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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsJobs - Pass this on to your Republican friends... This is how job creation really works.
Nuclear Unicorn
(19,497 posts)Just because there is money to spend and demand doesn't mean goods and services appear ex nihilo.
Edited to Add -- Also, disposable income doesn't translate into demand. Plenty of people in Florida have disposable income but the demand for snow blowers is nil. I would think Demand and Money to Spend work more in tandem rather than the order displayed.
silverweb
(16,402 posts)1StrongBlackMan
(31,849 posts)it's a simplistic graphic, that (BTW) is far more accurate than the republican model.
Nuclear Unicorn
(19,497 posts)Where does the productivity come from? The entire point of the graphic is to pretend that an economy can move forward without investment. For an alleged economist to pretend supply appears without productivity and productivity can appear without investment is so misleading as to call his integrity into question.
1StrongBlackMan
(31,849 posts)First, the model, while simplistic, absolutely speaks to investment ... investment in workers.
The chart represents basic demand-side economics, which indicates when businesses "invest" in its workers (e.g., increased salaries), the workers have more money to spend which creates demand across markets. This relative increase in demand, results in a relative increase in sales (again, across markets), which requires additional hires in those markets, i.e., Job Creation; or, it results in the squeezing of increased productivity from the workers.
The former (in keeping with demand-side economic theory), puts more money in the economy and starts the cycle over again. However, the latter, i.e., increased productivity (the prevailing supply-side model), whether through investment in technology, or requiring workers to produce more with the same (or less), breaks the "job creation" chain.
Secondly, what graphic model contains a "productivity" data point? Isn't that implied in the "sales" data point?
Nuclear Unicorn
(19,497 posts)Okay, so people have more disposable income -- a thing I wholly support -- but demand and sales are predicated on having something of value to buy. Having more money to spend on the things that are already on the market doesn't lead to economic growth, it leads to inflation. Therefore, additional income only has value if the consumer can expand existing markets or new markets emerge, i.e. who knew a phone with a camera would be such a big thing?
But money for expanded markets must precede the expansion of those markets. There must be inventory for consumers to buy. Either someone has a pile of money in their mattress or the profit margin on their current revenues is sufficient as to allow re-investment; which shoots the whole "Spend profits on wages" notion in the foot.
1StrongBlackMan
(31,849 posts)There is always something of value across markets for people to spend their disposable income on ... even if it's an expensive meal; with that meal purchase, sparking demand in other areas across the marketplace.
Maybe, I'm misunderstanding your point; but, the sentence is incorrect ... having more money to spend on products that are already on the market absolutely leads to economic growth, as those that do not have (and want) the product have the money to purchase it. However, you are correct that inflation will occur on existing products with addition money; but only where the market is saturated with that product, or if there is "too much" additional money, across all markets.
Anyone that went to an event carrying both a phone and a camera.
But money for expanded markets must precede the expansion of those markets. There must be inventory for consumers to buy.
Have you ever prepared a business plan? In order to get the money, you must first demonstrate DEMAND for the product. If there is NOT sufficient demand, there will be no money for expansion ... However, if you demonstrate sufficient demand, the money will be there long before you produce the first widget for sale.
Nuclear Unicorn
(19,497 posts)But, again, that is predicated on a producer being there to fill the demand. The consumer looking for an expensive meal chooses from available restaurants, not potential restaurants, which means someone has already built the building, hired staff, purchased inventory, etc.
Only if there is demand. Make everyone in Hawaii a millionaire and then open a snow-blower business. Their increased income will NOT translate into your expanding market. Your market would have no value to them. However, everyone would buy food and have more money to buy food with even though they could only consume the same amount as before. You would then see price inflation for food.
Home appliances, such as laundry washer/dryers are an example of a product expanding its market but that worked in tandem with higher wages and producers competing to lower prices thus allowing more consumers to enter that particular market.
There was no demand for portable phones with cameras and yet, here we are today with a multi-billion dollar industry. There was no public clamor for such devices. The product came first and then demand followed. I once read that the man who started FedEx submitted his idea to a professor as part of his course work and received a barely passing grade because it was poo-poo'ed as an idea with no attending demand.
1StrongBlackMan
(31,849 posts)CJCRANE
(18,184 posts)The more spare cash they have, the more luxury items they can buy.
If you go to a third world country you'll find that most people don't have the disposable income to buy them.
The disposable income of the consumer is what makes the business possible.
Nuclear Unicorn
(19,497 posts)Admitted without argument. That is absolutely true but the graphic ignores the Productivity node. All the disposable income in the world is literally worthless if there is nowhere to spend it and nothing to spend it on. Goods and services do not appear ex nihilo. Somebody has to go through the time, expense and effort to provide inventory for consumers to buy from.
CJCRANE
(18,184 posts)lumberjack_jeff
(33,224 posts)If so, it's intrinsic to the Jobs node.
There is no need for any node between demand and sales. If consumers want something bad enough, someone will sell it. Figuring out how to produce it (and building subsequent units) occurs in the jobs node.
Nuclear Unicorn
(19,497 posts)If people want widgets there have to be widgets to purchase. No one pays for a widget and then waits an indeterminate amount of time for the widget factory to be built, labor to be hired and trained, vendors contracted, distributions and retail to be established. All those things must occur before the first widget reaches the cash register and all of those things must be paid for before the first dollar of revenue is counted (profit notwithstanding).
lumberjack_jeff
(33,224 posts)Until someone comes along with a commission check, the shop is silent. If someone were to commission a boat of which I think I could sell subsequent units, I'll build an inventory, otherwise not.
Nuclear Unicorn
(19,497 posts)It sounds like you don't keep an inventory which, any honest look at any store, will show how atypical your enterprise is in comparison. When was the last time people went grocery shopping using your model? Clothes? Cars? Homes? Major appliance? Personal electronics? Plumbing? Medical services? None of these things are produced on a commission basis nor could they be.
Even you had to invest in your skill set before you saw dollar #1.
lumberjack_jeff
(33,224 posts)I invested in refining my skillset because I had a identified a customer. Even the CNC machinery I built, I did so because I was confident that there was demand for what the machinery could produce.
Inventory is maintained only because keeping enough labor to guarantee fulfillment of cyclic demand is impractical without some amount of buffer.
Business isn't like "field of dreams". Companies don't build shit hoping that customers will come. They build enough to fulfill immediate demand (even if that demand is from the marketing department for prototypes to use as sales tools).
Nuclear Unicorn
(19,497 posts)Not always. There was no public outcry for portable telephones with cameras. The product came first and demand followed. Additional producers entered the market to satisfy the demand but the product came first. Same with personal computers and a host of other markets. Of course, just putting something on the market doesn't ensure demand, i.e. the Segway (sp?) but until the silly thing was built there was no way to gauge whether or not it had any value.
lumberjack_jeff
(33,224 posts)Demand has existed since 1935. Building more functionality into a product isn't a new idea. Adding a gps module and camera module to a device you're already carrying may be an interesting technological achievement but not a stroke of inventive genius.
Nuclear Unicorn
(19,497 posts)Perhaps you can show the reports on the consumer demand for camera phones that Mr. Jobs relied upon to develop his product.
CJCRANE
(18,184 posts)The ability to buy is predicated upon consumers who have spare cash or a steady income which can pay off a loan.
lumberjack_jeff
(33,224 posts)Nuclear Unicorn
(19,497 posts)Labor, Capital and Consumers are interdependent. Capital pays Labor, Labor becomes Consumers, Consumers return the investment for Capital. Kick-out any one leg and the stool falls over.
1StrongBlackMan
(31,849 posts)but rather, represents the supply side myth ... that there is all this pent up consumer demand that would released if only someone would put more product on the market. That simply is not true!
Nuclear Unicorn
(19,497 posts)A product only has value if the consumer is willing to pay for it (at a price higher than the cost of production). That's why nobody with any sense sells snow-blowers in Hawaii. But unless there is actually something to buy then obviously there is nothing to buy. Consumers do not spend their money on non-existent product.
1StrongBlackMan
(31,849 posts)putting a product on the market doesn't equate to profit ... but that is not the discussion.
Simple Question (that should end this Chicken and Egg back and forth):
What is the desire to spend money on a product, whether existing or non-existing, called?
That's right ... DEMAND!
To use your earlier example:
Why would it be silly to sell snow-blowers in Hawaii? That's right ... because there is very little DEMAND for snow blowers in Hawaii; and that wouldn't change no matter how much snow-blower inventory there was, or how much additional money was in the economy.
Nuclear Unicorn
(19,497 posts)how much money would you pay for a flying car here and now?
Answer: $0.00
Because there is no actual product to purchase, demand be damned. Unless there is an actual product or service to purchase no consumer is going to cough up the money. The only people who do pay for a product before it exists are investors and they aren't relying on their demand, they're relying on what they hope will be other people's demand.
1StrongBlackMan
(31,849 posts)Fumesucker
(45,851 posts)Anyone who shares the road with other drivers and wonders what those morons would do in ~flying~ cars.
bvar22
(39,909 posts)Entrepreneurs WILL always fill the vacuum when lots of people have disposable funds (spending money).
ALWAYS.
Nuclear Unicorn
(19,497 posts)in order to fill that demand. No consumer ever went to the grocery store and paid for a jar of that scrumptious new salsa and then the producer went and made the salsa.
bvar22
(39,909 posts)Demand comes first.
FIRST, somebody says, Boy, I sure would like some Salsa,
THEN the Entrepreneur thinks, "I know where to go get some, bring it here, and Make a Buck!.
THEN, another Entrepreneur thinks, "Boy, a LOT of people are buying THAT Salsa. I know where to get some cheaper, and make even MORE money.
Some very well financed Producers CAN "Create a Market" through Mass Marketing,
but that isn't what we are talking about here.
Nobody EVER makes a product for which there is no demand,
at least, nobody SMART ever does.
Nuclear Unicorn
(19,497 posts)Someone still has to front the capital to manufacture the product before the first consumer pays the first dollar. The graphic in the OP is a pantload of nonsense as it portrays consumer dollars creating products ex nihilo without any upfront expenditure.
bvar22
(39,909 posts)Where have you been for the last 30 years?
Better yet, why are you working so hard to revive that dead and buried Supply Side mythology?
Nuclear Unicorn
(19,497 posts)You have to build factories, contract vendors, hire and train workers, establish distribution networks, gain retail outlets, pay utilities, etc. all before you can realize the first sales dollar.
If you truly believe in your heart of hearts that these things can be dispensed with then by all means start a production enterprise and reap the rewards you would genuinely deserve. Put your own theory into practice.
bvar22
(39,909 posts)That many corporations today borrow money to build infrastructure?
That doesn't "prove" anything you have posted.
That isn't so much a "fact"
as it is diversionary bullshit.
Many successful companies also started small on out-of-pocket expenses.
Good luck selling Trickle Down in 2014,
though lots of BIG MONEY is arguing your side,
and claiming and ever bigger piece of the Worker's Pie.
Notafraidtoo
(402 posts)If people have disposable income in a area it is apparent to investors by how well other businesses do in the area, there for they invest, business minded people don't leave money on the table. The graph is simple yes but productivity is often cutting wages and hours and employees which has a negative effect on the economy for the majority of the population but could show up as positive GDP even with high unemployment, not a good thing.
The hoarding of wealth is the issue, too much money in the hands of people that don't spend when that money should be in the hands of those that will, Its true that those that hoard get much of their income from investments which is a good thing but they don't spend the investment returns and they demand wage cuts and productivity of the company's they invest in.
This is why we find ourselves in the economic situation we are in now,pre 1980 American history and country's like Australia and Germany show us how its done,they show us that we can have good wages for the majority of the population with high GDP growth with generous welfare programs, its win win for all except people who want to hoard money they wont spend.
Alex Smith did not intend so much hording of wealth, he knew it had to be spent for capitalism to work.
So its true that supply side economics with productivity focus can improve GDP temporary, but this is all short term because it produces huge amounts of economic and political instability plus its cruel.
If the majority of company's,investors and corporations would spend even 80% of their income past 5 million dollars every year I would be happy with them paying no taxes at all because the system would work beautifully if they did. Until that day i will recommend 60%-70% taxes on incomes above 5 million with write-offs for wages and company reinvestment OR inflation based wages becoming law.
Nuclear Unicorn
(19,497 posts)reaffirm my exact point that someone has to step in and produce goods --
-- and then you list a whole host of genuine issues but which are not part of the main discussion so as to distract from the topic of whether or not the graphic is a valid representation of the economic cycle but not before you lead off with an ad hominem insult.
My only point about the graphic in the OP is: Consumers do not buy goods and services that do not exist. For them to exist there must be producers. The graphic ignores the production node of the economic cycle, ergo it is misleading at best.
Warpy
(111,282 posts)They've known this stuff since the 1930s. The reason there is still a war on wages and a war on government help for the poor is that rich men are terrified of inflation. They saw decreasing the purchasing power of the 99% while hiring offshore labor for as much as they could as the way to control the inflation that is built into fiat currency.
They failed. They beggared us and fattened themselves but they've still got inflation to deal with.
I hope we find another Roosevelt somewhere, a member of the 1% who realizes what's really going on and doesn't mind betraying his own class in order to get his country back on its economic feet.
Martin Eden
(12,872 posts)... not pile up in offshore accounts.
BuelahWitch
(9,083 posts)...it's not worth a thing unless it's spread around..."-Dolly Levi.
Morwen_Madrigal
(10 posts)That is how it works.
mostlyconfused
(211 posts)If you invent/build a great product or service, then the consumers will come and buy it = not true
If the consumers have money, people will invent/build a great product or service to sell to them = true
1StrongBlackMan
(31,849 posts)the one that said "People have money"?
lumberjack_jeff
(33,224 posts)No product is great until someone wants to buy it. What consumers are demanding changes but the fact remains that demand precedes sales.
1StrongBlackMan
(31,849 posts)and the resultant sales precedes hiring (Job Creation). That is basic economics.
What we are seeing is the last gasp of supply-side economic theory that would have it that there is all this pent up consumer demand that would be suddenly released if more product was put to market.
sarchasm
(1,012 posts).. sometimes it needs some fuel at the top to get started.
AAO
(3,300 posts)It's demand and supply.
mostlyconfused
(211 posts)But for and innovation and new markets? Do you remember when people demanded PC operating systems and had money to spend on them, leading Microsoft to create jobs and build Windows?
AAO
(3,300 posts)1StrongBlackMan
(31,849 posts)Demand is always out there, for bigger, better and shinier things ... this demand sparks innovation and product development.
lumberjack_jeff
(33,224 posts)What they were demanding were better and cheaper ones. Gates and IBM sold them and the workers figured out how to produce them.
Coyotl
(15,262 posts)Somewhere, there has to be some form of resource too, even if just sun and rain on soil.
lumberjack_jeff
(33,224 posts)Coyotl
(15,262 posts)A lot of jobs are just plain non-productive of anything useful to the general welfare. Productivity remains the backbone of economics, but it is often very divorced from many jobs which are simply pampering rich people who control productive activity.
1StrongBlackMan
(31,849 posts)view the has little to do with economics, when one attempts to qualify "productivity/productive activity", in terms of "general welfare."
It seems you are conflating political theory and economic theory.
Coyotl
(15,262 posts)Of course, everyone waiting on the King, even the Jester making jokes, has a role in the economy, and they have those ALL IMPORTANT JOBS, but the basis of the economy is not waiting on the King's table, nor can waiting on the tables of King's build a great civilization (more like a great way to destroy one). No, it takes farmers to feed the King and all those servants, people with productive jobs to provide the basis resources to those with non-productive jobs. What has destroyed the economy of the USA is how almost everyone is a waiter for someone richer while too few are working productive fields.
1StrongBlackMan
(31,849 posts)is completely unrelated to the graphic.
Ahhh! This explains it ... You are confusing/conflating "economic principle" with the economic principle's effect on the "ECONOMY." The former is what the model/graphic thread is about; the later is a political argument.
Coyotl
(15,262 posts)In fact, I would argue the graphic is entirely false. Not all jobs are equal, number one!
Customers do not create jobs, disposable capital does. Workers have to have an intrinsic value, like producing a profit for a capitalist.
Money does not arise from jobs, jobs arise from capital to spend. First there was money to pay out, and capital arises from nature, resources, farming, forestry, mining, cattle grazing, etc.
Demand arises from human needs, not from money. Money is just a way to store resources.
Sales arise from available money, not from money per se. Demand is meaningless without money.
Hiring arises from profit, not sales, and only exists if it enriches a third person or meets a societal or organizational need and the group has surplus resources to fund it.
Hiring does not lead to good wages, the value of the jobs and workers produce the good wages. Not all jobs are equal.
Turning reality into a simple comic is not useful when it completely missed reality.
1StrongBlackMan
(31,849 posts)CJCRANE
(18,184 posts)Ultimately the money comes from the government and is regulated by the government. That's what gets the ball rolling.
Once the ball is rolling then you need consumers who have the ability to buy.
Consumers' ability to buy was reduced by the bailed out banks and corporations which sucked trillions of dollars out of the real economy onto their balance sheets and then sat on it, instead of letting it circulate.
Coyotl
(15,262 posts)and provide the value from which exchange begins. Governments have monopolies of currency, but resources underlie economic activity irrespective of which currency is accepted.
CJCRANE
(18,184 posts)Some countries have few resources but are wealthy. Some have a bit of both.
The common factor in all wealthy countries is an efficient government that can provide the underpinning organization to exploit the resources. Government provides the laws that regulate corporations for example.
Fumesucker
(45,851 posts)So the economy never could have started according to your view.
Coyotl
(15,262 posts)plenty to exchange in whatever currency is acceptable. Don't confuse currency with what it represents.
Fumesucker
(45,851 posts)lumberjack_jeff
(33,224 posts)There's demand for someone to procure, prepare and present meals to customers because there's demand among people with money to spend. I don't think there's anything necessarily superior about someone who makes boats or a better widget to surf facebook.
Coyotl
(15,262 posts)Jobs are valued for what they produce to the worker in money, not on what they produce for society in terms of general welfare.
Putting a really nice polish on a toilet bowl in a $1,000.00 a night hotel room is a real job, a difficult jobs, real work, but how does society benefit from highly-polished toilets in $1,000 hotel suites? What if that same worker produced organic carrot juice instead, getting dirty in real dirt instead of someone else's shit?
lumberjack_jeff
(33,224 posts)Labor is labor. Without the maid's discretionary spending, there's no demand for carrot stompers.
Coyotl
(15,262 posts)They are illegal workers getting below minimum wage with no benefits, not even social security. But, if they had control over productivity, ie, a garden plot, they would consume it themselves.
The point is, we can't just have Kings and toilet bowl polishers.
lumberjack_jeff
(33,224 posts)spread the kings royal treasury among the peasants and demand will increase, employing both toilet scrubbers and carrot stompers.
... and incidentally profiting the king who employs them, which I'm okay with.
But I'm unclear why one kind of labor that only is affordable to the rich is somehow superior to another.
jmowreader
(50,560 posts)The outer ring will also run clockwise and it'll have three balls on it: development, production and distribution. You can't just stick "production" between demand and sales because "production" goes on continuously. Not only does production meet demand, often it causes it. You didn't want an iPad fifteen years ago because there weren't any.
The inner ring runs counterclockwise and says "money" in three or four places.
Then it'll be exactly right, and a lot better than the GOP's "field of dreams" way of creating: build it and they will come with cash in hand. As someone upthread pointed out, snowblowers sell poorly in Florida. (War story follows: the Home Depot I worked at in North Carolina got a massive box from corporate one fine September. In it was the complete point-of-purchase display for the snowblower set we were supposed to build. Not one customer in the history of that store ever asked for a snowblower, and they'd never sold them before...but by damn, if it decides to start snowing in Fayettenam those guys are READY to sell!)
mostlyconfused
(211 posts)That was exactly my point in my post above. There are segments of the market where individuals and companies are investing and creating jobs well ahead of any kind of demand for what they are doing, simply because people/consumers cannot imagine or articulate a demand for what is being created. If Apple had waited to make those investments and create those jobs until the market articulated a demand for an iPad, they would not exist.
lumberjack_jeff
(33,224 posts)You want a device on which to read the news, keep in touch with people, listen to music, etc.
The tablet is simply a device which better fulfills a preexisting perceived need.
Tesla Motors didn't create a need for transportation.
jmowreader
(50,560 posts)My point was, you can't stick "production" into the larger ring because the logistic chain runs separately. If there is great demand for Sriracha but there is no Sriracha because the factory has been ordered closed to install environmental controls, that demand won't create jobs. And a great supply of Edsels in the 1950s didn't create jobs because people didn't like them.
You also can't stick "finance" (the part most of us overlook) in the larger ring because it is an independent system...if you have a great product with high demand and a factory with lots of output but you can't get money to buy materials because the banks have tightened lending standards in the wake of fiscal calamity, no product will be available.
Logistics, sales and finance are three separate systems that must work together to produce the desired results: jobs, an expanding economy and happy customers.
lumberjack_jeff
(33,224 posts)I think you're seeing one system (the one in the OP) with links that are vulnerable to disruption.
Those links can be disrupted by financial calamity, physical calamity or political calamity. If the demand-->supply cycle is strong enough, there are workarounds for all three.
1StrongBlackMan
(31,849 posts)with the demand in the marketplace. Apple didn't just build the IPad (i.e., a very mobile computing device) and hope someone would want it ... the IPad is an extension of the lap-top market, which is an extension of the desktop market, which is an extension of counting on one's fingers.
jmowreader
(50,560 posts)Change that to any other now-popular product and the time to an era before it existed...how about matches? Before they invented matches people were perfectly happy using flint to spark a fire, or friction, or...I don't know, maybe someone set up a fire company that kept a fire lit and issued burning sticks to its customers, who paid in hunted game. Then matches were invented and changed the world...a hundred fires on demand in a little box!
1StrongBlackMan
(31,849 posts)in your example, just your using your personal desire for a product and the desire of a much bigger marketplace.
CANDO
(2,068 posts)It then gets picked apart and argued over ad nauseam....by Liberals! This is why cons succeed with simple things, they just lather, rinse, repeat, lather, rinse repeat...
Coyotl
(15,262 posts)It is easy to believe if it is simple. Cons succeed at conning, but that does not mean everyone should work a con.
CJCRANE
(18,184 posts)of anonymous posters.
In general, no one here represents anyone but themselves IMO and that includes me. I take each post on its merits.
CJCRANE
(18,184 posts)You have the ability to buy stuff when you have spare cash / disposable income.
You might even buy stuff you didn't realize you wanted or needed, an iPhone or a pet rock...but you need to have the spare cash to think WTH, I'll treat myself/my SO or whatever.
Kingofalldems
(38,460 posts)So if freepers go 'Galt' it won't make any difference?