Bizarre Claim: Businessmen Don’t Create Jobs, Consumers Do

Bizarre Claim:

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 a “circle of life” like feedback loop between customers and businesses. And only consumers can set in motion this virtuous cycle of increasing demand and hiring. In this sense, an ordinary middle-class consumer is far more of a job creator than a capitalist like me. 

Emphasis added. Full Article: The Inequality Speech That TED Won’t Show You (Oooh! TED censorship! How scandalous!)

The purpose of the claim, as I can tell, is to relieve any anxiety the reader may have felt about the government’s helping itself to people’s property:

That’s why our current policies are so upside down. When you have a tax system in which most of the exemptions and the lowest rates benefit the richest, all in the name of job creation, all that happens is that the rich get richer.

So, help yourselves, Washingtion! Help yourselves, America! Don’t worry. You won’t kill any jobs! ….Well, okay. Not so fast.

The claim came from an successful businessman, Nick Hanauer, so I kind of feel a little out of my league talking back to him like a whipper-snapper, but the fallacy seemed easy enough to spot, so I’ll get the idea out there. Just prior to making his bizarre claim, Nick said:

I have started or helped start, dozens of businesses and initially hired lots of people. But if no one could have afforded to buy what we had to sell, my businesses would all have failed and all those jobs would have evaporated.

“What we had to sell” is presented here as a given. It isn’t a given. It’s a choice. Nick seems to think that the purpose of a business is to sell whatever he wants to sell, or whatever he has. So if Nick wants to sell porcupine-on-a-stick, or if Nick wants to sell apples at $20 a pound, then that’s that. It is now up to the consumer to ratchet up the necessary demand for porcupine-on-a-stick and overpriced apples—else no jobs will be created at Nick & Co. Novelties and Overpriced Apples, and the economy will languish in doldrums. If consumers do not come around to whatever Nick is selling, then the job of politicians and economic planners is to push consumers around, through various ham-handed stimulus and economic policies, to whatever he is selling.

Let me suggest an alternative business model: The purpose of a business is not to sell whatever you want, or whatever you have . The purpose of a business is to sell whatever the consumers want. If consumers do not want porcupine-on-a-stick, then Nick needs to start making something else. If consumers want apples, but do not want them at $20 a pound, then Nick needs to find a way to lower his prices. Nick needs to get on the proactive. Let’s try this business model out on Nick’s own examples:

I can’t buy enough of anything to make up for the fact that millions of unemployed and underemployed Americans can’t buy any new clothes or cars or enjoy any meals out.

Nick will have us believe that Americans want absolutely nothing other than new clothes and meals out, and if they can’t have these things, then forget it. They’ll just sit on their duffs and wallow in filth until some politician offers them a cash infusion. No Nick. These consumers still want things. Your job as an entrepreneur is figure out what those things are and how to get those things to consumers at prices they can afford.

If the consumers do not want to buy new clothes, perhaps it is because some other necessity has taken priority over new clothes. Perhaps their old clothes will do for the time being while they tend to more urgent things. Your job as an entrepreneur, Nick, is to figure out what those things are and start providing them.

If the customers either do not want or can not afford meals out, then your job is to provide TV dinners and Redbox movies. Or, alternatively, your job is to rethink the “meal out” until it can be delivered to consumers at a price they can afford. You do that, Nick. That is your job.

Now admit reality: the sort of research and development required to bring an affordable product to market is a little more difficult to carry out with a pocketful of leechy government fingers. It is. Really.

Now Nick is a successful businessman, so who am I to criticize? He’s found a working formula: He happens to provide things that people want. Good for him, and congratulations. He should keep his money, whether he creates jobs with it or not. Successful as he is, however, I’m not convinced that he has correctly described the “delicate feedback loop” that exists between customers and businesses. Consumers are not the only ones who can set the cycle in motion. Thoughtful businessmen can do it, too.

“Do not think you will necessarily be aware of your own enlightenment.” ~ Dōgen

3 Responses to Bizarre Claim: Businessmen Don’t Create Jobs, Consumers Do

  1. I think what the speaker seems to forget is that the wages for those jobs are paid from the funds that people had saved from the abstention of consumption. So if anything, it is the savers who are responsible for creating jobs and increasing wages.

  2. - says:

    “Your job as an entrepreneur is figure out what those things are…”

    I think it would be more accurate to say that the entrepreneur’s job is to create those things. It was Steve Jobs who said, “A lot of times, people don’t know what they want until you show it to them.” Consumers do not create jobs because they have to be presented with the supply before their consumption can have any effect on the economy.

    Krugman and his ilk would have us believe that all we need to do is pay people to dig holes and fill them again, and then people would start consuming and the economy would grow. Not only does this ignore the fact that investment and not consumption drives the economy, it basically requires a static economic state. Innovation and technological progress is simply not possible in this configuration, for it is individual people and entities — NOT society — who are responsible for these advances.

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