[Reader-list] John Kozy on Supply Side Economics

[A. Mani]

http://www.jkozy.com/

The Obama administration is intent on applying supply side principles
to get the American economy out of the present recession, but supply
side principles are based on the belief that if the government cuts
taxes on the wealthy, they will invest their savings in new factories,
that newly hired workers will increase employment, and that more
output will increase tax receipts. But there is no way to make sure
the wealthy actually invest their wealth in productive enterprises,
especially in the U.S.

This entire theory is based on the mere pop-psychological belief that
if you give a person money, s/he will invest it in productive ways.
But nothing forces wealthy people to do that, and they haven't, worse,
never really have, since creating jobs is not an essential business
function, only making money is, and getting financial incentives from
government is merely another way of making money, Giving money to
businesses will not end recessions or depressions. In fact, it is
likely to prolong them, since businesses will not create jobs until it
is evident that those jobs will result in profits.

During the California Gold Rust, merchants went to the camps only
after gold was discovered, and they left when the lode petered out.
They did not use the capital they acquired from the miners to open
productive businesses to provide jobs to the now jobless prospectors.
In capitalist economies, capital is not acquired to be spent; it is
acquired to be accumulated. Businesses do not exist to create jobs.
Jobs are created by businesses only when it suits their purposes.


Beliefs in conventional wisdom are always dangerous. More often than
not, conventional wisdom is wrong. But there are two kinds of
conventional wisdom—the pro and the con. Every bit on conventional
wisdom has its naysayers, and just as conventional wisdom can amount
to nothing more than mere beliefs, so can the beliefs of naysayers.
For instance, that today's economy is failing is rather evident, but
many critics of it seem to believe that the problems with today's
economy are of recent origin. But that's false. The economy today is
little different in essence than it was is the 1600s when the
colonists brought it with them from England. The horrors of England's
17th Century economy then are exactly its horrors today. Wealth held
in the hands of a few and poverty experienced by the many. High levels
of crime infused throughout society. Widespread unemployment,
underemployment, and degrading employment. The destruction of human
dignity. Homelessness, hunger, and frequent wars fought by common
people for the benefit of the merchant class. Prevalent discrimination
of various kinds. Government which governs for the wealthy and not for
the people in general. And although there have been short-lived
periods when the people were led to believe that their prospects were
improving, these periods have regularly ended in economic collapses
that wiped out any gains the common people had acquired.

The universal features of this economy are exemplified in the
following historical vignette.

On January 24, 1848, gold was discovered by James W. Marshall at
Sutter's Mill in Coloma, California.

When people learned about the discovery, hundreds of thousands rushed
to California. Wherever gold was discovered, miners collaborated to
put up a camp and stake claims. Rough and Ready, Hangtown, and
Portuguese Flat, among many others, sprang up, and merchants flocked
to them, set up business in hastily built buildings, lean-tos, tents,
and anywhere else serviceable to sell everything imaginable. Miners
lived in tents, shanties, and deck cabins removed from abandoned
ships. Each camp often had its own saloon and gambling house. Women of
various ethnicities played various roles including that of prostitute
and single entrepreneurs.

At first, the gold was simply "free for the taking." Disputes were
often handled personally and violently. When gold became increasingly
difficult to retrieve, Americans began to drive out foreigners. The
State Legislature passed a foreign miners tax of twenty dollars per
month, and American prospectors began organized attacks on foreigners,
particularly Latin Americans and Chinese. In addition, the huge
numbers of newcomers drove Native Americans out of their traditional
hunting, fishing and gathering areas. Some responded by attacking
miners. This provoked counter-attacks. The natives were often
slaughtered. Those who escaped were unable to survive and starved to
death. Natives succumbed to smallpox, influenza, and measles in large
numbers. The Act for the Government and Protection of Indians, passed
by the California Legislature, allowed settlers to capture and use
natives as bonded workers and traffic in Native American labor,
particularly that of young women and children, which was carried on as
a legal business enterprise. Native American villages were regularly
raided to supply the demand, and young women and children were carried
off to be sold. The toll on the American immigrants could be severe as
well: one in twelve forty-niners perished, as the death and crime
rates during the Gold Rush were extraordinarily high, and the
resulting vigilantism also took its toll.

Hydraulicking as a means of extracting the gold became prevalent. A
byproduct of this was that large amounts of gravel, silt, heavy
metals, and other pollutants went into streams and rivers. Many areas
still bear the scars of hydraulic mining since the resulting exposed
earth and downstream gravel deposits are unable to support plant life.

The merchants made far more money than the miners. The wealthiest man
in California during the early years of the Gold Rush was Samuel
Brannan, the tireless self-promoter, shopkeeper and newspaper
publisher. About half the prospectors made a modest profit. Most,
however, made little or wound up losing money. By 1855, the economic
climate had changed dramatically. Gold could be retrieved profitably
from the goldfields only by medium to large groups of workers, either
in partnerships or as employees. By the mid-1850s, it was the owners
of these gold-mining companies who made the money. When the lode
petered-out, the merchants abandoned the sites faster than the miners.
The gold rush was over.

I have, in the past, written about many of these horrid features of
Capitalist economies, especially its abject immorality. Today I want
to discuss an obvious falsehood that still gets repeated especially by
right wing politicians and their counterparts in the economics
profession and the business community, that is, businesses, not
governments, create jobs.

This generic claim is, of course, obviously false and its generality
makes it grossly ambiguous. What precisely does it mean, especially
since the politicians who utter it spend piles of money and time
trying to get jobs that are not created by any business? No business
created the jobs of Congressman or President, so what sense does it
make for such a person to claim that businesses, not government,
creates jobs? The claim is utterly stupid.

In fact, businesses have no interest in creating jobs. Consider the
vignette described above. Merchants flocked to the mining camps after
gold was discovered and they left when the lode petered out. They did
not use the capital they acquired from the miners to open productive
businesses to provide jobs to the now jobless prospectors. In
capitalist economies, capital is not acquired to be spent; it is
acquired to be accumulated. Employees are merely means to that end,
and whenever a business can accumulate capital without the use of
employees, it will do it. And that is what has happened in large
measure in America today. Businesses have found ways of accumulating
capital without the need for American employees and government has
aided and abetted businesses in doing so.

So, when a politician advocates giving financial incentives to
businesses to induce them to create jobs, those politicians are
involved in a ludicrous absurdity. All the proposal does is provide
businesses with another tool for extracting money from common people
without even having to deal with them, and the capital acquired by
businesses in this way will merely be added to the capital
accumulation bank. Why would a business want to create a job with it
and put that capital in jeopardy? To assume that businesses will use
that capital to create jobs is the fallacy of supply side economics,
which, incidentally, is based on nothing but pop-psychology.

Supply side economics is based on the belief that if the government
cuts taxes on the wealthy, they will invest their savings in new
factories fitted with new technologies that will produce goods at
lower costs, that newly hired workers will increase employment, and
that more output will increase tax receipts. The economy will lift
itself by its bootstraps. But there is no way to make sure the wealthy
actually invest their wealth in productive enterprises, especially in
the U.S. This entire theory is based on the mere pop-psychological
belief that if you give a person money, s/he will do "the right thing"
with it, namely, invest it in productive ways. But nothing forces
wealthy people to do that, and they haven't, worse, never really have,
since creating jobs is not an essential business function, only making
money is, and getting financial incentives from government is merely
another way of making money, Giving money to businesses will not end
recessions or depressions. In fact, it is likely to prolong them,
since businesses will not go where money cannot be made, because
merchants are attracted to money like flies are attracted to dung.
Businesses do not exist to create jobs. Jobs are created by businesses
only when it suits their purposes.


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A. Mani



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