Some in Washington would have us believe that job creation is a matter either of more government spending or tax cuts (for the wealthy, of course). It isn’t. So, how are self-sustaining jobs really created? Amazingly, neither presidential candidate was ever asked that. It’s doubtful either could have answered correctly because of their lack of business experience. Neither had ever met a payroll.
Having been involved in creating many thousands of jobs, I can tell you that here’s how the decision is made. In relatively small businesses, the decision-making process is rather informal. The owner or owners simply hire new employees “as needed” — but always with an eye on the bottom line. If more profit isn’t expected, or existing profit protected, the employee isn’t hired. Some in Washington decry this as “profits before people,” but nevertheless this is how free enterprise works.
Large businesses are quite different. Someone inevitably calculates the expected future profitability from each prospective capital expenditure and then selects those which are most attractive. Thus, jobs are created when money is spent on tools (plant and equipment) to be used by employees. Profits are the objective; jobs are the by-product. And, when these profit perceptions rise, jobs increase; when these perceptions fall, jobs decrease.
It is the prospect of attractive profit — that and nothing else — that drives businesses to invest in the job-creating tools of production by combining land, labor, capital and entrepreneurial ability and effort. When these factors are efficiently assembled and properly utilized, jobs result.
Then, as profits are actually earned, they provide the wherewithal, along with borrowing, for further investment in the job-creating tools of production. Usually, a portion is then plowed back into the business to buy more job-creating tools of production, and a portion is paid to the owners for the use and risk of their money. It’s just free market economics in action.
It’s sad that improving prospective profits in any number of ways could have been done for a fraction of what Washington has authorized thus far to create jobs. This would have allowed American business to have become more stable, to have improved productivity and to have made us much more competitive internationally. There was absolutely no need to indenture our progeny for generations: by betting the ranch on such an inexperienced cowhand.
David R. Dilley is a retired economist living in Pelican Landing. Dilley received his master’s and doctoral degrees from Indiana University. He has taught at Indiana, Pittsburgh and NYU’s Graduate School and retired from U.S. Steel in 1985 as chief economist. Reach Dilley at firstname.lastname@example.org.