Who are the nation's job ceators?

So here is the next question I was posed with for my blog:

"The rich: benevolent job creators or slimy money grubbers?"

The problem is unless you are fanatic disciple of Karl Marx or Ronald Reagan it is hard to answer that question.

Though the question is clearly tongue and cheek it does touch on a political mindset in this country, even if it is exaggerated. As the conservative and liberal protests over the past few years have shown, there is a great deal of anger and suspicion when it comes to economic, and particularly tax policies, in the United State.  But this debate is nothing new.

Here is a fun quote:

“There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.

Can you guess who said it and when? It was William Jennings Bryan Democratic Congressman in1896. Fun fact he later became the Secretary of State under Woodrow Wilson.

Lets have some fun with the quote (I changed the bolded parts):

“There are two ideas of government. There are those who believe that if you just pass laws to make the rich richer, that their prosperity will trickle down to everyone else. The Democratic idea has been that if you pass laws to make the middle class prosperous their prosperity will prosper the whole nation.”

There, with just a few changes to modernize the language I just became a speechwriter for the Democratic Presidential campaign.

So the argument is an old an ongoing one. One side says the poor needlessly suffer because the rich have no other concern other than to accumulate wealth. The other side accuses the poor looking for a free ride. To support these accusations both sides hunt down anecdotal examples, which is not difficult, because there is no shortage of greedy or lazy people on this earth. These stories get recycled in the media and by word of mouth until visions of welfare queens and tax cheating fat cats dance in our heads.

These stereotypes get so ingrained in our thinking that our political arguments are commonly couched in the context of discussing the behavior and actions of the “rich” and the “poor.” But such descriptions have one severe flaw. We do not live in 19th century English romance novel. The rich are not all Gentlemen landowners and the poor are not all landless laborers. The rich and the poor of this nation come from wide variety social backgrounds, cultures, religions, ethnicities and occupations. In the absence of any metrics to categorize them other than their net worth, it is silly to say that the rich, or the poor for that matter, behave as a uniform social group.

What is important to realize is that basic behavior of both the poor and the rich is identical to one another, and it is summed up quite well by every economist’s favorite Scotsman.

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

- Adam Smith, Wealth of Nations

When all the ideological bunting is stripped away, both low-income wage earners and wealthy business owners and everyone in between are acting with the same motivation. Nobody, rich or poor, goes to working thinking "I am so happy that I can earn money and contribute to the gross national product."

Even motivations aside, politicians try to paint an economic picture of one group or another as being the foundation of our economy it is simply pandering for votes (in the case of the lower income groups who have more numbers) or money (in the case of the wealthy who donate more to campaigns). Saying that the middle class, the wealthy, or any other group is more important to economic growth it is like saying that sugar is more important than lemons when making lemonade. A modern national economy is a complex thing with a lot of moving parts and to use the biblical expression “the eye cannot say unto the hand, I have no need of thee.”

But it is worth looking into who are the people doing the hiring and creating jobs. Lets move from fluffy behavioral study to some hard numbers see what they show us.

In 2007 (The most recent year the government has published complete figures regarding business in America) there were 27,757,676 businesses operating in the United States and 120,604,265 people living in the United States working for a private employer (aka The Man)*. Of the 27,757,676 businesses in the United States 21,708,021 did not employ anyone but the owners. (It is also noteworthy that the vast majority of these businesses are side business, or failed startups, and do not produce a livable wages for their owners and make very little money. The average businesses with no employees only grossed $4,568.78 for the whole year of 2007).

So that means that all the people who worked for a private company in the US worked for one of 6,049,655 different businesses. Of theses businesses 99.697% (6,031,344) are classified as “Small businesses” by the government. Meaning they employ less than 500 people each. These small businesses employed 59,866,924 people with an average salary of $36,828.97 per employee.

The remaining 0.3026% of all businesses that employ people employed everyone else, or 60,737,341 people (or 50.36% of all US workers employed in the private sector.) and provided an average salary of $46,461.37 per employee.

So what stands out here? First a relatively small number (18,311) of businesses supplies a hugely disproportionately about half of the jobs in this country. Also large businesses pay their employees higher salaries, or at the very least provide more high salary positions. 

This data seems to support the theory of job creation is primary done by the rich, as it is a fair assumption that the people who own and run those 18,311 businesses that provide over half the private sector jobs in the country would be very wealthy.

But not so fast, businesses are not money factories that just generate wages. All businesses have to offer some form of product or service. Businesses do not operate in a vacuum, they need customers. If customers are not buying goods and services, then businesses do not make money, and businesses that do not make money do not hire people.

So who are the customers? Again we turn to the numbers. (All these numbers are from 2010 as that is the most recent year the government has published finalized figures regarding consumer spending. Please note that all data was rounded to the nearest 1000 by the Department of Labor so there will be some anomalies in the data but the general numbers are close enough to prove the point.)

In 2010 there were 129,107,000 households in the US and they spent a total of  $5,843,867,781,000 that year. Out of these households, 6.3% made more than $150,000 in one year. These are the Rich and they account for about 17.1% of consumer spending. 

So overall 82.9% of are nations consumer spending is done by people who make less than $150,000 annually. The lion’s share was made up by the middle class (people with annual household annual incomes under $70,000 but over $20,000) and the upper middle class (people with annual household incomes between $70,000 and $150,000) who made up 72.9% of all consumer spending. The poor (households who make less than $20,000 a year) have the lowest number overall at 9.7% of consumer spending

So here we hit up against a major flaw in the idea that the rich are the nations job creators. For an economy to thrive you need a two halves working together. You need people who provide goods and services (producers) and you need people who pay for those goods and services (consumers). As long as things are in balance every one is happy. But if the balance gets thrown off prices can shoot up or down rapidly and that causes all sorts of problems and ultimately people start losing their jobs, which often exasperates the problem further.

But there is one more factor to consider, investment. It is true that not all wealthy people are involved in the 18,311 businesses that most of the country works for. But they are the primary investors in this country. A frequent argument for taxes breaks for the rich is that their help expand and start new business by providing start up and growth capital. According to the IRS in 2008 (again the most recent numbers I could find), US taxpayers who made less than $200,000 annually made $49,402,739,000 in income from investments. People who made more than $200,000 annually made $426,387,691,000. So the rich almost invest ten times as much as everyone else. So they are a huge contributing force for business growth. However, there are a few hiccups here. First of all, the income made from stocks is not necessarily the same a investing. A lot of CEOs are paid with stock options as opposed to a salary. So their acquiring of stock is less of an investment and more of a payment. Also, companies can use investment to fund start up costs and expansion. They cannot rely on investment for long-term growth, the type of growth need to support increased hiring with stable employment. If you do not believe me ask anyone who worked for Pets.com or ENRON.

So to answer the question of whether or not the rich are the nations jobs creators the answer is yes, no and sort of. The vast majority of people in the US are employed by large companies, which in turn are owned and operated by wealthy people, so the answer is yes. But these large companies could not operate without a customer base, which is both numerically and monetarily dominated by the middle class and the upper middle class, so the answer is no. But the rich provide the vast majority of investment capital which business rely one to start up and grow. However, a business cannot remain solvent (i.e. be able to continue to employ people) by relying on primarily on investment and will need to rely on consumers sooner or later, so the answer is sort of.

*In case your wondering 22,376,000 Government Employees that break down in the following way:

17,412,047 Work for the Department of Defense (including Civilian Employees)

10,906,292 Work for the Local Governments (Cites and Counties)

3,775,705 Work for the State Governments

2,730,050 Work for the Federal Government (Non-Department of Defense jobs)

 

Michael Knows Best: Voter ID's

Note: When I say “Democrats” or “Republicans” I am not referring to people identify with values of these parties, registered members, or even necessarily elected officials. I am referring to primarily to the Party structure itself, meaning Party leaders, campaign staff and Party spokesmen and strategists.

If you look in any dictionary you will find a number of definitions for the word politics. All of which are accurate in the right context. According to Merriam-Webster they are as follows:

1.         a. The art or science of government

b. The art or science concerned with guiding or influencing governmental policy

c. The art or science concerned with winning and holding control over a  government

2.         Political actions, practices, or policies

3.         a.  Political affairs or business; especially : competition between competing interest groups or individuals for power and leadership (as in a government)

b. Political life especially as a principal activity or profession

c. Political activities characterized by artful and often dishonest practices

4.         The political opinions or sympathies of a person

5.         a. The total complex of relations between people living in society

b. Relations or conduct in a particular area of experience especially as seen or

dealt with from a political point of view <office politics> <ethnic politics>

In the context of dealing with the current debate on the requirement of photo identification the best definition of politics to use would be 3a with a little bit of 3c thrown in there.

For those of you unfamiliar with the debate, here is a brief summery. Most (but not all) states require you to present some form of ID when you vote. Some states require the ID to be a photo ID (like a passport or divers license) other states do not need a photo on the ID (so you can use a voter registration card or a Social Security card).

A few states recently passed or are process of trying to pass a law that requires photo ID when you vote. As the conflict has expanded, the Department of Justice has gotten involved and there are a number of court cases pending on the subject.

 So what is all the fuss about? Pro photo ID proponents argue that such measures are needed to prevent voter fraud (i.e. people voting who are not citizens, not registered to vote or (in some States) convictive felons). People opposed to the photo ID say that it places an undue restriction on voting and disproportionately affects poor, elderly and minority voters. Studies show that about 10 percent of the adult population does not have any form of photo ID and that this 10 percent is predominantly poor, elderly and/or a minority. This is because the most common form of government photo ID is a driver’s license and these groups at have a higher percentage of people who do not have a current one because: they cannot afford a car (the poor), are not able to drive (the elderly), or live in densely urban areas and rely on mass transit (many minority groups).

 To make matters even stickier, the political parties have drawn battle lines on the topic. Republicans stanchly support the requirement for voter photo ID and the Democrats vehemently oppose this.

 So the accusations start to fly. Democrats accuse the Republicans of trying to disenfranchise poor and minority voters, and this is all part of their plan to build white supremacist plutocracy on the backs of the 99 percent. On the other side, the Republicans charge Democrats with trying to steal power by manipulating elections though fraud with their armies of illegal immigrants and former felons. Sadly I am only mildly exaggerating to make my point.

The problem is that the whole debate is rooted in unsubstantiated fears and mutual distrust of the opposition but if one looks at the facts it because clear that the entire debate is actually a huge waste of breath.

On the surface both sides seem to have legitimate concerns. No reasonable person likes the idea of voter fraud and no reasonable person wants to hinder someone’s legal right to vote.

The problem is, neither is happening.

 For all the fear of voter fraud it is more or less a non-existent crime. A report from the Department of Justice noted that from October 2002 to September 2005 showed there were 95 accusations of voter fraud in the US. But out of those 95 only 26 were cases that involved an individual voter and only 8 of those accused were actually found guilty of a crime. To top it off only two were actually cases of people who voted who were ineligible to vote or under a false name. So in three years, nation wide, there were two confirmed cases where requiring photo ID may have prevented fraud.

To put that in perspective 12,996 people were murdered in the US in 2010. So it appears that the average American is much more likely to kill another person than to commit voter fraud (comforting huh?). Additionally, here is a fun fact the majority of voter fraud is not committed by voters. Though only two voters were convicted of voter fraud from 2002 to 2005, eleven Party, Campaign, Government or Election workers were convicted of voter fraud in that same time period. An issue that voter IDs would not fix.

But wait! I am sure that some of you are not convinced. Certainly there is more voter fraud than that (I can feel it in my bones!). We are just not looking hard enough, right? Nope, we did look and we hardly found any. The State of Texas (one of the States pushing for Photo IDs) Attorney General’s Office launched a voter fraud task force in 2002. To date there has been 57 accusations and 26 convictions. That averages to less than three cases of fraud per year. Another fun fact, there were 98 justifiable homicides in Texas in 2010. So if you live in Texas you significantly more likely to have to defend yourself with deadly forces then to have you election rigged by fraudulent voters. (To be fair the violent crime rate in Texas is just not much higher than the national average. It is a fine place to live by all accounts)

To, 26 convictions in 10 years. Consider that one of the closest statewide elections in US history, the Florida Bush-Gore presidential election, was won by 537 votes. It is unlikely that the amount of voter fraud in the country has any discernable effect on election outcomes.

But wait! There is plenty of wrong to spread around here and it is not just the Republicans who are the culprits of ignoring the data. Democrats have labeled this part of the “Republican’s War on Voters” (can we have a political debate in the country without it becoming a war? But I digress). Democrats argue the lack of any substantial evidence of significant voter fraud clearly shows that Republicans are trying to suppress the minority and low-income vote. But if that were so, they found a really stupid way of doing it.

There has been some evidence to show that voter turn out among the minority and low-income votes has gone down after States have passed photo ID laws. But these studies have not shown any significant drop that could not be explained by year-to-year fluctuation in voter turn out (numbers have varied from study to study in some cases it even rose). So correlation is not necessarily causation. Some researchers say that the even if the dip is due to the photo ID laws it is more attributable to a “learning curve” (voters who were unaware of the law change when election day came and did not have time to get a photo ID). But the preceding elections show no discernable long-term dip in minority voter participation, as regular voters were able to acquire photo IDs by the next election cycle. So if this is a plot in is all part of an extremely short term, and extremely ineffective, plan.

So that is the problem in a nutshell. Same old war on new battlefield.  Both sides are wanting to demonize the other in order to swing independent voters and both sides want to appeal to a segment of their voter base. In the case of the Republicans, they are appealing to their older white constituents who have concerns about illegal immigration and conversely, the Democrats want to drum up support among minorities, traditionally a loyal voter base for Democrats.

So I know what you are thinking. Well mister smarty pants, what do you think should be done? First of all I think that this argument almost borders on a non-issue but this is a classic case of political brinkmanship. The Republicans started getting behind this in 2002, and even though the evidence has not shown that there is much of a problem to solve, it remains a popular issue with Republican, Independent and even some Democratic voters. So they press on.  For the Democrats, this is a perfect target for them, they have nothing to lose. If they force the Republicans to back down it makes them look good, and if can’t get them to back down it won’t really hurt them in an election. But it does give them a Cause Célèbre that they can use as ammunition against the Republicans. Sadly a compromise is out of the question because if the Republicans back down they will look weak and if a deal is worked out the Democrats can only claim a minor victory, witch will be soon forgotten and is not nearly as useful as a debate that rages in the headlines for months if not years.

A comprise on the other hand, would not only be simple, it would easy (and popular) to hammer out. Let’s face facts. Even though there is little evidence it would prevent fraud, it is not unreasonable to require a photo ID to vote. It seems silly that I might be ask to produce photo ID to buy two bottles of cough medicine at a time, but not to vote.

But that being said it is not a crime to not to own photo ID and it should not be a bar to voting without giving people a chance to get one. It is also possible that there are unique situation for some voters (mobility issues, work schedules or extreme poverty) that make it difficult for some voters to get to a DMV or other government facility to get a photo ID.

So here is what we do. Remember when we switched form analogue to digital TV? Do you know how long broadcasters where given to make the switch? The law was enacted mandating switch on October 20, 2005 and they were given to June 12, 2009 to compete it. On top of that for months and months the FCC had a campaign informing people of the switch and rebates were sent out so people could buy converter boxes. It is not that hard of a jump to do something similar with voter IDs. I think that most people would agree that voting is more important that TV clarity. All we need is to provide a sufficient transition time, and to prevent a political arguments ensure that the transition time will not until after then next election cycle (Sorry Texas but 9 months before a presidential election is going to raise some eyebrows). I would say that 18 months prior to the election requiring photo ID would be sufficient. Additionally, launch a public service campaign during the 18-month transition period to inform voters of the change and provide a free “Photo Voter IDs” at DMV offices and county court houses. During the transition period, set-up the local polling locations during the intermittent elections, and the election where the change takes place, to provide the Voter Photo IDs.

There, the problem solved. No muss no fuss. Republicans get their Photo ID requirements and the Democrats get reasonable accommodations that allow all voters to make the transition. As I said before, this is not really a vital issue, but if setting it gets the nation’s politicians to move on to more worthwhile issues then putting the issue to rest would have some benefit.

Sources:

www.FEC.gov

www.FCC.gov

www.FBI.gov

www.census.gov

www.nytimes.com

www.Polifact.com

Fearing Fear Itself: Photo Identification Laws, Fear of Fraud, and the Fundamental Right to Vote

       Heller, Joel A.Vanderbilt Law Review 62. 6 (Nov 2009): 1871-1911.

 
Does the Texas Voter ID Law Discriminate Against Blacks, Hispanics?

       Ramirez, Rosa.National Journal (Jul 16, 2012).

Evidence of Voter Fraud and the Impact that Regulations to Reduce Fraud have on Voter

       Participation Rates. John R. Lott Jr., Social Science Electronic Publishing, Inc (August 21, 2006)