Thursday, July 12, 2012

Econ 101: It's the Demand, Stupid!

This is not a hard problem to work out.

Recently I went to a well-known restaurant in Evanston, Illinois. This restaurant has a reputation for providing excellent food and service. But the night I was there, it was less than half full. I asked the manager if he would he hire more waiters and chefs if his taxes were reduced and/or government removed the existing regulations controlling the way his restaurant could operate. His answer was that even if his taxes were reduced and regulations eliminated, he would only hire more staff if more customers came in for dinner. On the other hand, if there were twice as many customers for dinners than there were on this night (and there were many more customers before the recession began in 2007) he would gladly double the number of workers he employed even if his taxes were not reduced or regulations changed. 
That’s how things work in the Real World. This simple case illustrates clearly that entrepreneurs will have confidence to expand and hire more workers only if they find the market demand for their products and services strong and growing.
Demand.  It's all about demand.  When conservatives tell you it's a lack of business confidence, too much regulation, too much taxation, they're lying.  Worse yet, they know very well that they're lying.  They just don't care.

If the federal government were to let contracts for at least $1 trillion to private enterprise to rebuild failing highways, bridges, municipal water and sewage systems, and provide resources for our shrinking public and higher education systems, the entrepreneurial expectations of continuously ringing cash registers as firms are awarded these government contracts would quickly restore entrepreneur’ial confidence. The profit opportunities made available by this large government spending program would encourage firms to hire more workers and buy materials needed from other US firms. 
The number of unemployed workers would shrink substantially. When these newly hired workers go out and spend their wages to rebuild their households and lives, the confidence of US retailers would immediately surge as these additional customers were breaking down the doors to get at the merchandise on the shelves.

1 comment:

  1. It works because most people were never taught even basic economics, or if they were, they've forgotten. Supply, demand, price.

    Even if there's a business whose owners believe there is pent-up or unending demand for their product, we can also ask why it's government's job to place a bet that they're correct.

    "If you're so smart, how come you ain't rich?"