Sorry, Folks, Rich People Don't Create The Jobs

[realibrad]

of course it does... ask yourself:
would you build a road that would cost 100M, and it might pay it self in 20 years?
there is value? yes, in 20 freaking years

or will you spend it in a new factory, that would pay itself in 3 years?

i bet my virgin ass that most people will say factory

there is always a better investment, and it's the reason that most roads and railroads in the world were made by the gov

Your argument is one of short term vs long term. However, following your analogy, I believe you re incorrect. You are actually giving up a larger net benefit if you invest in the factor first.

I am making the assumption that both require the same investment amount, as your hypothetical would not make sense with out this assumption. If you break down the annual return on both investments, and the road gives a higher annual return then the factory, then the road investment would likely win if other factors are equal.

So, look at it from a 23+ view. If you first invest in a factory, you take 3 years to get back your investment. The 4th year is returns, but you can then invest in the road. For every year going forward, you are getting the returns from the factory, while waiting for the road return to pay back its investment. So, by the 23rd year, you have a much greater return on your investment than if you had done the road first.

I think you are trying to advocate that you should let the private sector do the factor, and then let the gov do the roads in parallel, but that makes an assumption that is very important and wrong. There are not unlimited factories to invest in. So, once the private sector fills the investment demand for the factory, other capital will flow to the road investment. Those who have capital would rather make a small profit vs no profit at all. If you believe that there is not enough capital in the private sector to invest in both, then your next flawed assumption is where the money would come from if the government wanted to invest in the road. Governments get revenue from taxes on the private market. So, had the government has the ability to invest in the roads, its because it took the money from the private sector. There will be some loss in the transfer of tax money, so the net effect in your hypothetical is a negative.

There is an argument for taxes and government investments, but your situation is one one. Pollution and 3rd party effects is a much better one.

 

[Olikan]

I think you are trying to advocate that you should let the private sector do the factor, and then let the gov do the roads in parallel, but that makes an assumption that is very important and wrong. There are not unlimited factories to invest in. So, once the private sector fills the investment demand for the factory, other capital will flow to the road investment. Those who have capital would rather make a small profit vs no profit at all. If you believe that there is not enough capital in the private sector to invest in both, then your next flawed assumption is where the money would come from if the government wanted to invest in the road. Governments get revenue from taxes on the private market. So, had the government has the ability to invest in the roads, its because it took the money from the private sector. There will be some loss in the transfer of tax money, so the net effect in your hypothetical is a negative.

yes, gov uses taxes to buildt it, and no, there is always a limited budget a single company can't build both at the same time...
sure, once companyes team up to build the road, the gov is not needed... the problem is that, they rarely do that

 

[BoberFett]

yes, gov uses taxes to buildt it, and no, there is always a limited budget a single company can't build both at the same time...
sure, once companyes team up to build the road, the gov is not needed... the problem is that, they rarely do that

Your 2nd grade understanding of economics is adorable.

 

[realibrad]

yes, gov uses taxes to buildt it, and no, there is always a limited budget a single company can't build both at the same time...
sure, once companyes team up to build the road, the gov is not needed... the problem is that, they rarely do that

The government must take money from private investors, so it can build the roads, that the private investors could not build, because private investors don't have the money...

 

[Olikan]

Holy comprehension failure Batman!

where?
Multi-billionare companyes need to exist man, sometimes there is a need for heavy investments, and free capitalism won't allow some companyes to get enought profits to do that...

the hardware tecnology is a good example, IBM is one of the most inovative campanyes in the world, and in it's beggining was very gov friendly

 

[Olikan]

The government must take money from private investors, so it can build the roads, that the private investors could not build, because private investors don't have the money...

it's a quantivity problem, not circular...

my budget without taxes is 160M... than, lets say, with taxes it lowers to 108M... anyway, i never had 200M to build both

as i said, if companyes had a better tendency to work togheter, the gov wouldn't be needed

 

[BoberFett]

where?
Multi-billionare companyes need to exist man, sometimes there is a need for heavy investments, and free capitalism won't allow some companyes to get enought profits to do that...

the hardware tecnology is a good example, IBM is one of the most inovative campanyes in the world, and in it's beggining was very gov friendly

it's a quantivity problem, not circular...

my budget without taxes is 160M... than, lets say, with taxes it lowers to 108M... anyway, i never had 200M to build both

as i said, if companyes had a better tendency to work togheter, the gov wouldn't be needed

D:

 

[fskimospy]

Your argument is one of short term vs long term. However, following your analogy, I believe you re incorrect. You are actually giving up a larger net benefit if you invest in the factor first.

I am making the assumption that both require the same investment amount, as your hypothetical would not make sense with out this assumption. If you break down the annual return on both investments, and the road gives a higher annual return then the factory, then the road investment would likely win if other factors are equal.

So, look at it from a 23+ view. If you first invest in a factory, you take 3 years to get back your investment. The 4th year is returns, but you can then invest in the road. For every year going forward, you are getting the returns from the factory, while waiting for the road return to pay back its investment. So, by the 23rd year, you have a much greater return on your investment than if you had done the road first.

I think you are trying to advocate that you should let the private sector do the factor, and then let the gov do the roads in parallel, but that makes an assumption that is very important and wrong. There are not unlimited factories to invest in. So, once the private sector fills the investment demand for the factory, other capital will flow to the road investment. Those who have capital would rather make a small profit vs no profit at all. If you believe that there is not enough capital in the private sector to invest in both, then your next flawed assumption is where the money would come from if the government wanted to invest in the road. Governments get revenue from taxes on the private market. So, had the government has the ability to invest in the roads, its because it took the money from the private sector. There will be some loss in the transfer of tax money, so the net effect in your hypothetical is a negative.

There is an argument for taxes and government investments, but your situation is one one. Pollution and 3rd party effects is a much better one.

The easiest argument for the government to build roads is that a competitive road system is not economically efficient. Without competition you end up with people extracting monopoly rents from control of important roads and that's in nobody's best interest.

Basically any time where effective competition is impossible the government should do the work.

 

[realibrad]

The easiest argument for the government to build roads is that a competitive road system is not economically efficient. Without competition you end up with people extracting monopoly rents from control of important roads and that's in nobody's best interest.

Basically any time where effective competition is impossible the government should do the work.

Agreed, you have a much better argument.

I think there is probably a place for private firms to do things like highways and freeways and highways, but I think low volume local roads would be tough to privatize.

I think what you could do, is auction the rights to maintain and collect fees for a set amount of time. Firms could then compete for the right to collect fees, and release the burden of the government. That could bring back the feedback loop vs what we have now.

 

[smackababy]

I am still confused as to who creates jobs. On one hand, we have investors willing to front the costs of emerging companies, thus creating the jobs; and on the other, we have poor people who do nothing but want handouts, creating jobs of having to take care of them and clean up all their messes, plus police them.

So, everyone but the middle class creates jobs?

 

[realibrad]

I am still confused as to who creates jobs. On one hand, we have investors willing to front the costs of emerging companies, thus creating the jobs; and on the other, we have poor people who do nothing but want handouts, creating jobs of having to take care of them and clean up all their messes, plus police them.

So, everyone but the middle class creates jobs?

businesses create jobs, consumers sustain jobs. Without consumers, there would not be a need for a job. With out businesses, there would not be a job to fill the consumers demand for goods/services.

Every economic class have a job creator, and every class can have a consumer.

Hope that helps.

 

[Cozarkian]

Your argument is one of short term vs long term. However, following your analogy, I believe you re incorrect. You are actually giving up a larger net benefit if you invest in the factor first.

I am making the assumption that both require the same investment amount, as your hypothetical would not make sense with out this assumption. If you break down the annual return on both investments, and the road gives a higher annual return then the factory, then the road investment would likely win if other factors are equal.

So, look at it from a 23+ view. If you first invest in a factory, you take 3 years to get back your investment. The 4th year is returns, but you can then invest in the road. For every year going forward, you are getting the returns from the factory, while waiting for the road return to pay back its investment. So, by the 23rd year, you have a much greater return on your investment than if you had done the road first.

The government taxes and builds roads because of market imperfections such as transaction costs and free riders.

Imagine I'm a farmer out in the country. I realize that building to the nearest two cities would let me transport my goods more efficiently to markets. This would let me reduce labor costs by spending less time traveling, or alternatively, buy more farmland and expand my business.

One problem I have to consider, is that other people will likely want to use my road, which will increase my maintenance costs. Potentially, I could solve this problem by buying the land and making it a private toll road, charging those who want to use it. Of course, now I have to hire someone to run the toll booths on each end and security to guard the road to make sure people don't just bypass it, eating into my ROI. Ultimately, it will likely be a bad individual investment.

What if, however, instead of charging a toll, I went to businesses and people in the two towns and asked them to contribute? In an ideal world, every business and person would contribute a portion of the cost in relation to their expected ROI. Again, there are a few obstacles. Notably, a lot of people will tell me to shove off, knowing it will be impractical to set up a toll booth for just non-contributors. Thus, they can "free-ride" and get the benefit of the road without paying. Investors will then get a reduced ROI, and if the lower ROI makes it a bad investment for too many people (or if too many people try to free-ride), the road won't get funded.

Assuming, everyone is morally righteous and nobody free-rides, we still have another problem. First, the farmer will have transaction costs beyond what it would cost to build and maintain the road, because he has to travel around and hold some meetings to explain his plan to the community, help people determine how much they will benefit, get their promise to contribute, and collect and manage the money in trust. The farmer would probably rather be spending his time farming and probably isn't the best choice to efficiently manage the development aspects of the project. Thus, again, the road is in risk of not being built. Also, how the heck are you going to determine the individual expected ROI for every business and person in town?

In steps the government. By taxing individuals, it removes the free rider problem (well, theoretically it would if people actually paid taxes). It reduces transaction costs by putting the project management costs into a dedicated source that is better equipped to handle that. It also combines the transaction costs from this and similar projects, allowing more projects to be completed at a reduced overall cost. While the government can't accurately calculate the ROI for every person, it can do a better job of it than the farmer. Also, again, because the government provides multiple services, it can make a broader calculation by charging people in comparison to their expected ROI for all government services, rather than just for this project.

That's why the government handles infrastructure. Properly run, it can do it cheaper and more efficiently than a collection of private citizens. Interestingly, now that we have massive international corporations that specialize in development and technology to collect tolls at automated booths, it is possible that a large corporation could step into this role.

 

[Zaap]

The easiest argument for the government to build roads is that a competitive road system is not economically efficient. Without competition you end up with people extracting monopoly rents from control of important roads and that's in nobody's best interest.

Basically any time where effective competition is impossible the government should do the work.

That's a reasonable argument I can agree with.

 

[werepossum]

businesses create jobs, consumers sustain jobs. Without consumers, there would not be a need for a job. With out businesses, there would not be a job to fill the consumers demand for goods/services.

Every economic class have a job creator, and every class can have a consumer.

Hope that helps.

QFT and well said.

The government taxes and builds roads because of market imperfections such as transaction costs and free riders.

Imagine I'm a farmer out in the country. I realize that building to the nearest two cities would let me transport my goods more efficiently to markets. This would let me reduce labor costs by spending less time traveling, or alternatively, buy more farmland and expand my business.

One problem I have to consider, is that other people will likely want to use my road, which will increase my maintenance costs. Potentially, I could solve this problem by buying the land and making it a private toll road, charging those who want to use it. Of course, now I have to hire someone to run the toll booths on each end and security to guard the road to make sure people don't just bypass it, eating into my ROI. Ultimately, it will likely be a bad individual investment.

What if, however, instead of charging a toll, I went to businesses and people in the two towns and asked them to contribute? In an ideal world, every business and person would contribute a portion of the cost in relation to their expected ROI. Again, there are a few obstacles. Notably, a lot of people will tell me to shove off, knowing it will be impractical to set up a toll booth for just non-contributors. Thus, they can "free-ride" and get the benefit of the road without paying. Investors will then get a reduced ROI, and if the lower ROI makes it a bad investment for too many people (or if too many people try to free-ride), the road won't get funded.

Assuming, everyone is morally righteous and nobody free-rides, we still have another problem. First, the farmer will have transaction costs beyond what it would cost to build and maintain the road, because he has to travel around and hold some meetings to explain his plan to the community, help people determine how much they will benefit, get their promise to contribute, and collect and manage the money in trust. The farmer would probably rather be spending his time farming and probably isn't the best choice to efficiently manage the development aspects of the project. Thus, again, the road is in risk of not being built. Also, how the heck are you going to determine the individual expected ROI for every business and person in town?

In steps the government. By taxing individuals, it removes the free rider problem (well, theoretically it would if people actually paid taxes). It reduces transaction costs by putting the project management costs into a dedicated source that is better equipped to handle that. It also combines the transaction costs from this and similar projects, allowing more projects to be completed at a reduced overall cost. While the government can't accurately calculate the ROI for every person, it can do a better job of it than the farmer. Also, again, because the government provides multiple services, it can make a broader calculation by charging people in comparison to their expected ROI for all government services, rather than just for this project.

That's why the government handles infrastructure. Properly run, it can do it cheaper and more efficiently than a collection of private citizens. Interestingly, now that we have massive international corporations that specialize in development and technology to collect tolls at automated booths, it is possible that a large corporation could step into this role.

Also well said. Another issue speaking for government is that with many things (e.g. roads & bridges) there are physical constraints against having multiple entities do essentially the same thing. It's difficult enough to have duplicate and competing sets of fiber optic cables; having multiple privately owned roads serving the same areas would be physically difficult as well as highly inefficient. In theory we get the best of both worlds by having government subcontract the actual building to the private sector via competitive bids, although in my experience the efficacy of that can also be poor.

 

[Zaap]

I am still confused as to who creates jobs. On one hand, we have investors willing to front the costs of emerging companies, thus creating the jobs; and on the other, we have poor people who do nothing but want handouts, creating jobs of having to take care of them and clean up all their messes, plus police them.

So, everyone but the middle class creates jobs?

The middle class creates some jobs that cater to middle class consumers- but business creates the middle class, so it's pretty circular.


At the START of the chain, jobs are created by innovative people with ideas who are influential enough to gain access to capital. As much as some want to twist that, the START of the process has little to do with the poor, or really even the middle class (who, as I say, owe their middle class status to the process, and who easily go back to being poor the second the jobs dry up.)

 

[Olikan]

D:

what? the monopoly part? or the gov should or should not exist?

anyway...
monopoly is not desired, but sometimes it is needed

2: the gov shouldn't exist if there were more campanyes like wallmart, that can see a bigger picture and don't go, allways, for the fast profits


...unless you think that monopoly can only be created by the influence of the state... and that i disagree

 

[realibrad]

The government taxes and builds roads because of market imperfections such as transaction costs and free riders.

Imagine I'm a farmer out in the country. I realize that building to the nearest two cities would let me transport my goods more efficiently to markets. This would let me reduce labor costs by spending less time traveling, or alternatively, buy more farmland and expand my business.

One problem I have to consider, is that other people will likely want to use my road, which will increase my maintenance costs. Potentially, I could solve this problem by buying the land and making it a private toll road, charging those who want to use it. Of course, now I have to hire someone to run the toll booths on each end and security to guard the road to make sure people don't just bypass it, eating into my ROI. Ultimately, it will likely be a bad individual investment.

What if, however, instead of charging a toll, I went to businesses and people in the two towns and asked them to contribute? In an ideal world, every business and person would contribute a portion of the cost in relation to their expected ROI. Again, there are a few obstacles. Notably, a lot of people will tell me to shove off, knowing it will be impractical to set up a toll booth for just non-contributors. Thus, they can "free-ride" and get the benefit of the road without paying. Investors will then get a reduced ROI, and if the lower ROI makes it a bad investment for too many people (or if too many people try to free-ride), the road won't get funded.

Assuming, everyone is morally righteous and nobody free-rides, we still have another problem. First, the farmer will have transaction costs beyond what it would cost to build and maintain the road, because he has to travel around and hold some meetings to explain his plan to the community, help people determine how much they will benefit, get their promise to contribute, and collect and manage the money in trust. The farmer would probably rather be spending his time farming and probably isn't the best choice to efficiently manage the development aspects of the project. Thus, again, the road is in risk of not being built. Also, how the heck are you going to determine the individual expected ROI for every business and person in town?

In steps the government. By taxing individuals, it removes the free rider problem (well, theoretically it would if people actually paid taxes). It reduces transaction costs by putting the project management costs into a dedicated source that is better equipped to handle that. It also combines the transaction costs from this and similar projects, allowing more projects to be completed at a reduced overall cost. While the government can't accurately calculate the ROI for every person, it can do a better job of it than the farmer. Also, again, because the government provides multiple services, it can make a broader calculation by charging people in comparison to their expected ROI for all government services, rather than just for this project.

That's why the government handles infrastructure. Properly run, it can do it cheaper and more efficiently than a collection of private citizens. Interestingly, now that we have massive international corporations that specialize in development and technology to collect tolls at automated booths, it is possible that a large corporation could step into this role.

The poster's original argument was not an issue of collective action, but one of misunderstood incentives. He was wrong about his belief.

You are arguing a collective action problem.

So, the farmer wants to transport his goods more directly, and for him, it would be more efficient. There are others that would likely benefit from this new road, and would likely be willing to pay for it. If they were not, then they would not want to pay taxes, so we will make the assumption that they are willing to pay.

The issue is, can there be an effective way of charging those who use the road without creating a prohibitive cost barrier that would negate the benefit of the road. Your argument is that the government can solve the free rider problem, and this is where I start to disagree. I believe you are looking at the issue from the wrong angle.

First, the road will be used in unequal amounts, yet people will pay the same amounts if its a flat tax per person. You will still have free riders, but you will also have an issue of people paying for something they do not use. You are also making the assumption that the farmer will be stuck fighting for the road. In a free market, people will see the demand, and see the possible return and step in. A firm will then do the research, and see if there is sufficient demand to warrant investment, and this is where the government breaks down.

The government often breaks the feedback loop so when the expense of a road becomes larger than the benefit, we continue to fund the road. A private firm would not be able to do this, and would shut down the investment. The transaction cost would be equally reduced if not greater by a private firm, so the government there is at best equal.

The US is running into an issue currently where infrastructure was built around a growth model. We spread out quickly, because cities were growing at a very fast rate, and thus the revenue was. Once a city starts to slow its growth for any reason, the revenue dries up, and you can no longer afford the infrastructure. The growth model is not able to continue, so we must find ways of doing infrastructure differently. We need to make sure roads are bringing a return, and this is where the private firms have the advantage. Private firms are built around making sure profits are higher than losses.

So, if the argument is that there are collective action problems, then looking at the government track record, I cant see the argument that they will be any better doing infrastructure.

 

[realibrad]

The middle class creates some jobs that cater to middle class consumers- but business creates the middle class, so it's pretty circular.


At the START of the chain, jobs are created by innovative people with ideas who are influential enough to gain access to capital. As much as some want to twist that, the START of the process has little to do with the poor, or really even the middle class (who, as I say, owe their middle class status to the process, and who easily go back to being poor the second the jobs dry up.)

You keep pushing this idea that a job can only be created once a person gets capital from an investor. This is not the only way to start something. If I work as a janitor, save up enough money, and start my own business, I don't need an investor. Its true that an investor would have sped up the process and given a greater net benefit, but its not the only way to do things. Also, the business does not need to cater to the same economic class that the owner is in. The owners of Walmart mainly cater to the bottom income brackets.

This idea that the wealthy classes creates the middle class is also not true. The collective purchases of the lower economic classes can fund a middle class position. Efficiencies through specialization that cause a net increase in production can also sustain the middle class. Its incorrect to think that upper economic classes support the middle class exclusively is completely wrong. It is true that without the upper classes you could not have a middle class, but thats simply due to the fact that "middle" is a relative term.

 

[Cozarkian]

In theory we get the best of both worlds by having government subcontract the actual building to the private sector via competitive bids, although in my experience the efficacy of that can also be poor.

One problem with that is the Davis-Bacon Act, which requires payment of prevailing wages (as opposed to competitive, market wages) on federally funded projects. It was a racist law that was passed to prevent black contractors from competing with established white-only contractor unions. The law is still intact and continues to artificially inflate public sector construction costs above what private companies are required to pay for the same work.

 

[Cozarkian]

First, the road will be used in unequal amounts, yet people will pay the same amounts if its a flat tax per person. You will still have free riders, but you will also have an issue of people paying for something they do not use.

The government doesn't eliminate all problems, it just minimizes their impact so the project can actually move forward. Also, by pooling taxes into a general fund, the government helps minimize the cost people pay for something they don't use. For example, somebody who doesn't drive might make more use of public sidewalks or public transportation than others. Thus, the services they pay for that they don't use are balanced against the services they use more often than other taxpayers.

It's certainly a better system than private enterprise would have been in the pre-industrial era, and still probably overall more efficient than private enterprise could do now. Especially since travel routes may be unique. Someone purchasing land through a mountain pass would have enormous monopoly power by controlling the only viable trade route. Also, would you have multiple companies controlling city roads, requiring you to get multiple toll devices? What a pain.

We could actually devise ways to make people pay specifically for the amount of road they use. A mileage tax could be imposed on in-state registered vehicles. Alternatively, to help capture the cost of out-of-state visitors, gas tax and/or tolls.

 

[aaksheytalwar]

Do people read global economics or Darwin's theory of the survival of the fittest.

If somebody feels that china is having such a good time, why don't they shift to china and try it themselves. If they like it then can settle there or rush back to the states.

Finally in the internet age it is going to be a global economy. Every job in every part of the world will get paid within a similar range of income in the future. But living in the Europe for example will always cost more than living in malaysia even if Europeans don't get paid proportionately more. If you have a problem with that, shift to a cheaper place if you think life is easier there.

 

[Cozarkian]

Consumers drive the demand for jobs; investors drive the ability to create them. You need both.

Let's presume I identify a demand for widgets and build a factory. Savings and/or investors are needed to create the first few jobs. After that, consumers step in and purchase the product. If it is popular enough, I have a demand for more labor. I then need investors to help me expand my factory, allowing me to hire more.

What some people fail to consider, however, is the effect in a down economy when companies aren't operating at full capacity. If my clothing store has two registers, but I am only using one, and my employees have more downtime than they need to clean the store, no amount of investment will create a new job in my store. If, however, consumer demand increases, then I can hire another worker to operate the second register without the need for investors.

I haven't done any substantial studies, but I would hypothesize that investor-based strategies would help drive a growing economy, but consumer-based strategies are more likely to bring an economy out of recession.

 

[realibrad]

The government doesn't eliminate all problems, it just minimizes their impact so the project can actually move forward. Also, by pooling taxes into a general fund, the government helps minimize the cost people pay for something they don't use. For example, somebody who doesn't drive might make more use of public sidewalks or public transportation than others. Thus, the services they pay for that they don't use are balanced against the services they use more often than other taxpayers.

It's certainly a better system than private enterprise would have been in the pre-industrial era, and still probably overall more efficient than private enterprise could do now. Especially since travel routes may be unique. Someone purchasing land through a mountain pass would have enormous monopoly power by controlling the only viable trade route. Also, would you have multiple companies controlling city roads, requiring you to get multiple toll devices? What a pain.

We could actually devise ways to make people pay specifically for the amount of road they use. A mileage tax could be imposed on in-state registered vehicles. Alternatively, to help capture the cost of out-of-state visitors, gas tax and/or tolls.

There is far more innovation in the private sector, than in the government.

Also, you just fell into the same issue that the government now has. Trying to tax people starts to rapidly inflate the transaction costs. You are also going to get into an issue when its politically beneficial to ignore the feedback loop. When the government fails, we put more money in. When a company fails, we used to not put more money in.

 

[werepossum]

You keep pushing this idea that a job can only be created once a person gets capital from an investor. This is not the only way to start something. If I work as a janitor, save up enough money, and start my own business, I don't need an investor. Its true that an investor would have sped up the process and given a greater net benefit, but its not the only way to do things. Also, the business does not need to cater to the same economic class that the owner is in. The owners of Walmart mainly cater to the bottom income brackets.

This idea that the wealthy classes creates the middle class is also not true. The collective purchases of the lower economic classes can fund a middle class position. Efficiencies through specialization that cause a net increase in production can also sustain the middle class. Its incorrect to think that upper economic classes support the middle class exclusively is completely wrong. It is true that without the upper classes you could not have a middle class, but thats simply due to the fact that "middle" is a relative term.

Also, we can tap the accumulated savings of many relatively low income earners. With programs like Kickstarter, even some relatively large and risky projects can be funded without venture capitalists if the projects catch the public's interest. A society must have access to investable capital, but the nature of that capital is not dictated.

And the nature of the investment varies wildly. I know a guy who became a multi-millionaire with an old truck by buying furniture cloth scraps, laundering them, and bundling them for sale as rags. I know architects who started their own businesses with nothing more than meager savings, their wives' earnings, and a layoff notice. I know a few guys who started electrical and general contracting businesses with nothing more than an old pickup and hand tools, and one guy who started an aquarium maintenance business with nothing more than an old car, some brushes, some buckets, and a siphon hose. Other people start a rep agency or a distributor sales company with funding from the people whose products they rep or sell. Overall the companies and new ventures started with millions in venture capital or via stock sales are more visible, but form a minority of new jobs.

 

[realibrad]

Consumers drive the demand for jobs; investors drive the ability to create them. You need both.

Let's presume I identify a demand for widgets and build a factory. Savings and/or investors are needed to create the first few jobs. After that, consumers step in and purchase the product. If it is popular enough, I have a demand for more labor. I then need investors to help me expand my factory, allowing me to hire more.

What some people fail to consider, however, is the effect in a down economy when companies aren't operating at full capacity. If my clothing store has two registers, but I am only using one, and my employees have more downtime than they need to clean the store, no amount of investment will create a new job in my store. If, however, consumer demand increases, then I can hire another worker to operate the second register without the need for investors.

I haven't done any substantial studies, but I would hypothesize that investor-based strategies would help drive a growing economy, but consumer-based strategies are more likely to bring an economy out of recession.

Before you do any investment, you should quantify the reason the economy is in recession. If the economy took a down turn, because of an innovation that has reduced the cost of goods/services, then investment is not necessary. If the economy is in a down turn, because of an over investment in a bubble, then investment is not needed.

If you get artificial demand, you will eventually create a bubble, and get another recession. We saw this in the recession in 2008.