Increasing Potential and Catching Bubbles

* * The Job Potential Model * *

The idea that a job is an agreement or contract between a consumer (employer) and a provider (the employed) is fundamental to modern economics.  When good, inexpensive, home computers came along, a great many people came to be employed in their manufacture.  Supply-side economists point out that none of these jobs existed before the creation of the supply of computers and there was no demand until the supply existed.  This is perfectly reasonable.  It also happens to be completely wrong because it's based on an incomplete view of what a job is and what demand is.

Example: there was always demand for computers.  It's been there for centuries... one need only look to the abacus, then to adding machines, then to calculators and finally personal computers in the form of desktop machines, laptops, PDAs, and smart phones to see that while they've evolved dramatically, the demand for a machine like this has been there at least since the dawn of agriculture.  As its cost has fallen and its capabilities have grown, of course, it becomes more useful and thus more valuable.  The demand remains relatively constant, but more and more of the demand is being realized by the suppliers.  Except in the case of luxury items and toys - and many computers are, in fact, purchased as such - you cannot create demand.  In the case of practical items and other necessities, demand is a function of population and environment.  In short, supply does not create demand; it realizes it.  It does not create need; it finds a need and fulfills it.  In some cases, people were not conscious of the need because they never considered there might be a solution.  These unrecognized needs, like computers, are the supply-siders' biggest examples, but as we already see, they did not create the demand.

The same principles apply to jobs.  Like energy, there are two kinds of jobs: in this case I call them realized jobs and potential jobs.  Potential jobs are all the jobs in the modern computer industry, before the introduction of the modern computer.  There was demand.  There was a need to be fulfilled.  There was great potential, but no one had figured out how to realize it.

Then came the early home computers.  They found a market with hobbyists who wanted them and engineers who needed them, and were savvy enough to solder, assemble, and program them themselves.  They met only a small part of the need.  Only a few of the millions of potential jobs were realized.  As the industry grew and matured, and in particular the software matured, it became more and more useful and attracted a bigger following.  The breakthrough came with the first spreadsheet: VisiCalc.  When accountants found that they could do their paper spreadsheets exactly as they had before, but with the speed of the computer to do the math, sales of computers - in particular the Apple 2 - skyrocketed and the world took notice.  More people were hired to meet the newly-realized demand.  In terms of demand and jobs, nothing had yet been created, only realized.

Or had it?

All of those new employees now had steady, well-paying jobs.  They had security and income, and found that that gave them opportunities: they could buy their own homes, travel, play, and make things that they couldn't before.  In short, their own demands increased.  When that happened, those demands became expressed as potential jobs.  When they spent their money on those new demands, they realized those jobs or enabled others to realize them.

In this model, I do not create jobs when I employ people: I create jobs when I pay them more than they need to simply survive.  If I do not pay them enough to increase their demands, I have no impact on the total number of jobs whatsoever.  True, I may have converted some jobs from potential to realized, but the creator of those jobs was someone else.

If the number of potential and realized jobs in an area is inelastic, as it is with grocery cashiers for example, and I hire one, I have realized one job.  Or have I?  If all of the potential jobs in that area have already been realized, then I am taking business from another business and taking that job as well.  Eventually, one of those two jobs will have to go.  In such a case not only am I not creating a job, I am not even realizing one: I am merely accumulating it.  In short, I have done nothing for anyone but myself.  Several large chain stores are in this category, and do not pay job-creating wages.  It is up to you, with your job-creating income, to decide whether you wish to spend that income to enable companies to realize those jobs or merely accumulate them.

* * The Bubble-Convection Model * *

As one typical person spends money in a store, he buys something from a person who has more.  The money he spends goes to the store, which first pays its suppliers.  After that, the company should concentrate on the people who brought that money in: the rank and file employees, the jobs that the store has realized, for it is these people who do the actual work of trade.  If an employer wants more people to buy his wares, or to step up and buy better-quality, more expensive wares, then he needs to pay his people well so that they can realize more jobs and give more people the ability to buy from him.

Not all of the money goes to the rank and file.  Some of it goes to the owners.  This should be enough for them to cover their risks and make a profit in accordance with that risk and their personal time and work put in.

So, hundreds of people shop in my store, and a fraction of all of that comes to me.

Imagine, if you will, oil in water.  There are thousands of people in the bottom of the pool, spending money.  Every dollar, or euro, or yen, or whatever, is an oil bubble and when it's spent it is released to float slowly upward.  My store is an umbrella designed to catch those bubbles.  Because of convection - supply costs and wages - some of what comes under the umbrella comes back to the bottom and some of it flows to other umbrellas at a similar level.  Some flows to other umbrellas at higher or lower levels, and some of it comes out the top, where I keep my own umbrella.  The same convection happens to my umbrella, with my home, my cars(s), my family, food, fuel, and so on, but I also collect more bubbles than anyone at the bottom ever will.  When I buy "rich people things," I release my bubbles upward and the process repeats.

Wealth does not trickle down: it bubbles up.  It comes from the bottom, where jobs are initially created, and each tier of umbrellas creates another tier of jobs.  The bubbles that stay under an umbrella do nothing.  The movement of these bubbles is the economy, and more convection there is, the more fair it is.  There must be many, many tiers of umbrellas to ensure the convection that creates a vibrant middle class and robust economy and lifts the bottom from poverty.  Remember, if all the ones at the bottom have "mad money," there are more bubbles rising for you to catch!

So as the shop owner with my own umbrella I now have a job-creating income greater than most, greater than any of my employees individually, but it certainly must not be greater than theirs collectively.  I should not have more disposable, job-creating income than all of my employees combined, unless I have very few employees.  If I don't pay my employees a job-creating wage, then by definition I am in violation of this principle.

So now I'm a good employer and I pay my people well, and I make a very good living myself.  When I go out and buy that expensive car or hand-crafted yacht, I am creating jobs again, and I have an obligation to create those jobs where they both meet my needs and do the most good.  If I have a choice between two vendors of sufficient quality, one that pays its people well and one that does not, I should tend toward the one that takes better care of its people, because those people will create more jobs with the money I give them than those who are not so secure.

This is why the middle class in America has been shrinking the last few decades: bigger corporations may be more efficient, but they vastly reduce the number of umbrellas, and that is bad for all of us.  "Too big to fail" is a phrase we've all heard, and it refers to a condition far beyond too few umbrellas.  It refers to umbrellas that are so large that if they break, other umbrellas will be unable to catch the bubbles and the economic convection engine breaks down.  We need to stop companies from ever getting close to being "too big to fail" and need to consider the detrimental effects of oligopolies in general and what we might do about them.

To recap, hiring people doesn't create jobs: PAYING people is what creates jobs and spending is what realizes them.  Fewer, larger umbrellas make a few people rich beyond their ability to spend it and truly create jobs, at the expense of good convection and jobs for the people who truly create them.