Tuesday, July 12, 2011
An Article of Religion
In my previous musing I compared the beliefs of "Tea Party Republicans" with those of a religious zealot. Here's another belief - or superstition, if you prefer - about how to cure the recession. Of course, the goal we all have is to put people back to work. The Republican superstition is that people are unemployed because rich people don't have enough money to hire them! I've heard several United States Senators express this idea. A former Senator from Texas, himself a rich man, said that he didn't know any poor people who would hire him. He implied that since only rich people could afford to give him work, we should all hope that rich people become even richer so that they can hire more of the rest of us.
Rich people are richer today than ever. Yet, unemployment persists. Why? The Republican explanation is that (a) they're still not rich enough, or (b) they're uncertain about taxes (since the Democrats and President Obama talk about tax increases). Any economist can tell you that the reason factory managers aren't hiring is that there isn't enough demand for their goods and services. They can satisfy present demand with the present work force. In other news we learn that banks and other lending institutions are awash with money. In spite of the existence of this money, no sensible entrepreneur wants to take on the risk of starting a new business unless he is sure of customers.
This obvious explanation of a persistent depression was well-known in the 1930's. Even before that, Henry Ford recognized that there would be a big market for his automobiles if working people earned enough money to afford them. He raised the wages of the workers in his factory. Other factory owners and managers had to follow. The result was the automobile revolution of the 1920's and 1930's. Henry Ford was barely literate and not highly educated. Yet he grasped a fundamental fact about economy. Factories get busy and hire workers when the public has the means and the desire to purchase the products. Why to the TP Republicans cling to the myth of the rich man who hires all the workers he can afford, regardless of demand?
Rich people are richer today than ever. Yet, unemployment persists. Why? The Republican explanation is that (a) they're still not rich enough, or (b) they're uncertain about taxes (since the Democrats and President Obama talk about tax increases). Any economist can tell you that the reason factory managers aren't hiring is that there isn't enough demand for their goods and services. They can satisfy present demand with the present work force. In other news we learn that banks and other lending institutions are awash with money. In spite of the existence of this money, no sensible entrepreneur wants to take on the risk of starting a new business unless he is sure of customers.
This obvious explanation of a persistent depression was well-known in the 1930's. Even before that, Henry Ford recognized that there would be a big market for his automobiles if working people earned enough money to afford them. He raised the wages of the workers in his factory. Other factory owners and managers had to follow. The result was the automobile revolution of the 1920's and 1930's. Henry Ford was barely literate and not highly educated. Yet he grasped a fundamental fact about economy. Factories get busy and hire workers when the public has the means and the desire to purchase the products. Why to the TP Republicans cling to the myth of the rich man who hires all the workers he can afford, regardless of demand?
Labels: Henry Ford, supply side economics
