Job creator myth revisited

Nick Hanauer — a wealthy entrepreneur and venture capitalist — has an excellent piece on Bloomberg today addressing the absurdity of the right-wing’s rhetoric of job creation. Conservatives claim that rich people create jobs by using very tortured logic that I will address below. But first, here is Hanauer on the right-wing’s narrative about people like him creating jobs:

Even so, I’ve never been a “job creator.” I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.

That’s why 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 the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be.

In his argument, Hanauer repeats a point I made in early December: there are multiple necessary components of production that, if removed, would make production and therefore job creation impossible. The right-wing argument that the rich are job creators rests upon a faulty theory of causation. Conservatives claim that without capital (i.e productive resources), no production could be embarked upon, and that therefore those who employ and allocate capital — the wealthy — cause job creation. But that exact same relationship exists for other factors of production. Without labor, no production could be embarked upon, and therefore labor must create jobs. Without consumer demand, production would fall apart almost immediately, meaning it must be consumer demand that creates jobs.

So which is it? Hanauer gives most of the credit to consumer demand, but I think the more precise point is that in cases where multiple simultaneous factors are necessary to create a job, you cannot pick one factor and give it the credit. Conservatives are correct when they claim that production could not happen without employing the productive resources held by the wealthy. That is tautologically true, and nobody in any political movement has ever said otherwise. Now some political theories reject the idea that the productive resources of society should be owned and allocated by a very small fraction of the population, but they do not deny that such resources are needed to produce things and create jobs.

The reality is that labor, consumption, and capital are all necessary for production, and subtracting any one of them would be harmful. Pegging one of the necessary factors of production as the job creator makes absolutely no sense.

h/t Jared Bernstein