Tax Cuts & Labor Cost Reductions

[unlawflcombatnt]

TAX CUTS & LABOR COST REDUCTIONS

Rolling back the tax cuts on the top 2% will help the economy because it will lower inflation, increasing the buying power of consumers. The proposed benefit of high-end tax cuts is to stimulate investment. We don't need any more investment capital at present. We need more investment OPPORTUNITIES. Those opportunities arise when there is increased consumer demand for a product, not because more investment capital is present. No amount of increased investment capital will create an investment opportunity. Only consumer demand for production can do that. In order to increase aggregate consumer demand, there needs to be an aggregate increase in consumer buying power. This means an increase in inflation-adjusted consumer income (or increased borrowing.)

Raising taxes on the top 2% is an EXCELLENT idea. The "capital-creation" benefits of that portion of the recent tax cuts is worthless. Markets are flooded with investment capital at present. In contrast, it is not flooded with demand-created investment opportunities. This excessive investment capital is simply being used to overvalue the stock market, overvalue real estate, increase stockholder dividends, increase CEO salaries, increase foreign investment, and provide funds to relocate American factories in other countries. In addition, as previously mentioned, those tax cuts are increasing inflation. This further reduces consumer buying power and consumer demand.

In contrast, tax cuts for the less affluent would stimulate an INCOME-induced increase in consumer demand (As opposed to the current BORROWING-induced maintenance of consumer demand.)

The "investment creates jobs" myth needs to be dispelled. Investment only increases jobs when there is an increased DEMAND for production, which is created by increased consumer demand. That demand needs to be there to start with, or there's simply nothing to invest in. The best way to increase that demand is to increase consumer income.

Aggregate consumer income and spending is what creates consumer demand. Any move that increases labor demand will increase aggregate wages and aggregate consumer income. In addition, anything that reduces labor supply will also increase wages. Several actions will increase aggregate wages, through these basic supply & demand factors. Some of these are as follows:

Reduce outsourcing. Not only does this directly reduce labor income through job loss, but it puts downward pressure on those that still HAVE jobs. Reducing the number of jobs available to American workers reduces demand for labor. Employers can pay workers less, because the "price" of labor goes down when the demand goes down. The price, in this case, is average American wages. In addition, outsourcing jobs has the effect of forcing American workers to compete with foreign workers and their wages. In effect, Americans are put in competition with semi-slave workers who make as little as $2/day. What Corporate America ignores is that if American workers were currently making $2/day, they wouldn't be able to buy Corporate America's goods. Corporate America is biting the hand that feeds it. As outsourcing becomes more widespread, there will be less American income to buy their products. The income from foreign slave-labor will NEVER make up for lost American labor income.

In addition to outsourcing, massive immigration also depresses American labor income. It increases the supply of labor, which reduces the price of labor. Again, this means it reduces average wages. Doesn't the immigration-induced increase in population increase consumer demand. ABSOLUTELY NOT!

Consumer DEMAND is created by consumer income and spending, not by the number of consumers. Total spendable consumer wealth is what creates the market, not the number of consumers. Though the increased number of consumers doesn't increase consumer demand, the increased number of workers DOES depress wages. It does so by increasing labor supply. The end result is actually a DECREASE in consumer demand from increased immigration.

Again, jobs are created by demand for production, which is limited by consumer income. Long-term consumer demand is strictly limited by aggregate consumer income. Thus, increasing labor supply reduces wages through more wage competition. It does not increase the number of those working, because it does not increase the demand for labor. As a result, there is an unchanged number of people working, with DECREASED average wages. This results in a DECREASE in aggregate consumer income.

Worse still, this very reduction in aggregate consumer income caused by immigration & outsourcing will FURTHER reduce aggregate consumer income, further reducing labor demand & wages.

Our economy is on a downward spiral at present. Bush has done everything possible to help Corporate America and "Producers" reduce costs. However, these cost-cutting measures have been at the expense of reduced labor income. The result is reduced consumer spending power. And consumer spending and demand are necessary to keep Corporate America afloat. In the end, all Americans will lose under policies that reduce consumer income & demand, including Corporate America.

unlawflcombatnt

EconomicPopulistCommentary

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

_____________________________
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.

[Tandalayo_Scheisskopf]

1. If people ain't buyin'...

The economy's dyin'.

Welcome to The Targeted Depression.

[Warpy]

2. Rolling back the tax cuts won't do much for the economy

unless it's part of a larger reform package aimed at ending offshoring, raising the wages of the people who go out and spend their money in the consumer economy, and getting Congress's greedy mitts off our social security overpayments by getting them out of the general fund.

What they will do is take some pressure off the money supply so that the service on the debt will decrease slightly and we'll have a ghost of a chance of paying some of it down eventually. Of course, we've got to put the Pentagon on a diet and get the hell out of Iraq first.

Or we can just let nature take its course now that the rich have grabbed everything in sight and let the next Great Depression just wash over us.

That's the choice. Just rolling back tax cuts on the top hoarders won't do much to avert it.

[unlawflcombatnt]

3. Tax Cuts & Labor Cost Reductions

Warpy,

You're absolutely right. Rolling back the tax cuts won't make a huge difference, other than to reduce our budget deficit. If we can't increase nominal labor wages, it would at least reduce some of the inflation-induced reduction in consumer buying power.


unlawflcombatnt

EconomicPopulistCommentary

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

_____________________________
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.