Economic/Political question.

spinnytop

So businesses attempt to reach an equilibrium where their supply of their product matches the demand for that product, right? If they produce more than demand, then they're basically making stuff that isn't gonna be bought because the consumers don't exist. Even if the company suddenly finds itself with a lot of extra money, so long as demand remains the same then they have no reason to expand operations and increase supply; in fact, doing this would just waste the extra money they got. Well, a massive tax cut would cause this situation: the company in question has a bunch of extra money, but supply remains the same. So basically my theory is that if a business has enough employees in order to efficiently produce enough supply to meet their current demand, and they get a large tax cut that the extra money they get to keep from paying less taxes will not motivate them to expand operations, i.e. they will not hire more employees. Instead they are more likely to award the extra money to executives, or invest it in upgrading their facilities ( perhaps even investing in automation which immediately removes jobs ).


That's the first theory, here's the second. Government services, such as food stamps for one example, that provide goods to people in need, will increase supply. The food provided by food stamps doesn't come from the government, it comes from businesses that produce food. Each person that you add to the food stamps program is now effectively a paying customer who is increasing the demand of that good. Add enough of these food stamp recipients and you have increased the demand for that good enough that businesses may need to increase supply in order to capitalize on the increased demand. In other words, increasing government services which involve providing goods to those in need can increase supply and therefore motivated companies to expand their operations, i.e. hire more employees. The neat part of this theory is that because companies are hiring more employees, some of those people using these government services may find it easier to find employment.


There's my two theories/questions.

tl;dr - will a big tax cut for corporations, and gutting government services actually create more jobs? or is the opposite true?

baelogventure

jennymachx

If the intention of the big corporate tax cut is to lower costs for companies so that they get more money to afford expanding and thus creating more jobs, it just comes off as a drastic measure and an over-simplification of the various things that determine exactly how companies decide on just how many workers they want to keep hired. Things like mergers, management changes, job positions becoming obsolete due to automation, a 101 random economic factors, etc. Giving businesses a huge tax relief isn't going to magically and assuredly create new jobs and make corporate downsizing go away.

Also, the people running the businesses have no obligation in using such a tax relief to focus on expanding their workforces and create new jobs / positions. It just invites the higher-ups in the businesses to treat themselves to bigger bonuses.

Also apparently budget experts are estimating that the US corporate tax cut could cost the country 2.4 trillion dollars within the next decade and swell national debt: https://washingtonpost.com/business/economy/trump-seeks-15-percent-corporate-tax-rate-even-if-it-swells-the-national-debt/2017/04/24/0c78a35c-2923-11e7-be51-b3fc6ff7faee_story.html?utm_term=.fe5f17a4ae4c

guyhumual

Business doesn't hire more people if they make more money, they hire more people if they need to hire more people. If they're cut personal to the bone but still able to meet demands, any extra cash is just going to be given to management or paid out to shareholders as dividends. Tax cuts to the wealthy and big business is like water into a sponge. You're not getting anything back from them until you squeeze them.

spinnytop

Well, so far my theories are holding true I guess. Two agree, and one guy has nothing but trolling to respond with.

pantagruel01

spinnytop said:

So businesses attempt to reach an equilibrium where their supply of their product matches the demand for that product, right?

No, businesses attempt to increase supply until the profit from increased sales is lower than the cost of increased production. For a single provider this almost always means supply less than demand; multiple providers may result in supply exceeding demand due to competition for customers. Changes that either reduce the cost of increasing supply, or increase the profit from sales, will move the equilibrium point.

spinnytop said:

tl;dr - will a big tax cut for corporations, and gutting government services actually create more jobs? or is the opposite true?

Taxation doesn't create money from nowhere, it's just a question of where the money is most efficiently spent. It's likely that there's some optimal level of taxation and government spending, but there are both disagreements about how to calculate that level, and about how to measure whether one situation is superior to another.

baelogventure

spinnytop said:

Well, so far my theories are holding true I guess. Two agree, and one guy has nothing but trolling to respond with.

spinnytop

Anime! \o/

pantagruel01 said:

No, businesses attempt to increase supply until the profit from increased sales is lower than the cost of increased production.

Isn't that basically the same thing as "try to get supply as close to demand as possible"?

pantagruel01

spinnytop said:

Anime! \o/

pantagruel01 said:

No, businesses attempt to increase supply until the profit from increased sales is lower than the cost of increased production.

Isn't that basically the same thing as "try to get supply as close to demand as possible"?

No. Demand isn't a fixed thing; look up price elasticity of demand if you really feel like delving into it, but to give a simple example:

Suppose it costs me $1 to produce widgets. If I sell widgets for $10 each I can only sell 100 units (total profit: $900). If I sell widgets for $5 each I can sell 300 units (total profit: $1,200). If I sell widgets for $2 I can sell 1,000 units (total profit: $1,000). Of those options, it's clear that the second is best: $1,200 > $1,000. If a change in regulations means I can now produce widgets for $0.50, my 300 units now make me $1,350, while my 1,000 units make me $1,500, so I'll increase production.

Real world situations are rarely that simple.

spinnytop

But did the change in regulations create 700 additional people buying widgets, or give them a reason to want/need more widgets? The widget company doesn't determine how many people there are that need widgets, right? If there isn't demand for 1000, then making 1000 doesn't make much sense.

pantagruel01

spinnytop said:

But did the change in regulations create 700 additional people buying widgets, or give them a reason to want/need more widgets? The widget company doesn't determine how many people there are that need widgets, right? If there isn't demand for 1000, then making 1000 doesn't make much sense.

There is a demand for 1000 -- if they cost $2. Remember, demand is variable.

spinnytop

pantagruel01 said:

spinnytop said:

But did the change in regulations create 700 additional people buying widgets, or give them a reason to want/need more widgets? The widget company doesn't determine how many people there are that need widgets, right? If there isn't demand for 1000, then making 1000 doesn't make much sense.

There is a demand for 1000 -- if they cost $2. Remember, demand is variable.

All right, thank you for your insight. What do you think about the idea that government services that get goods to low-to-no income people could spur job creation via increased demand?

pantagruel01

spinnytop said:

All right, thank you for your insight. What do you think about the idea that government services that get goods to low-to-no income people could spur job creation via increased demand?

You'll get increased demand from those people, and reduced demand from the people whose taxes are paying for said services; the net effect is difficult to predict, disputed, and probably variable, but likely averages fairly close to zero.

spinnytop

pantagruel01 said:

spinnytop said:

All right, thank you for your insight. What do you think about the idea that government services that get goods to low-to-no income people could spur job creation via increased demand?

You'll get increased demand from those people, and reduced demand from the people whose taxes are paying for said services; the net effect is difficult to predict, disputed, and probably variable, but likely averages fairly close to zero.

That's possibly true, though I question the idea that people would, if they had to pay less taxes, would automatically just start buying more food even though they currently have enough. They would probably just buy more expensive alternatives meaning that lowering taxes and getting rid of the services may very well simply swap demand from one product to the other, so with the services in place net job creation is actually higher, with the only difference being that people aren't buying the more expensive versions.

pantagruel01

spinnytop said:

That's possibly true, though I question the idea that people would, if they had to pay less taxes, would automatically just start buying more food even though they currently have enough.

Sure, they'd buy other things, which will change the distribution of goods in the society, but income inequality is a separate issue from economic growth.

spinnytop

pantagruel01 said:

Sure, they'd buy other things, which will change the distribution of goods in the society, but income inequality is a separate issue from economic growth.

Yes, that's why I didn't bring it up.

bulgarex

It's also worth remembering that demand is not necessarily need-based. A lot of our economy today is based on the sale of non-essential or luxury items, which companies invest considerably in advertising to convince us that we want.

spinnytop

bulgarex said:

It's also worth remembering that demand is not necessarily need-based. A lot of our economy today is based on the sale of non-essential or luxury items, which companies invest considerably in advertising to convince us that we want.

Yes, but those wouldn't apply here. Or at least they shouldn't... lord knows I know some people on welfare who use it to buy luxury items.

jonsills

There's really no need to debate theory here. The experiment was tried twice, once in the 1980s and again in the early 2000s. In neither case did it produce the expansion of capital that Laffer had predicted on that famous paper napkin; turned out that corporations gave the money to their executives, who stashed it away because they already had all the yachts and estates they needed. Any money that traded hands at that point was "low-velocity" money, given in exchange for some rare item the user really could do without. (Had the money been given to lower income brackets, it quite likely would have become "high-velocity" money, immediately traded for food, clothing, housing, and other basic supplies.)

Theorize all evening long if it pleases you; the empirical data are readily available. Cutting corporate taxes does not produce an economic stimulus.

violetnychus

It was tried not only in the 80's and 00's but the 20's, interestingly prior to the great depression.

It was never anything but mysticism that provided a pseudointellectual cover for ulterior and nefarious motives - businesses that wanted a desperate and easily exploitable work force plus white southerners social conservatives who morally objected to the black people they imagined made up welfare.

flyingfinn

spinnytop

jonsills said:

Theorize all evening long if it pleases you; the empirical data are readily available. Cutting corporate taxes does not produce an economic stimulus.

So.... so far pretty much everyone is confirming my theory... one guy posted memes... and finn is being finn.