of business executives.

How does government spending generate demand for goods and services? Many administrative departments, such as defense, directly buy goods from the private sector. The government also pays employee salaries, Social Security pensions, unemployment benefits, among other things. Here, the generation of demand is indirect, as the recipients of such money also add to total spending. Both the direct and indirect government spending generate demand in the economy, absorb unsold goods and thus add to business revenues.

So, CEOs are very, very happy, and when they are happy, politicians of all persuasions are happy. After all, corporate America is ultra generous to the political class. No wonder, both Republicans and Democrats alike have been busy adding to the federal deficit in the name of creating jobs. We all need to understand the process through which our system works for the 1 percent clique, and how mega deficits are mainly responsible for enriching the rich.

We don't need higher government spending or tax cuts. We need fundamental economic reforms so that wages rise proportionately with ever-growing labor productivity. This is what used to happen in the United States until 1980, when consumer demand equaled supply without much government debt. But at that time. we did not have trade deficits, outsourcing and merger manias. Back then, the minimum wage was allowed to catch up with rising prices. However, ever since 1981, the official economic policy has been designed to keep wages stagnant even as people work hard and students take large loans to educate themselves to hone their skills. Consequently, almost the entire fruit of soaring productivity has gone to the 1 percent group, while millions of students are stuck with college loans.

From 1940 to 1980, there was little change in income and wealth disparity in the United States. However, ever since then, inequality has been soaring, leading to a shrinking middle class. The culprits: huge federal deficits and faulty official policies. And how are we financing these deficits? We are borrowing money from China and other countries, which in effect means that the wealthy prosper as never before, while the nation becomes a beggar to the world. Unfortunately, this system will continue unless the masses, the 99 percenters, revolt and demand fundamental economic reforms. The Occupy Wall Street movement opposes the interest of the Big-Business-Big-Bonus CEO, and in its success lies the revival of America and the middle class.

All the economic policies adopted by various administrations since 1981 have to be abandoned to fix our comatose economy. The system needs an overhaul, not bigger government. We need free markets, not monopoly capitalism. We need to break up business conglomerates and generate competition among companies, especially in the oil and health care industries, in order to bring down the cost of their products. We need to get rid of the trade deficit and outsourcing and link the minimum wage with the cost of living. Hats off to the Occupy Wall Street movement.

Ravi Batra

Ravi Batra is a professor of economics at Southern Methodist University, Dallas. This article is based on his two books, "The New Golden Age" and "Greenspan's Fraud." His web site is ravibatra.com.

Related Stories

Trickle-Down Cruelty and the Politics of Austerity
By Henry A Giroux, Truthout | Op-Ed
End Trickle-Down Economics to Pay Off Debt
By John Horton, Robert Weiner, The Miami Herald | Op-Ed

Hide Comments

blog comments powered by Disqus