Business Owners Don’t Create Demand; Consumers With Money Do

I think conservatives are fundamentally incorrect about what creates demand for products and services. Their claim is that those with money and businesses are the “job creators”, and that taxing them will harm the economy because they’ll be able to hire fewer people, grow their offerings less, etc.

It makes sense if you don’t think about it.

I witnessed a debate recently where someone brought up a devestating counter to this:

Business owners don’t create jobs or income: demand does.

Let that settle for a moment. How many business owners do you know of who start hiring people simply because they have money in the bank? None. Not good ones, anyway. Good businesspeople hire when demand for their product or services is such that it requires additional help–and not a moment before*.

They may have plenty in the bank, and plenty of money to improve their product, but unless people are actually buying what they’re selling, or there’s tangible evidence to suggest that they will soon, it’s simply irresponsible to spend money on innovation or on payroll.

A Look at Supply

So demand is the key. Let’s unpack it. I’m not an economist so forgive the blunt tools, but I’ll break supply into two pieces:

supply = consumer purchase ability X quality of offering

So if people can’t afford to buy your product, or they can afford it but they prefer a competitor’s offering, you don’t sell much. As a result, you cannot hire more people. Even worse, you may have to let go of some of those you have now.

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So this sets up the now obvious question:

If at least half of the demand variable is composed of consumers’ ability to purchase your product, and we understand that we tax what we don’t want while incentivizing what we do want, why isn’t it obvious that giving as much money as possible to consumers is the best way to increase demand?

In Deductive Form

Deductive argument appeals to me because of its power; done correctly it’s impossible to defend, but one careless move and you dismember yourself. For those who need a refresher, deductive argument has the property that the conclusion must be true if the premises are true.

To close, let’s point this weapon at our current topic:

  1. Growing the economy requires businesspeople to be able to 1) continuously improve their offerings, and 2) hire more people to keep up with resulting demand.

  2. It is a sound economic principle that we should tax what we want less of and incentivize what we want more of.

  3. Demand for a product is created when 1) people want a given product or service, and 2) they can afford to purchase it.

  4. The lack of ability to purchase a given product is significantly more detrimental to demand than the degree of innovation in the product.

  5. As such, follows that taxing large business owners while relaxing the tax burden on the majority of consumers will have a higher impact on demand than doing the opposite.

  6. Therefore, getting the maximum amount of money into the hands of purchasers (the middle class)–even at the expense of the top income earners and businesses–is the best way to grow the economy.

Perhaps I can clean this up, but the way the game works is simple: if you can’t show me what’s wrong with 1-5, then you must accept 6 as true.

So I ask two things:

  1. What’s wrong with my logic here

  2. If nothing’s wrong with it, then why is this even a debate?

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