It’s Demand, Stupid!!

September 23, 2012

By Russell D. Longcore

(Editor’s Note: This posting is the 900th post here at DumpDC. Thanks to you readers.)

Hardly a day passes here in the ol’ USA that we don’t hear a politician talk about “creating jobs.” This presidential election will be decided on the state of the economy, and a high unemployment rate will have a direct effect on the final vote numbers. And here is today’s money quote: All of the people that talk about creating jobs have no practical understanding about economics and free enterprise.

Jobs will not be created here in The United States of America unless and until the US Congress controls government spending and rolls back regulations. US Corporations took their manufacturing offshore because of the Federal government’s interference in commerce. Manufacturing will not return to the USA, or grow organically in the USA, until Washington and its voluminous regulations are swept away. It is the US government that affects demand in a negative way. And there can be no job creation without creating demand FIRST.

This dreadful misunderstanding about jobs and demand offer a golden opportunity for secession. A new nation, freshly seceded from the USA, would have no onerous regulations and burdensome taxation. It would have an instant competitive advantage over the USA. With proper planning, that new nation/state could be a magnet for manufacturing. Imagine a US manufacturer that was seriously contemplating moving its operations to China. But that company sees a business-friendly environment in a New Texas nation here on the North American continent. It could save millions by moving operations a few hundred miles, as opposed to 10,000 miles. And many of its workers might jump at the chance to move with the company to a New Texas nation where individual liberty and property rights are protected.

“Demand” is “the desire to purchase, coupled with the power to do so.” Another definition is “the quantity of goods that buyers will take at a particular price.”

There is plenty of demand in the USA. Remember that even if the US unemployment rate is 25%, that means that 75% of the workforce is still working. Please don’t misunderstand me. I am not minimizing the plight of the unemployed. But even the unemployed still demand goods and services to survive. DC and the Fed want to return the American economy to a level of demand that was built upon a bubble. More about that later. This economy needs to return to a market-based economy, not one bloated and distorted by fiat money and zero percent interest rates.

Look at that first definition of demand. The underlined part is very important. A person may have desire to make a purchase, but have no power to do so. The two conditions combined are true demand. No entrepreneur ever made a dollar by creating a wonderful product that no one bought.

Curiously, no politicians talk about “creating demand.” They only talk about job creation. The word “job” has become a connotation word. It is used to manipulate the hearer by causing the hearer to associate that word with some societal memory of what the word USED TO MEAN. And because those same politicians control the numbers coming out of the various three-letter Federal agencies, they can make the job numbers look any way they choose.

The explanation of a “job” is so elementary that it should have been featured in Schoolhouse Rock back in the day…right along side “Elementary My Dear,” “I’m Just A Bill” and ”Conjunction Junction”.

The dictionary defines “job” as: “a post of employment, such as full-time or part-time.” But that doesn’t tell a very good story about the building block of a job, which is human labor.

One human being may enter into an agreement with another human being to perform a task in exchange for some form of value…or even with no remuneration. That is labor being used in a task.

There are all manner of variables that come into play. Intelligence, physical strength, agility, use of the five senses, and time are just a few. But each variable either increases or diminishes the value of any individual’s labor. For example, a man who qualifies to be a professional athlete may not qualify to teach particle physics, and vice versa.

An individual increases his value to an employer through training and experience. The more training and experience an individual possesses, the higher his or her value to any employer.

Now, let’s get into labor from the standpoint of the free market. Labor is one of the components of any product or service. Other components are raw materials, capital, overhead expenses and profit. At some point, when the product or service is priced for sale, all these components must be added in.

Every individual has expenses to maintain his existence. Most of the expenses are discretionary. Even expenses such as food, shelter and clothing…which seem on the surface to be life-essential…are discretionary, since the individual chooses the quality of food, shelter and clothing he or she will accept. And once the individual makes these choices, he/she gets to determine the value of their labor. Valuing labor might even come before choice about expenses. Most of us have to adjust our living expenses to our income.

It is the value of labor that is paramount here. An individual must trade his time for remuneration. He must trade enough time to earn enough remuneration to satisfy his budgeted expenses.

Here’s an example. We have two people who need $500 per week to live (no taxes figured in this example). Both people have identical amounts of time, which is 168 hours per week (24 hrs/day x 7 days). Person A is an 18-year-old high school graduate with no job skills or job training. He probably qualifies for a minimum wage entry level job, which would pay him $7.25 per hour. At that rate, he would need to work 69 hours to earn $500. Person B is a 22-year-old college graduate with no skills or job training. Yet because of his education, B qualifies for a job that pays him $25.00 per hour. Person B can earn his $500 in 20 hours.

What happens to A if his employer will only allow him to work 40 per week? He would have to get a second job to reach his requirement of 69 hours.

Both employers priced their product to make a profit. In the example of A, the employer could make a profit on A’s labor at $7.25 per hour. In B’s situation, the employer was profitable at $25/hour.

This works the same way if persons A and B are self employed. Labor is labor. It is not a job.

Our government educational system…and even most of the private schools, who teach students much the same drivel…has done a masterful job over the past 75 years of leaving students economically retarded by omitting this basic information about the free market. Over the years, most of the population has come to believe that a job should provide them with this mystical notion of a “living wage.” That economic fallacy is exactly why the US Congress passed minimum wage laws so many years ago.

Most people I’ve met believe that they should only have to get one job…or one business. The wealthy leverage their time and money and develop multiple streams of income.

Very few entrepreneurs go into business with the goal in mind of putting people to work. Most entrepreneurs start businesses to earn a living for themselves and their families, and/or a return on investment for their investors. Most entrepreneurs see an opportunity to fill a demand. Employing others is a by-product of creating a product or service that someone will pay for.

And that leads us back to the title of this book. “It’s Demand, Stupid.”

Either a politician is lying about job creation, or that politician has no understanding of the simplest explanation of business. Politicians love to brag about the numbers of jobs THEY created. First, they didn’t create DICK. Second, all jobs are not equal. As we’ve seen in our example above, jobs vary wildly in value for a variety of reasons. So the crude number of jobs is irrelevant. In very recent numbers that came out of the Obama Administration, they crowed about job creation, but a very large percentage of those jobs were low-paying jobs in the Service sector.

Friends, job creation is a fool’s errand. The only thing that matters is creating demand and the power to make purchases to fulfill the demand.

Thanks to the Washington crowd, demand will probably not return to the United States. It certainly will not return to pre-recession levels of economic activity. Remember that much of the demand that our nation has experienced over the last 50 years came from government policies that created FALSE demand…or “bubbles.” The mortgage bubble, the S&L bubble, the Tech bubble, the real estate bubble…all created by Congressional edicts. And now we are in the debt bubble and just about to enter the hyperinflation bubble. And have you noticed what happened to all those bubbles? THEY ALL BURST and left misery for us all.

The re-creation of demand is yet another reason that Secession is the only hope for mankind to enjoy individual liberty and property rights in North America.

DumpDC. Six Letters That Can Change History.

Copyright 2012 Russell D. Longcore. Permission to reprint in whole or in part is gladly given, provided full credit is given.