Who are the Real “Job Creators”?

Eric Cantor, the House Majority Leader, stirred up quite the controversy on Labor Day when he tweeted:

“Today, we celebrate those who have taken a risk, worked hard, built a business and earned their own success.”

Of course, Labor Day is a celebration of the worker class, not the capitalist class.  But his comments sparked a debate in some circles that has long been raging – this so-called debate about the “job creators” and who really drives job creation in the economy.  Unfortunately, the debate often falls on ideological lines as opposed to practical lines.  But this is the world we live in.  Everything is viewed in black and white when reality is usually somewhere in the middle.  This case is no different.  I’ll explain briefly.

Late last year I explained the role of the entrepreneur in the capitalist economy.  In short, the entrepreneur seeks to provide superior goods and services that ultimately offer consumers a more efficient means of achieving some end.  This creates efficiencies which result in greater future consumption, economic expansion and more jobs in the future.  The example I’ve used in the past is Alexander Graham Bell, the inventor of the telephone.  When Bell invented the phone he destroyed thousands of jobs.  Messengers and telegram services were slowly defunct.  But Bell created efficiencies through making communication more convenient.  And in doing so he helped generate higher economic growth and ultimately more jobs in the future by streamlining what was once an arduous process – long distance communication.  Bell created countless jobs by creating this efficiency.  In this regard, capitalists, producers and innovators can be seen “job creators”.

But producers are nothing without consumers.  Bell’s telephone is nothing without consumers who want to use it.  So production and consumption are ultimately two sides of the same coin.  You cannot say that producers create jobs without consumers because without the consumers the producer has no revenue stream with which to expand his/her business and hire the workers that allow him/her to leverage the labor into future profits.   The capitalists need the consumers before they can ever consider expanding.  In this regard, demand is the driver of “job creation” and so consumers can also bee seen as “job creators” because they enable the capitalists to be able to hire in the first place.

So the answer to this silly debate is really rather simple.  The real “job creators” are the consumers AND the producers.  It’s that simple.  Maybe, just maybe, this understanding will help people understand that policies that focus on one side of the coin and not the other, are just as silly as this debate.  But I don’t have my hopes up.  The ideologies surrounding this debate are far too powerful to be overcome by pragmatism.



Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. While I agree w/ ur analysis, I think demand is truly the greatest force behind economic advancements. If there is demand for something, it will get built/improved upon/etc.

    But like you argued, producers/entrepreneurs also play a significant role. Bell “Created demand” for the telephone b/c it was a better invention/product. Jobs created demand for the ipad.

    If I had to assign a 100% pie to each, I would put it at 70% consumers (who create jobs) and 30% producers.

  2. Demand is not enough by itself. You need the producers to come along and compete in a way that incentivizes profit maximization and greater innovation. For instance, there’s plenty of demand for food in a primitive setting. And many primitive cultures that don’t exist in a capitalist economy just stagnate because there is no incentive to create more efficient means of consuming food. There are countless examples of civilizations like this throughout history. But introduce the competitive nature of a capitalist economy into the mix and suddenly you see dramatic improvements in the way food is acquired and cultivated. You see huge gains in the way the society progresses and improves living standards.

    I’d say it depends. If you want a stagnant economy and sluggish growth then your 70/30 mix is good. If you want a vibrant and fast improving economy then something closer to 50/50 is best. I like Cullen’s main point – there is no “leader” here. At least I hope I am not misconstruing his comments.

  3. A coin has two sides of equal size and equal value! :-) So I think you start getting into trouble and ideology when you start saying one side is “more important” than the other. But that’s just my thinking….This is the problems with much of the capitalism vs marxism vs republicans vs democrats debates. Everyone feels the need to take an extreme position. I have no idea why.

  4. Republicans think producers drive the economy and don’t understand that producers need healthy consumers. Democrats think consumers drive the economy and don’t understand how producers improve living standards. Centrists understand that both are necessary. And the economy stinks because there are no centrists in power.

    It’s time for a new political party.

  5. As an analogy, for a capitalism society:

    1) Entreprenaurs are the seeds. If you put them in the right environment, they will blossom, and create jobs.

    2) The freedom to innovate and take risks is the soil. This soil is an important environment and not all soil is equal. Some soil is nutrient-dense and some soil is nutrient-deficient. Seeds can grow in various types of soil, and these varies types of soil can be thought of as the extent to which people have the freedom to innovate and take risks. More economic freedom is like a nutrient-dense soil, less economic freedom is like a nutrient-deficient soil.

    3) Demand is the water and sunlight. Without them, an entreprenaur with a great idea and the freedom to explore it won’t get very far. Likwise, put a seed in soil but don’t provide it with water or sunlight, and that seed won’t sprout.

    4) Education is like a pesticide (natural or manmade, whatever). If we do not make education a priority in this country, that is like weeds that slowly starts to eat away at our plant.

    In a nutshell: education, economic freedom, and sufficent aggregate demand… is the recipe for success.

  6. As an addition:

    In a country like the United States, where we already have a relatively high amount of economic freedom compared to the rest of the world, we ought to be most concerned about Demand and Education. If we focused on those two, innovation will follow.

  7. The job creators are not the ones identified by Republicans in the ongoing tax debate.

    These wealthy folks have had the benefits of the Bush tax cuts for ten years now. Where are the jobs? Oops, they didn’t create them.

    Obviously a proposed tax rise of 3-4% is going to make no difference to job creation. And Eric Cantor is, has always been and always will be, a horse’s a s s.

  8. Bell was a scientist, inventor, innovator, experimenter, engineer…. Steve Jobs, Bill Gates, Henry Ford, Mark Zuckerberg…. the list is very, very long… are cut of similar cloth… and THEY are the true job creators. The GOP is not talking about them. So this debate is devoid of reality. It’s just a con job by the GOP to get more tax breaks for the already wealthy – and it is more true that the easier they get to keep their money, the less incentive they have to work. Cutting their taxes doesn’t produce jobs.

    Meanwhile, guys like Steve Jobs, Zuckerberg, Bell, etc are just naturally driven people (and smart obviously) – and nothing would stop them from being the people they are. Of all the nonsense things that supposedly stop real innovator/job creators is “uncertainty”. That’s the lamest excuse I’ve ever heard. If that stops you, then you might as well stay in bed.

    “job creator” just another BS excuse to lower one’s own taxes, and the taxes of those who can help you get and stay in office.

  9. Nice piece, thanks! As for “the capitalists need the consumers”, which is completely true, somebody should tell the politicians that the consumers need of course more money to buy more/new products. However, the development of real incomes during the past few decades is for the major part of consumers flat at best.

  10. Demand and the creation of supply to fulfill demand both lead to job creation potentially. I would have thought the pertinent question might be does more govt policy enhance the probability of that potential being fulfilled ,or reduce it based upon our experiences of same over the last century? Let’s leave aside emotive labels like capitalist etc etc and just take a view on the scale/volume of govt intervention into society and how society will tend to try and find a way of satisfying demand and supply equilibrium? What have we found govt intrvention and regulation tends to do, promote helthy growth ,or regress it?

  11. IMO, as necessity is the mother of invention, demand is the mother of entrepreneurship. Most entrepreneurs fail because they fail to listen to what Momma says she wants.

  12. Hahah, that’s classic.. Bell, Jobs, Gates and Zuckerberg are cut from the same cloths.. Opportunists at most and out right thief’s at least.
    Jobs Gates gained from Apple who gained from Xerox Zuckerberg gained from the Winklevoss twins connect U.. Bell gained from Meucci… Seems a pattern here

  13. Meucci, even if he did invent the phone, didnt have the ability to mass produce his invention and let the world benefit from it. So he proves the point perfectly. The capitalist who gives the world the product is the one Who gets credited with impacting the world. Meucci might as well have built the telephone on Mars.

  14. If i had asked people what they wanted they would have said faster horses- henry ford

    I listen to most of what cullen says because its based in the facts presented by the sectoral balances. Nothing said here is based in facts. What was presented here is anecdotal. Please stick to facts and not this tylerdurdenish rubbish

  15. Ah, compared to Tylerdurden… a guy I greatly disagree with. Humorous.

    I’m a business owner and entrepreneur, when I say “listen to what Momma says she wants” I don’t mean “listen to what individuals *say* they want” I mean “listen to what people say they want when they use their money to express their desires.”

    People will *say* they want all sorts of crap, but what they buy when presented a choice is what they really want.

    You can go easily go broke listening to people’s words, but listening to what they *do* with their money is the real way to listen to Momma.

  16. Producers first.
    People in Soviet Russia wanted goods and services, too, but didn’t have a free economic system that would allow producers and entreprenuers to help them.
    We have a powerful free economic system that allows entreprenuers and producers to provide goods and services — some of which the consumer didn’t even know he wanted until they were made available.

  17. The demand is always there as long as there is human being on the planet. To say the demand is the driving force is like to say the Sun will rise every day. That doesn’t really create anything. It’s precisely that person who can identify what the next demand is and act on it with money and action that creates jobs. Steve Jobs creates jobs, because he got idea, gut, vision and he acted on it. Its the talent that certain people possess that matter the most and the society value the most. I am surprised to see so much nonsense about this. In your own company, who creates jobs? who creates new market? what is demand ?

  18. I should have mentioned “salesperson” and “marketer”. And a fire in the belly can-do unstoppable bull-in-china shop attitude – having just read Meucci’s wiki page that doesn’t sound like him. Lots of great innovators never leave their lab, others end up working for someone else – my point – the real job creators don’t let anything get in their way – tax rates don’t even register, and when they need money they could pull it from a stone. Meucci couldn’t raise money because he obviously wasn’t cut from the same cloth.

    As for literally new inventions – even the wheel was preceded by something, so I don’t get the point.

    Apple and Microsoft were launched in the 1970’s when tax rates were far higher than they are today, and the top 1% were no where near as wealthy and dominant as they are today.

    Show me how the people that the GOP calls “job creators” are really that…. give me an example. Someone who really takes their ball and goes home instead of working because of some policy? Bill O’reilly said he’d quit if his taxes went higher – LOL – what a line of BS. So he’ll choose to make nothing if it is harder to make something????? If that were true of O’Reilly he’d never have gotten on TV in the first place. Show me someone who is stopped by tax rates, or even regulations, and i’ll show you a Meucci, or just a plain old loser who was never going to succeed in the first place. Oh sure, you can give me extreme examples – but they have nothing to do with reality.

  19. To me the real “job creators” are anyone who adds value. Let’s say there is a piece of equipment invented. By itself it is nothing unless it is used. Once someone comes along who shows how to use it to add value to the process, i.e. productivity then all – the inventor, the marketer and the user become “job creators”. In the end it is all about productivity. Does stock trading makes anyone more productive or finances productivity innovations? Only in some exceptional cases, this is why stock traders are not “job creators”. This is why the very wealthy who live on “rents” from investments are also not jobs creators.

  20. The technological explosion has been based on the scientific revolution. Kepler, Galileo, Newton, Avogadro, Darwin, Planck, Einstein were original thinkers – not entrepreneurs, and their work rarely led to anything marketable in a time frame that would enable them to enrich themselves thereby.

    Even key technological break-throughs are typically made by people interested in technical problem-solving rather than developing a business (happily working as salaried employees for Bell Labs, Xerox, or at MIT or Baylor).

    The list of entrepreneurial heroes consists of people who typically had some combination of tech savvy, vision, a streak of opportunism, and a capacity for organizational development.

    The demand has depended largely on those whose labor also produced the products, as well as the parents, teachers, infrastructure and public service workers, who provided the support and services needed for all the above to function and thrive.

    Even the investors, and government officials, who secure and oversee funding for these activities have played their part – along with the activists, protesters and similar trouble makers who have helped maintain a modicum of integrity in the system.

    Mythologizing the contributions of one sector, denigrating or demonizing the contributions of other sectors, and failing to recognize the organic nature of human societies, leads to the divisiveness that can ultimately cause their downfall.

  21. Extreme positions, perhaps, provide comfort… no gray areas to be uncertain about. People feel ill at ease if they are uncertain about something. But with social sciences (including economics) you’re pretty much guaranteed to live in a soup of uncertainty at all times! It’s bad enough with the hard sciences!

  22. Of course everybody wants to win. 50% won’t do it. And a Congress asking for 60% is no help. And Steve Jobs was not satisfied with 50%.

  23. And if the inventor of the railroad did not know people wanted to travel faster, would he have bothered? Maybe, because human curiosity is cause enough. Alexander Bell started out trying to help deaf people.

  24. In the sixties and seventies taxes were much higher on the wealthy and America had more jobs and profits. Lower taxes are his motive, don’t let Eric Cantor confuse us about his real aim.

  25. On the theme of not being too extreme, I think you could also argue that there are cases where entrepreneurs and innovations have led to a NET loss of jobs (not to pick on the entrepreneurs or innovators… just bringing up a possible counter example). For example, all those financial “innovations” of the 1920s, 1990s, and 2000s perhaps made a lot of money for their inventors (or their users), but perhaps didn’t lead to a net gain in jobs… especially post-bubble (Is the world really a better place with synthetic derivatives contracts?). Also, it’s probably true that not all technologies will necessarily result in an increase in jobs… in fact, that was part of the attraction of the 1930s – 1950s science fiction movies, books, and comics, wasn’t it? We’d all have a lot more free time in the future since we’d have robot slaves doing all the grunt work (and grunt thinking!) for us… unfortunately it didn’t really work out that way yet (and perhaps it’s not likely to ever work out that way!).

    It seems to me, saying that entrepreneurs and consumers equally contribute to job growth may in itself be an extreme position. Perhaps we can find a way to quantize how much each side contributes and assign responsibility with a better approximation. Ah, but then it’s tough to do that in the social sciences! Tough, but not impossible. We’re all just part of the natural world after all, and if we survive long enough, I’m sure the scientific method will prevail, and we’ll turn the soft sciences into hard sciences (how difficult can it be to explain what’s going on in a small skull full of neurons?). I realize we aren’t there yet. Ultimately, I think explaining human behavior will prove to be a LOT less complex than explaining other big mysteries of the universe (which will probably never be “fully explained”). But then I’m a materialist: I assign 100% credibility to the scientific method, and 0% to any other way to go about “finding truth” (i.e. introspection, spiritualism, religion, etc.). So in that regard, I plead guilty to being an extremist.

  26. @Midas II, I view taxes from a moral perspective not a social scientist perspective. Is it moral for a government to confiscate 70% of one’s production (70’s taxation)? Who cares whether the one earning the money is a job creator or not…it’s his money. Why should we turnover a huge share of our income to a government who has consistently wasted it? Shouldn’t the government prove they are good stewards with the revenue they receive? Shouldn’t we demand a return on our “investments”? Or should we keep throwing our hard-earned income down a black hole?

  27. It’s amusing to listen/read the commentary of people who have never been directly involved in the “job creation” exercise. This question is much less difficult to understand than we make it out to be……

    I have participated multiple times in my career in the creation of a new product, some of which caught on with the consumer, which lead to sales growth, business expansion and more jobs. Every time it required we producers to ANTICIPATE or FORECAST what would have appeal with the consumer. We then developed the product and offered it to the consumer. Some failed to catch on, but many succeeded and caused business to grow and more jobs to be created. THERE WAS NOT A SINGLE TIME when a visionary consumer came to us first and said “if you create this new and improved product I will buy it”. And this holds true of all industries, not just the one I was in.

    Jobs, Gates, Allen, Ford, et al had the idea/vision before there was the demand/consumer asking for it…….every single time! This order of activity will be the same no matter if the innovation is a new product, improvement to existing product or the same product produced less expensively. Production creates demand, not the other way around…..or the politically correct and silly view that they “happen together”…….please! Some new ideas fail and the producer/innovator loses, but some ideas catch on and the producer/innovator succeeds……just the way it should be…..risk taking should lose when wrong and be rewarded when right.

    Claiming that demand comes first is a POLITICAL viewpoint which provides cover for the political class to hand out gifts to their chosen constituencies. For all of you who believe otherwise, please introduce me to the wunderkind who told Jobs that if he invented a device that fit in a pocket, did about 1000 functions, put it in a sleek package and could be priced for $2-300, that if Jobs invented such a thing the wunderkind told him he’d buy it! Sorry folks, it happens the other way around! thx, krb

  28. Even if you actually believe supply creates its own demand (which is highly debatable) you have to admit that without your customers there would be no revenues upon which you can build the forecasts and hire the people to produce the products you want to sell. And yes, I am in the process of starting a new company. My vision will hopefully create demand, but I am also venturing into a marketplace where I know there is related demand. My services will be new and unique in certain ways, but my vision and products are not entirely independent of demand. Demand will ultimately enable how much and how fast my company grows. It’s more complex than just saying supply will create its own demand.

  29. From reading lately, American and British Banks would only give out loans for existing capital goods. This is part of the mercantile tradtion, where goods would be ready to ship, and then they could get loans. In this way, the banker would have something tangible to confiscate if the enterprise went bad.

    Germany developed an industrial banking system that would give out loans to build industry; as part of the deal they would take an equity position. Credit loans tended to go toward new enterprise and producitivity.

    It is amazing the entrepeneurs in America and Britain built out the industrial age. Mostly they had to self fund, or borrow from friends. James Watt, Henry Ford and others could not get loans at first. I’ll bet Bell was strapped for money too.

    Some say that the wars with Germany were a reaction of the Western Financial class in response to German industrial banking; German banking was having great success at advancing German industry (in order for their industry to catch up).

    Today’s American Banks still do not take equity positions. Entrepeneurs at least have venture and angel capital to turn to today.

  30. Cullen,

    That isn’t reality. Look at your own response….”…you have to admit that without your customers….”, misstates the process. There is a point in time where there are NO customers. When you first created your blog you had NO viewers. And had there been poor marketing the first viewer may have never shown up and if there was no value any viewers would have not returned a second time. My point is that you don’t start with “customers” of your “new product”, you start with nothing…..that is the real world. Customers are gained after the product is created, if the product provides value. Forecasting the rate of growth in customers is another thing…..but before ANY customers there had to have been a product. krb

  31. Most companies don’t start with no customers. I’m starting my new company based largely on the fact that I have a pipeline of current customers. I started the blog because I knew there were people on the internet interested in reading financial news/insights. The customers were there. My risk was calculated in that I knew there was demand there and that I could provide the supply. Very few companies are started from a position of a totally unique or completely new product. Most companies start because they think they can provide a superior product to something that currently exists. Ie, they know there is demand out there and they say “we can eat into that demand”. That’s the real world. I am living proof of it. I am sure your products are too….

  32. The “moral” issue is interesting, but trying to address that by phrasing the question in terms of a percentage is too facile, I think. Sure, I think there are cases where 70 percent could be judged “moral”, or even 95 percent.

    Percent of “what”? And yes, I think the “what” matters.

    And you have bifurcated “the government” and “the commonwealth” where no such bifurcation really exists — discounting for a moment that too many citizens in the commonwealth don’t participate.

    There is no “us” versus “them” (them being government). “They”, in fact, *are* “us”.

    And you write as if government makes *zero* useful investments — that all of what is does is wasteful. That’s a non-starter of course. If you think you’ve never gotten a “return” on anything the government does, you’re living somewhere I’m not familiar with.

    Is there waste? Of course. Should citizens try to monitor that more closely? Of course. There’s a “moral” responsibility to do so. A responsibility that, sadly, too many ignore, only to complain loudly and passionately after the fact about policy that they don’t participate in making via a ballot box in the first place.

  33. Moreover, the telephone was *going* to be invented, and very soon. Electromagnetic science had reached a point where it was only a matter of connecting a few final dots, and there were plenty of people racing each other to make those, er, connections.

    The people who get credit for inventing things almost always stand on the shoulders of society, and greats who came before them.

    It’s more the patent office than the capitalist who gives the world the product. Anyone possessing the telephone patent would have had little trouble raising capital.

  34. We’re talking past each other. I’ll attempt to clarify using your direct comments….

    CR: “Most companies don’t start with no customers.” KB: not true, anything new, whether a new company or new product within a company, by definition begins with no customers….there may have been customers of other similar companies, or other similar products, that the “new” company/product planned to try and redirect, but the “new” company/product idea could have also been wrong about what the customers were valuing and their ability to redirect…..it happens all the time.

    CR: ” I’m starting my new company based largely on the fact that I have a pipeline of current customers. I started the blog because I knew there were people on the internet interested in reading financial news/insights. The customers were there.” KB: They were someone else’s customers, and you could have been wrong about your ability to attract them to your site…..it happens all the time.

    CR: “My risk was calculated in that I knew there was demand there and that I could provide the supply. Very few companies are started from a position of a totally unique or completely new product. Most companies start because they think they can provide a superior product to something that currently exists. Ie, they know there is demand out there and they say “we can eat into that demand”.”
    KB: you and the other companies “start because they think they can provide a superior product to something that currently exists.”…..key words being “think they can”. You and they could have been wrong. Now in hindsight, you fortunately were right way back at the beginning….now you HAVE customers you hope to move to a better product……but you could be wrong, and whatever expense and time you go to in developing the “better” product would be lost as current customers stay with the old product or move to someone else’s product…..it happens all the time.

    I don’t wish to belabor the point. In my view it comes down to this simple test to answer which comes first, supply or demand……

    1. Did a consumer FIRST envision a new/improved product/company and then tell a producer about it and commit to buying it if created, in which case the producer could create it without ANY risk of not selling it.

    2. If not, and I argue it NEVER happens that way, then the producer had to first take risk, to create it first, in the hope of redirecting customers of other, hopefully inferior or less valuable products. And that holds true whether converting customers from horses to cars, calculators to computers, bag phones to iphones or poor blog sites to pragcap. :) krb

  35. Well said. Totally agree. When they discuss job creation, they somehow talk about in an abstract fashion. When you need a job, you don’t turn to a homeless guy in the city park. You find someone with a job, someone successful with the ability to offer a job to you. Before Sam Walton started Wal mart, people buy their products from somewhere else. Before iPhone, people use Nokia phone or blackberry. Everyone is a consumer, and demand is always there. People do not know what they want. This may hurt someone’s feeling, but it’s true, They don’t. Guys want to go strip club, girls want to go shopping. Children want Christmas present.

  36. This sounds like a sort of version of Say’s law. Sorry, but demand is NOT “always there”. Sometimes there is no demand for goods and services that you offer. That involves capitalists failing. A successful capitalist needs the demand. He can’t just will it into being by creating supply. If life were that easy we’d all be entrepreneurs. Capitalists, whether you want to admit it or not, need to correctly calculate whether there will be demand for his goods and services. And if it’s not there then he fails. Capitalists need demand. They can’t just create it from nothing. There’s a symbiosis here that’s not being accounted for. I fear you guys are taking the other extreme of the Keynesian argument….

  37. Cullen, If this reply was also meant for me (“…you guys…”), I never claimed demand was “always there”. And I specifically outlined how and where demand is developed, if at all. And when it isn’t, loss will and should occur. While I previously thought I was poorly conveying my views, now I think you’re intentionally talking past me. krb

  38. Every successful product will Change the status quo, the way we do business in a meaningful fashion. That’s why there is failure and there is success. That’s why not everyone can be a successful businessman. That’s exactly why not everyone can be a job creator. That’s precisely why we celebrate success.
    If your product is better than those existed, you will be successful. People will buy your product. It may take a while before people realizes it. If your product is not good. People will not buy it. Marketing only gets people to your product, whether they will pay for it is another matter. Job creators are successful people.

  39. I think most here were referring to potential demand which in most cases can be estimated by market research which is a critical step to minimize risk. The risk can also be minimized in general by making sure there are lots of consumers that have money to spend. After all if consumers have no money, your risk of failure is 100%.

  40. I agree with the notion that the two sides of the coin have equal value but it seems to me that the last 30 years we’ve been playing with a coin weighted almost entirely to producer side so its really time to focus a lot more on the consumer side til a balance is reached (their debts are manageable and all that wish to are working or training for work). We’ve thrown 1000 “producers” in a row because the coin was rigged by extreme supply side ideology. Lets throw a few hundred consumers in a row and restore some semblance of balance.

  41. “I seriously doubt that Democrats don’t think that entrepreneurs are necessary and valuable.”


    But Democrats are still to wed to the idea of the great Clinton surpluses and see the only way to achieve that is to raise taxes on the “producers”. Get them off the notion of needing to balance budgets or run surpluses and then we can ignore what taxes are on the hoarders, lower taxes on the consumers and just direct what govt spending we do to worthwhile projects.

  42. I agree with you. Economy is nothing more than social relations among all of the people. We should´t approach it from the mathematical point of view. It is more about the choices people do every day than some equation. I see many ideological fallacies (Krugman; theburningplatform) and some bad analyses (Economy in British Columbia vs. Ontario). What I mean by this is that we desperately need more relevant articles like yours, without any predictions, ideology etc.

  43. The producers are also consumers so the entrepeneurs are not acting in a vacuum where they are just spitballin to see what people might like, they are also solving a problem that they see. We are natural problem solvers and we do it intuitively. We are always trying to make whatever we do better, easier and maybe safer to do.

    Thing is we need producers and inventors but we cant ALL do that. We cant have everyone working on the ipod. The big issue is how much more should someone be rewarded for coming up with something innovative vs someone just puting their nose to the grindstone everyday and working in the factory that constructs that innovation. Or the guy who keeps that factory clean. All those jobs are necessary in the big picture and we should celebrate all who do what they do well. The disparity between what the janitor must do to have a life with a home, food and health care and what a banker must do is getting way too big. It has to change.

  44. krb

    Every entrepeneur had at least one consumer before he got started…………… himself! If they wont or cant use their own product why would anyone else? Their job is to make the product a mass consumable and once they produce it they dont go introducing it to the Amazon rain forest where no one can buy it, they introduce it to the American or European economies where people with money will consume it. They arent looking to trade it they are looking to sell it so customers WITH MONEY is an absolute necessity for the success of the venture.

  45. Credit is the fertilizer. Growth is very slow without it. Too much will ruin it. And we want to be careful just who is sticking their tools in the dirt.
    Great post and comments!

  46. If you want to really nitpick, put demand in an equation. It is always there, but can approach zero. ;-)

  47. Spot on Cullen. I too am starting another company based on previous customers and demand for the product.

    Good article. Politicians these days do not get it and just want to divide the country down their political view when some of the solutions are simple.

  48. When hedgefundmgrx makes his first billion he needs someone to build his greenwich estate and maintain his grounds. Arent these created jobs

  49. I don’t think it had to do with people wanting to travel faster. I think the railroad had more to do with people wanting goods to travel faster. That is a supplier concern as well as a consumer concern. Based on this thought process, it is probably safe to say that the most dynamic, world-changing industries are those where both producer and consumer needs are met.

  50. I was in middle school, but from what I recall, Clinton WAS focused on a balanced budget. A balanced budget can only be achieved by increasing taxes and/or reducing the budget, and as we are pragmatic capitalists, we should be aware that a balanced budget will require both ends of that equation in practice. Regardless of what people say, the US has one of the lowest real tax rates in the world. Pundits for both parties are hinting that increased taxes are coming as part of a necessary search for improved fiscal health.

  51. Judging “Fiscal Health” by proximity to balanced budgets is as silly as judging physical health to proximity to paid up health premiums. One can be in great physical shape and still be 12 months behind on their health insurance premiums. They do not relate.

    Fiscal health should simply be examined by weather or not a nation is meeting its real goals without causing too much damage. Is energy independence worth air that is not breathable? Is health insurance for all worth premiums that are 60% of your take home pay? Is a strong military worth sending our 18-21 yr olds all over the world playing policeman?

  52. Great piece and great comments by all. IMO, the supply-demand equation isn’t a chicken-and-egg argument, but rather a symbiotic relationship that likely dates to infinity in some measure. Ideologically, I may believe that a GOP tax relief platform to entice job creators is bunk (I do) and the money will eventually find its way to a campaign fund with few stops along the way, but I also know that the demand to serve Julius Caesar as a water boy was high because no one wanted to get their heads chopped off. Regardless, credit/debt adds a whole other dimension to the discussion. Consumers have been forced into debt destruction mode even as the government has increasingly used credit to pay for purchases of US goods and services to keep the economy as vibrant as possible. That’s a very strange dynamic. Maybe no one wants to admit that a little piece of plastic is the true job creator.

  53. “Maybe no one wants to admit that a little piece of plastic is the true job creator”


    But isnt it also true that paying off that little piece of plastic (too many attempting to OR refusing to…..either way) is the job destroyer.

  54. In the aggregate, private debt doesn’t get “paid off” any more than public debt does. The system is a perpetual debt growth machine. It can be no other way. That’s what an elastic inside money based system is all about. The supply of inside money will and must always grow with the economy and so must the facilitating outside money that serves as a support mechanism.

    When growth in inside money is weak the economy is weak (regardless of how much outside money expands). This is how the system is designed.

  55. I understand that the debt never gets paid off in aggregate but they can move towards a higher percentage of present income going to debt payment. When the household sector as a whole is paying back mortgages and credit cards in the face of falling incomes then a smaller percentage of current income can go to present period consumption. When present period consumption falls sales fall and the economy contracts.

    Of course sometimes falling incomes lead people to default on their debts meaning bank failures, tightening credit and lower present period consumption out of credit. Either way present period consumption drops.

  56. Always the picking up on “class warfare” between capitalist and working class. We are all capitalists, consumers, workers in one (because many of us have savings, consume and work). Anyway…
    CR you gave the answer to your question yourself. Bell didn’t invent the telephone for some consumers. Actually no one wanted the telephone and certainly no consumer got to him and begged him to invent a telephone. He did it for his own interest and he created new consumers. So the fact is, if you want to create jobs you need to take actions. You can’t create a job by just working day for day at an assembly line, sitting behind the desk of your office or spend the day consuming. Someone need to take actions (start his own business or expand his business). And this creates jobs. Just consuming might create jobs but only to a certain degree and it certainly helps preserve once created jobs.
    The iPad is the same story. All critics said there is no need for such a gadget – there is no target audience. Too big to be a smartphone but to small as a laptop. And we all know how the story ends. The first cars only the wealthiest Kings of Europe could afford but it got invented not for the consumer, it was a challenge for the inventor. No one got to him begging to invent a complex engine to move your body from A to B to substitute horse carriages . We not only need consumers, we need ideas, risk taking and finally sometimes some luck. An entrepreneur can create his own consumers but a consumer can’t force an entrepreneur to create or invent something. The marketing department want’s you to believe that you just need to do some expensive studies and there you go… I think the marketing can only fine-tune products and services which might create new jobs or preserve some but only to a certain degree.
    But my point is: Someone need to take action and not just to consume.

  57. I agree with much of what you say Dave but even if we never invented a new “thing” from this day forward we could still create new ways to do things or services to provide…… and these only need a consumer. I could start a backscratching business but I need people who want their back scratched. I think we get too focused on the life changing inventions, or things, that have shown up and really honor those who thought of them, but most of what we do and what we spend on is NOT those things. We dont NEED the next ipod or internet to give us something to do and make money.

    Now Im not trying to say we shouldnt keep looking for the next great thing, we will always have the tinkerers that will do that, Im just saying we dont need to WAIT FOR the next great thing to save our economy(ies). We have, already, right in front of us the answer to getting people buying and selling stuff again at a rate necessary for full employment and its all about getting money, the lifeblood of our economy, out of the bank accounts of the hoarders into the hands of the buyers. If we cant get it out of their accounts, then we have a way to get the lifeblood into the hands of the spenders. Once its in their hands they will tell the entrepeneurs where they should put their efforts by where they are spending.

  58. Please stop Greg, the more you argue the more you expose how little you know about how jobs are actually created. “When you are in a hole and want to get out, the first thing to do is to stop digging.”

  59. “Please stop Greg”

    Sorry, dont think I will. You havent shown to be any more knowledgeable than anyone else here. Sorry to break it to ya! You have your opinions but thats all they are.

  60. First hand experience, by having actually done it and created jobs, makes it no longer just “opinion”. You however, can go along blissfully expressing theory and opinion….and digging a deeper hole. You have plenty of company among the many people that pass for economic commentators nowadays, as well as most of our elected representatives, though that may make you feel like wanting to go and take a shower. :) Have a good evening! krb

  61. I can’t agree there Greg. I really don’t think people are satisfied with the same living standards their parents had or their grandparents had. We are evolving creatures. We need to make progress. We need to break records, to go further into space, to create better products, etc. It is inherent in us. There is no escaping it. The capitalist never has enough because the consumer can never have enough. If you were unconstrained by time or money you would consume MUCH more than you likely do. It’s human to want more. You might not like it. You might not indulge in it to the extent that others do, but that doesn’t mean it doesn’t exist around you.

    A world of back scratchers is the antithesis of human nature. I fear you’ve fallen into the MMT trap of thinking that consumption is better than production and that all the world needs is a bunch of beach bums who consume from foreign producers. Sorry, but that world is a fantasy and it is a total misunderstanding of human nature.

    None of this means we can’t be more balanced, that we can’t do good, etc. But I think it’s a total misunderstanding to say that humans don’t need to innovate and evolve. After all, innovation is the primary way we increase living standards. So the inherent need to improve living standards and produce are practically synonymous.

  62. That statement: “When growth in inside money is weak the economy is weak (regardless of how much outside money expands)” doesn’t ring true to me. China is a case-in-point example of how government spending on infrastructure can grow an economy. Inside money is the key, I grant that, but I don’t think it’s fair to dismiss outside money’s impact.

  63. The govt mostly uses inside money. So, when you refer to infrastructure spending you’re referring to the govt (usually) taxing someone and spending it into someone else’s account. That infrastructure building is done with inside money. Not outside money. The govt, by design, is a user of inside money.

    But the more critical point is that inside money growth is weak when private Investment is weak. Private investment is the backbone of the economy. So yes, my comment is likely not 100% precise, but it’s a pretty fair generalization.

  64. Dont get me wrong Cullen, Im not suggesting that we as a species will ever stop striving to improve our lot nor should we, Im simply stating that we dont need to wait for some great breakthrough to “save” our world and give everyone new well paying jobs to do. Those breakthroughs will occur as a result of people having free time to tinker and think and try to solve problems. Despite krbs prowess at starting a successful business its very unlikely that he came with something new and earth shattering, he simply saw a potential market, either took his and his friends existing stock of savings and invested it or borrowed the money form a bank. Good for him. He made some wise choices but he’s not some prescient job creator that is needed to save the worlds economies. We are not doomed to a world of 25-40% unemployment without him or his friends.

    I get the feeling that too many people think that only technology will save us, that we need some new Steve Jobs or Thomas Edison that will give everyone someway to earn a better living. Thats BS, we have the tools right here and right now to improve our lots in life, to increase GDP (if thats the metric we wish to use to measure our economic success…… I believe there may be others better but…..) to whatever level we wish. We dont need a savior, we are our own saviors if we will just pull our heads out of our asses.

  65. Good for you krb. Congrats on starting a successful business(es). I highly doubt you invented some earth shattering breakthrough for mankind, giving us all new raised standards of living. You simply made an investment either of your own and friends savings or borrowed form a bank and plugged into a market. Again good for you. I dont want to do such a thing I just keep people safe during surgery. Im glad we have people like you but we dont have to sit around and wait for guys like you to do something or be doomed to 30% unemployment.

  66. This is the last thing I wish to say in this thread.

    We have debate going on in our town about a WalMart coming to a prime downtown spot.
    There is the usual back and forth with people claiming all the “new jobs” it will bring.

    I say it will likely not bring any new jobs it will just take people from other places and reshuffle them so unemployment is unlikely to change. My point is that unless the citizens who are currently spending x on all the things WalMart brings to the table now start spending x+ y then all that is happening is Walmart is just getting a share of x from someone else. Some new consumption dollars need to be spent in order for WalMart to add jobs. Will WalMart unleash new consumption dollars? Will people keep spending at all the places they currently spend and add in WalMart spending? If not there is no gain of jobs. To add jobs to an area the level of consumption dollars has to increase or its just a reshuffling.

    So how to increase those consumption dollars? Tax cuts for consumers (not producers) will do it as well as debt reduction of consumers. Or G could step in and increase its spending. Those are the only three ways I see. No increased consumption no net benefit from Wal Mart

  67. I’m also tired of this, and will try to make this short and sweet…..and by the way, now I’m talking theory and not first hand experience because my expertise is not low cost walmart goods. Anyway….

    You are buying a list of goods at existing store(s) we’ll call Acmemart, and it costs you $100 per month. Walmart believes they can provide the same goods to you at $80 per month through their “edge” in low cost supply, inventory control, etc…..if it turned out they could only provide the goods for $120, you’d keep buying from Acmemart, their vision failed and they would lose the investment they made in their venture in your town. But for arguments sake lets agree they were able to do it for $80. You may now move all your purchases to Walmart from Acmemart. You would also argue, like you did above, there would be no net gain in jobs because while Walmart added jobs they were offset by the same job losses at Acmemart. BUT, you have an additional $20 in your pocket which you will now spend on other items you didn’t have money for before……more was consumed in total, and more jobs were created in total.

  68. And by the way, this improvement in your living standards (you have more goods than before at the same cost), and the additional jobs created by the additional consumption, would not take place without Walmart FIRST taking the risk/chance that if they built a satore in your town they could gain your business by providing goods of equal quality at a lower cost……supply creates demand……every time.

  69. Your example is a good one of how people misunderstand the importance of efficiency here. Why do people love Wal-Mart? Because WMT gives them more time. How is that? Well, before WMT you had to go to the grocery store, the hardware store, the furniture store, the clothing store and any number of other stores that were spread all over town just to get a few items from each when you need them. Now, if you want all that stuff you just go into WMT in one trip. It’s more efficient and gives people the thing they value most – MORE TIME. And what do they spend that extra time doing? Consuming and producing. This is what adds jobs. This is how innovation creates jobs. WMT gives everyone more time to consume and produce other things that they otherwise would have spent that time doing at 5 different stores all over town. So the WMT will be a net positive for the town. You might not think so at first, but in the long-run it will be a big net positive.

  70. I feel the need to reply to this here but if we wish to go on we should probably take this somewhere else, either your blog or my blog.

    “You are buying a list of goods at existing store(s) we’ll call Acmemart, and it costs you $100 per month. Walmart believes they can provide the same goods to you at $80 per month through their “edge” in low cost supply, inventory control, etc…”

    Understood, but Ill just add that WalMart still wants the whole 100$,and if they dont get it, salaries for their employees will be lower, unless they hire fewer people, but then…… they havent increased net employment now have they?

    “But for arguments sake lets agree they were able to do it for $80. You may now move all your purchases to Walmart from Acmemart. You would also argue, like you did above, there would be no net gain in jobs because while Walmart added jobs they were offset by the same job losses at Acmemart.”

    And they will be lower paying jobs at 80 of revenue for WalMart

    “BUT, you have an additional $20 in your pocket which you will now spend on other items you didn’t have money for before……more was consumed in total, and more jobs were created in total.”

    Okay, now you take that 20$ and create two more jobs in a non WalMart industry, like a car sale say. Fine in this scenario you have now the same number of jobs at WalMart as Acmemart, we’ll say 10 and two more car salesmen. So there are now 12 people employed where there were 10 and we have the same number of WalMart consumables and two more cars. But lets look a little deeper and see if we really are better off.

    We have 10 WalMart employees who are making less, 20% less and two more car salesman. Total incomes havent changed we have just made some things cheaper, most employees have lost income and therefore will buy less and will have a harder time meeting their fixed payments of mortgage, rent, utilities etc. We have reshuffled the 100 dollars to twelve instead of ten people but the lower incomes of 80% of people will be reflected eventually in lower revenues of businesses they patronize….. it has to.

    “supply creates demand……every time.”

    I call this “Field of Dreams” economics (if you build it they will come)
    So you would ,in this current environment, as a restaurant owner who was at 75% of capacity relative to last year build 40 more tables and hire more waiters ,cooks and food as a stimulus to your business? You would, as a software developing company with lagging sales, create more inventory and hire more sales people in response? You would as a construction company with lagging sales just go and hire 10 more crews and get started on more houses or commercial projects as a response to todays environment? Something tells me, if you really have run some businesses, you would not respond this way but this is what you are saying you should do if you believe this

    “Supply creates demand….. every time”

  71. The back scratch business is the same as every service provided. YOU just think no one needs his back scratched but in fact you will find costumers if you start it. Soon you will find out that there are many ways and techniques to scratch a back and you get new customers. You will find out that to scratch peoples back provides them more then just the back scratched. People will be relaxed, get new energy and so forth. A back scratch business sound redundant but it might turn out to provide at least to you an income.
    But to come back to my article: I didn’t write it as a guide to save our economies. I just wanted to show, that the costumer is “overrated” because in many cases he does not know what he wants until he gets it. And I think its not up to you to decide if we need the next ipod or internet. Let that the market decide. And we all (entrepreneurs, workers… people) are the market.

  72. Cullen there are limits to how much efficiency can improve our lot. Free time is worthless if you have no money to enjoy your time. In todays world you must first have money and little debt in order to enjoy “free” time. Time isnt free when you have a 100,000$ mortgage.

    This isnt to say that Wal Marts are all bad. Im not arguing that but they arent magically good either simply by making some things we consume cheaper. If cheaper was always better wouldnt free be the best? One must understand the limits of efficiency.

    There is nothing wrong with things being costly, when something costs something we actually take care of it better and are good stewards of it. The push to make all things progressively cheaper simply cheapens life at some point.

  73. By the way Greg. I think no one “waits” just for the next big invention. I don’t know why you are assuming that? And I think its not about technology its about efficiency as CR wrote. All great inventions (not necessarily technology) gave the economy a boost in efficiency and that’s what inventions do and bring us as humans a step further. Somehow I think you are stuck with the idea that any invention has to be something “technological”. There are many services provided which have nothing to do with new technology but make our work much more efficient.

  74. Wrong again!

    Walmart had an edge they were leveraging, or hoped they could leverage. If you had read closely and not cherry picked info, you would have noticed I said they could also be wrong, and their venture could have been a complete loss. If your restaurant and construction companies were operating at less than capacity you would need to determine why. If they were the superior supplier and lack of tables or employees was the bottleneck forcing consumers to go to other inferior suppliers against their wishes, then adding more tables or employees may in fact grow their business. If they were formerly the superior supplier but have now been surpassed, and the reason they are operating under capacity is because their customers are moving to other superior suppliers, then adding more tables/employees will make their losses worse.

    This is not rocket science! You, like many of your like-minded economists and politicians, seem determined to go to any lengths to rationalize your handouts mentality. I’m interested in rational debate. You’ve entered into the absurd. krb

  75. I believe its you that have entered into the absurd sir. Where have I said anything about handouts? I referred to tax cuts and easement of debt as demand increasing.

    You preceded your above with this;

    “and by the way, now I’m talking theory and not first hand experience because my expertise is not low cost walmart goods. Anyway….”

    And then you answer as if what you stated was in fact a lead pipe cinch. I didnt Cherry pick anything nor did I ignore the fact that Wal Mart might be wrong, its irrelevant to the issue of whether the community is better off if WalMart is right. I took the case of WalMart being right and showed a simple reshuffling of demand.

    You are the one stating “Supply creates demand every time”….. thats absurd.

  76. You’re still not getting my point (or maybe you are and you’re not discussing it). The point is that WMT gives us more time. Whether you spend that time consuming or producing is totally your choice. But it makes us more efficient which increases future demand and output thereby increasing future employment.

  77. Cullen, National productivity took a hit the last two days with the amount of time I spent on these comments instead of the things I should have been doing. :)

    Greg, While you’ve frustrated me to no end the last two days I still appreciate your participation…… having lived these experiences out in the real world I still think you’re wrong in your beliefs about what drives supply-demand…… but I’m also better for the debate. I’ve already referenced this exchange with my college age son who studies this stuff and debates it with his professors and peers.

    Let’s agree to disagree, and you, me, and Cullen go have a nice weekend! krb

  78. Ha. Look on the bright side, we’re helping expand our perspectives and hopefully people are reading and making more informed decisions because of it. That’s the hope anyhow. Have a good one guys.

  79. Just got back from work guys (had to be productive) and Ive been thinking about this discussion.

    krb; ( Ive appreciated this discussion as well) In one sense you are correct. No one ever consumed anything that wasnt previously produced. If thats the way you mean your statement…… no argument…… but.. (you knew there had to be a but!) that is not the same thing as saying anytime we have a lull in economic activity that the answer lies in production or supply side. At our current point in time in our economy we are not looking to build the economy, its already been built. We only need to restart it in a sense. Sales are down. Thats the problem in a nutshell. Low sales. Not low product volume, not low capacity to produce, not even low availability of trained or trainable workers. Low sales volume. And we’ve done everything we can at state levels to make it worse. Laying off teachers and other public sector workers is taking people with 40-70,000$ incomes and removing them from stores all over America. They might be going to thrift stores now but they arent buying cars or many other things that that group usually buys on an annual basis. Its absurd. And its simply because there are people who are ideologically opposed to “public sector” workers(most republicans today) or think we have run out of money (most democrats today) or both.

    If we simply told every state level public sector worker to return to their job Monday and that federal transfers would “fund” every position at 85% of previous level, unemployment would be below 6% and sales would rebound within weeks. Now, republicans wouldnt support this because it would help Obama get re elected and democrats wouldnt support it for fear of being called bad names by republicans, but neither is a good reason to needlessly leave teachers and policeman who can do their jobs at home. This would be a simple restoration of demand to near pre crisis levels. And if you want to scream inflation inflation, tell me why we werent experiencing that inflation in 2007 when those people and their full salaries were marauding shopping malls all across America?

    This has nothing to do with improving production and you damn well know it would turn the economy around within weeks.


    I didnt mean to dodge your point I was caught up more in the idea of free time being something valuable. (It is to me but not to my unemployed daughter in law who would love to be using her nursing degree right now). But I do understand what you say about WalMart giving us one place to go so we save gas and time and therefore can use that money elsewhere or apply our time in new ways. I dont dismiss that. But I fail to see how THAT is the lynchpin to our economy, the thing that drives our lifestyle and increases well being for all (or many more). There is no way that WalMart or its equivalents in other sectors saves us collectively enough time or money to generate the demand we have seen over the years drive our growth in incomes. They are a factor for sure but I seriously doubt weve seen more than a couple percentage points of that translated to the increased incomes Americans USED TO experience rather regularly. There just isnt that much efficiency to wring out of the system in my view.

    Improving efficiency is somehting that any smart business will do or should do but Im not sure you can rightfully say that THAT is what increases future demand output and employment. First off how do you measure that efficiency to be able to point to “it”? Without a tangible metric it mostly speculation regarding the degree of influence. On the other hand we know that if consumers have more dollars they will generate more sales.

    I know youve come out in favor of decreasing taxes on working stiffs and realize the burden of private debts (as opposed to public debts) on our balance sheets so I m mostly preaching to the choir here.

    I dont dismiss productivity or efficieccy out of hand I just dont see them as measurable nor THE driving force to improving our employment situation. Part and parcel sure.

  80. And Oh…… Have a great weekend guys!

    Cullen thanks for continuing to host one of the better sites on the web. Your range of topics and your engagement with everyone who takes the time to comment civilly are noticed by many.

  81. While a balanced approach is often reasonable, in this case I don’t think it’s correct. The role of the producer is more important. Here’s why. Suppose you, as the consumer have been paying $100 a week to commute to work on the train. If Henry Ford finds a way to mass produce the auto and reduces your commuting cost to $50 a week, he’s made you and every other consumer richer by the amount of these savings. As a result, you get your commute and extra wealth which you can save, invest, or consume even more.
    Productive innovation makes consumers wealthier. Some of the newly created wealth is captured by the producer but most ends up as found money in the pockets of consumers. No wonder consumers will stand in line to save time or money!

  82. I agree with the majority of your comments, but I would say that your point 2 does happen, if only rarely.

    Certainly with existing companies, they get feedback saying, “I love your product, but it would be better if it did X”. The company then introduces that product.

    Also, think of Sci-Fi writers who imagine some machine, that is impossible to make at the time, that inspires someone to make it, due to the demand generated from the original idea. Eg. tricorder prize.

    These situations are a tiny minority though.

  83. Rick you clearly seem to miss the point of this article. Suppose you weren’t commuting to work. Then what would Ford’s horseless sleigh save you? Nothing. That is the point. Unless there is a demand from the consumer class there is no market for the product and no jobs will be created.

  84. Steve Jobs did not create the demand. He created products. The consumer created the demand when consumers decided to buy his products……..

  85. And Russia doesn’t have any millionaires and billionaires………….? Think again…….