"Demand Is The Bottom Line"

Demand is the bottom line. I'll hire more people when there is more demand for my product. - New Jersey small business owner

I spent some time yesterday with a small business owner in New Jersey and I asked him about the different tax incentive proposals being bandied about by the Obama Administration. His reaction? He'll take the the extra money but it won't spur him to hire workers or make capital investments. What will? He said "demand is the bottom line. When demand for my product goes up, then I'll increase capacity, by hiring or making capital investments."

This sentiment echoes the expressions of former Bush Treasury Secretary and Alcoa chairman Paul O'Neill ("I had a rule when I was in the private sector for 25 years, including 13 running Alcoa, and that is, don't hire people unless you have somebody demanding goods that you can't produce with the people you already have.") Robert Reich makes a similar point:

The reason businesses arenít investing in new plant and equipment has nothing to do with the cost of capital. Itís because they donít need the additional capacity. There isnít enough demand for their goods and services to justify it. Consumers arenít buying because theyíre trying to come out from under a huge debt load, including mortgage debt; they have to start saving because their nest eggs are worth substantially less; and theyíve lost or are worried about losing jobs and pay.

Failing to concentrate with laser like focus on the best demand stimulus initiatives has been the failure of the Obama Administration and Democrats from the beginning. These latest proposals are merely the sad last chapters before the political deluge of November.

Speaking for me only

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    Tax cuts! (5.00 / 4) (#4)
    by waldenpond on Tue Sep 07, 2010 at 09:19:13 AM EST
    Why don't you believe the philosophy that if you cut taxes low enough, they will hire out of the goodness of their hearts because they know it's the right thing to do?

    Well, if you cut taxes low enough, they can afford a third home and they will need to hire a part-time landscaper and a part-time house cleaner.  Serfish industry job growth.

    We will survive having a faux Dem in the WH determined to govern like the failed Repubs before him.  All hail king Ronnie.

    First, I think it is (5.00 / 1) (#5)
    by JamesTX on Tue Sep 07, 2010 at 09:19:47 AM EST
    important to define terms when discussing what benefits will accrue and to whom. We hear a lot lately about "small business" again, and it is being used as a major chip in rationalizing who to vote for.

    The problem is, when most voters hear "small business", they think of the local pest control service, the "Mom & Pop" store (if there are any anymore), or even the little indie pizza place or sandwich shop. When this term was being bandied about several years ago by Republicans, they capitalized on the large scale ignorance of the fact that a "small business" was something on the range of a $5 million operation in those days, and it would probably be $10 million today, or more.

    When Bush the elder made a show of visiting a "small business" in Texas, the choice was semiconductor operation that "Mom & Pop" wouldn't know what their product was even for, or who would buy it -- nor could they begin to show the investment needed to establish it. The assets of this "small business" were clearly the stuff of the well-to-do.

    Of course, the people who run these types of businesses are not only shrewd and financially nimble, but they have crack professional help in planning their financial strategies. They are going to get the most of any tax credits or other benefits with a minimum of investment in the society -- workers.

    This is all about getting trickled on again. Where they trickled on us before is drying up now and beginning to really stink.

    The mortgage crisis is the root of it all (5.00 / 2) (#11)
    by ruffian on Tue Sep 07, 2010 at 09:43:59 AM EST
    and it has been treated like a sideshow by this administration. That is where the laser-like focus needed to be.

    But real help there would not please the bankers, so here we are.

    The mortgage crisis... (5.00 / 1) (#26)
    by Romberry on Tue Sep 07, 2010 at 06:52:29 PM EST
    ...is a symptom, not the cause.

    Alternative take (5.00 / 3) (#12)
    by robotalk on Tue Sep 07, 2010 at 09:49:18 AM EST
    the private sector won't pull us out of this.  The level of personal debt is too high to create the kind of demand that existed before the crash.  Those days are over.  That approach is so much reinflation of the bubble.

    We need a public works and job training program that that cuts out the money making, debt driven middle man.

    It is time to cut our ties with all the post-Reagan false truths of the debt driven free market.

    demand, in a capitalist system, (5.00 / 3) (#22)
    by cpinva on Tue Sep 07, 2010 at 11:00:25 AM EST
    is always the issue. taxes are a negligible part of the overall equation, and always have been, in spite of the republican claims to the contrary.

    if there's little or no demand for your product or service, your marginal tax rate is pretty much irrelevant, because you're not going to be paying it anyway.

    we call this "econ 101".

    heh (2.67 / 3) (#16)
    by jimakaPPJ on Tue Sep 07, 2010 at 10:28:23 AM EST
    Well, I am cheered to see that we can all agree that the lack of demand is the main problem......

    And if demand came roaring back the other issues, to a degree, would fade.

    But everyone I know is expecting the Bush tax cuts to NOT be extended for ANYONE. That means everyone who pays FIT expects their taxes to increase. And the numbers who do not pay simply cannot increase demand because they do not have enough money.

    Tax credits don't work as we have seen in the new home purchaser program and the cash for clunkers fiasco. All that does is rearrange the deck chairs on the Obama Recession.

    Why not make the tax cuts permanent? And, when the economy recovers, then increase taxes on the "rich."

    Why not take cap and trade off the table? Why not say we are going to quit borrowing and remove the fear of government induced inflation?

    Why not put Obamacare on hold and start over, eliminating the fear that premiums won't be going out of sight for both businesses and individuals?

    And the answer is.....

    Because high taxes and command and control economics is the bedrock of the modern progressive Democrats. And they have control of the Executive and the Congress.

    And they are committing political suicide on themselves and economic disaster on the American taxpayer.

    Where have you been? (5.00 / 1) (#18)
    by Big Tent Democrat on Tue Sep 07, 2010 at 10:32:07 AM EST
    Are you going to pretend that I have been acting as if demand is not the issue?

    I see my sarcasm escaped you (none / 0) (#23)
    by jimakaPPJ on Tue Sep 07, 2010 at 01:01:35 PM EST
    What was it that you loved about the 2006 economy? (5.00 / 1) (#19)
    by ruffian on Tue Sep 07, 2010 at 10:39:55 AM EST
    The fact that all of the chickens had not come home to roost? Most of the jobs created in that were were defense and housing related. I suppose you could argue that tax cuts gave investors more money to inflate the real estate bubble and provide housing jobs. Is that what you want back?

    Well, with unemploment below 5% (2.00 / 2) (#24)
    by jimakaPPJ on Tue Sep 07, 2010 at 01:04:30 PM EST
    I would say none of the chickens had returned.

    And outside of a few people who were flipping houses the housing bubble was a created by credit extended where it shouldn't have been..

    How quickly they forget about the CRA.


    Ah, yes ... the CRA. The wingers ... (5.00 / 1) (#29)
    by Yman on Tue Sep 07, 2010 at 08:04:59 PM EST
    ... favorite bogeyman.  Always makes them feel better when they can point the finger of blame at those people.

    Of course, in reality, the CRA was not the cause of the financial meltdown.  Ignore the fact that they have zero empirical evidence to support this claim.  Nevermind that he vast majority of subprime loans were made by institutions not even subject to the CRA.  Pay no attention to the fact that the Federal Reserve found that the empirical research has not validated any relationship between the CRA and the 2008 financial crisis.  The FDIC Chair Sheila Bair pointed out that the majority of subprime loans originated from lenders not regulated by the CRA, calling it a "scapegoat" and declaring it "NOT guilty."  Ditto for a bazillion other experts in the field.

    But, hey ......

    ... it's a nice little, fairytale.  


    And cigarettes don't cause cancer (none / 0) (#33)
    by jimakaPPJ on Wed Sep 08, 2010 at 12:15:03 PM EST
    the CRA was not the cause of the financial meltdown.

    until years and years of use have passed.


    Uhhmmmm, ..... the CRA was passed ... (none / 0) (#35)
    by Yman on Wed Sep 08, 2010 at 03:58:21 PM EST
    ... years ago and the meltdown has already happened.  There is zero empirical evidence that the CRA caused the meltdown, so unless you're suggesting that the CRA will cause some future collapse, ...

    ... you really should try to figure out how an analogy works.


    If you didn't have some basic (none / 0) (#36)
    by jimakaPPJ on Wed Sep 08, 2010 at 04:51:03 PM EST
    knowledge of chemistry and physics you would never connect the bullet that kills the deer with the cartridge in the rifle.

    I mean there is no apparent connection beyond a bang and the dead deer.

    Must be magic.


    If you don't have some basic knowledge ... (none / 0) (#37)
    by Yman on Wed Sep 08, 2010 at 06:03:09 PM EST
    ... of logic and empirical data, you might connect two events merely by arguing that because they both happened, one caused the other, with nothing to back it up.  A favorite logical fallacy of the wingers.

    Too bad it's all too transparent when they can't come up with any evidence.


    Your argument is (none / 0) (#27)
    by reslez on Tue Sep 07, 2010 at 06:54:06 PM EST
    that cash for clunkers and the homebuyer tax credit did not work?

    According to the sales figures they worked exactly as intended -- car sales spiked in August 2009 and home purchases cratered as soon as the credit expired. By what criteria do you judge them a failure?

    Perhaps you mean they failed to produce economic growth. But all the other programs failed too. I detect a distinction without difference.


    Uh, the stated purpose was to (none / 0) (#34)
    by jimakaPPJ on Wed Sep 08, 2010 at 12:16:26 PM EST
    get the economy going, not simply sell cars and houses.

    Didn't work.


    Yup (none / 0) (#1)
    by andgarden on Tue Sep 07, 2010 at 08:43:39 AM EST

    Yes indeed (none / 0) (#2)
    by jimakaPPJ on Tue Sep 07, 2010 at 09:09:05 AM EST
    Could not agree more. In over 30 years, part as a "hiring manager," I never was allowed to increase headcount until it could be shown that the hires were needed to increase sales and profitability.

    And it was understood without saying that your head was on the block if you sold upper management a pig in a poke.

    So what we have here is a double edge sword. First we have the lack of demand.

    And secondly we see a great deal of uncertainty over taxes, both corporate and personal, followed by uncertainty over the cost of benefits (health care) and capped off with a fear that a cap and trade program will drastically increase the cost of energy and other raw materials at all levels.

    And there is another, let me call it a dagger, that business people feel aimed at their hearts.

    Inflation. More and more people are starting to be concerned that we will not be able to pay back the trillion or so that we have borrowed. A historic solution to that problem by governments is to inflate the currency.

    We live in scary times.

    Well gesh nothing like leaving out a close.. (none / 0) (#3)
    by jimakaPPJ on Tue Sep 07, 2010 at 09:12:55 AM EST
    The Democrats, and most here, see spending more money.

    That won't work here.

    Cut taxes, abandon cap and trade, stop spending and reform health care reform.

    That's what it will take.


    That's nonsense (5.00 / 8) (#6)
    by Big Tent Democrat on Tue Sep 07, 2010 at 09:29:43 AM EST
    paraphrasing Jim (5.00 / 5) (#10)
    by CST on Tue Sep 07, 2010 at 09:41:47 AM EST
    "the problem is demand, but in order to fix the problem, we need to help out the supply end"

    Your arguments do not add up.  Nothing you listed here will do anything to increase demand.


    So you are telling me that (none / 0) (#8)
    by ruffian on Tue Sep 07, 2010 at 09:34:48 AM EST
    businesses would won't hire even to meet increased demand (should it materialize) because of their fear of taxes and inflation?

    No, I didn't say that (none / 0) (#14)
    by jimakaPPJ on Tue Sep 07, 2010 at 10:08:18 AM EST
    I said that lack of demand is a huge and largest problem that is compounded by the other factors.

    But if demand were to pick up (none / 0) (#17)
    by ruffian on Tue Sep 07, 2010 at 10:30:14 AM EST
    and companies were selling widgets like there was no tomorrow...would they be feeling like going back to 2000 tax rates was a sword at their heart?

    The chief complaint (none / 0) (#25)
    by reslez on Tue Sep 07, 2010 at 06:49:19 PM EST
    Businesses like to moan about legislation and regulation because they have an actual chance of influencing the outcome. They don't b*tch about the economy as much because they have no control over it.

    How best to spur demand? (none / 0) (#7)
    by kdog on Tue Sep 07, 2010 at 09:30:47 AM EST
    Extra cash in hand for broked*cks....not millionaires, not employers, not corporations or shareholders...Joe and Jane Broked*ck.  Give them (err, let them keep more of their earned) cash and they will spend it.  Let a millionaire, an employer, a corporation keep more cash and it will sit in a bank.

    Best way to put cash in broked*ck hands?  Tax rebate checks like G-Dub's 6 hundo would help I think...or an income tax holiday for those under 50k or something like that.

    An example...I need a new pair of cleats for football but don't have the cash...I'll ride out another season with the old ones...and I have a feeling I won't be the only one rocking cleats with a hole in 'em down at the field next week...many in the same boat.

    Now you're sounding like Robert Reich (5.00 / 1) (#9)
    by ruffian on Tue Sep 07, 2010 at 09:38:32 AM EST
    Payroll tax holiday for those under 50k(? - may not be his exact figure), coupled with making those over 200k pay the payroll tax up to a certain level.

    However I fear that growing the economy from the ground up is never considered by the 'serious' people.


    That didn't work first go round (5.00 / 4) (#13)
    by cawaltz on Tue Sep 07, 2010 at 10:05:36 AM EST
    many banked the money instead of spending. That's why government spending is generally a stronger stimulator IMO than a tax cut or a blank check to Joe Consumer(who would likely use the money to pay down debt in this uncertain environment).

    Nope, any stimulus needs to be focused and targeted and while I think giving Joe or Jane taxpayer a check is smarter than giving Joe or Jane business a check I still don't think it'd do the trick at this point.


    We can get around that... (none / 0) (#15)
    by kdog on Tue Sep 07, 2010 at 10:16:30 AM EST
    by issuing pre-paid debit cards in lieu of cash...as much as it pains me to let the cc transaction outfits make a killing off of the deal, that would alleviate the concern of broked*cks using it to only pay down debt.  You can even make them expire in 90 days...spend it fast or lose it.

    Point taken though...an increasingly non-manufacturing economy based on over-consumption and instant gratification is not something I'd call sustainable...we're probably screwed no matter what we do, may as well let the broke get a bite of the last piece of pie and have some fun with new toys while we go down in flames.


    prepaid credit cards (none / 0) (#20)
    by cawaltz on Tue Sep 07, 2010 at 10:40:33 AM EST
    would be better than a check however, there is still no guarantee it would not be used to pay down existing debt rather than on consumer goods and services.

    I wish I could say I see our government innovating it's way out of it but I don't.

    The first stimulus should have been bigger. The government could have used health care as an opportunity for job creation. We should be looking at creating infrastructure that serves as an alternative to the petrol based culture we have now. Trade ought to be on the table. Instead the plan seems to be tax cuts and sending the message to Americans that we can continue as we have rather than telling them its time to adapt and change.


    Broked*cks... (5.00 / 1) (#21)
    by kdog on Tue Sep 07, 2010 at 10:48:23 AM EST
    are quite adept at adaptation and change...it's how we've survived a rigged economy so far with stagnant wages and ever increasing cost of living...we get creative.  Like how I will mend my cleats this week...with a piece of cloth, krazy glue, and tape:)

    It's the Masters of the Universe and their government co-conspirators that are married to this economic system of grift...not the broked*cks...we just go with the flow and adapt.


    It worked perfectly well (none / 0) (#28)
    by reslez on Tue Sep 07, 2010 at 07:03:16 PM EST
    if your goal is a solid foundation for future growth. It's hardly the tax credit's fault the middle class has so much debt to pay down -- it's the government's fault for not making the tax credit larger.

    Right now the middle class wants to save. (Paying down debt is a form of saving.) The government should help them. Once the middle class has accumulated the savings it needs, it will have disposable income to spend again.

    Devising some sort of Rube Goldberg stimulus with all sorts of conditions that force it to be spent on Jolly Ranchers and Cheez Whiz is not going to end the recession. This sort of scheme would only pull demand forward. Maybe your goal is to increase sales of Jolly Rangers and Cheez Whiz -- awesome, a "Spend It Now" debit card could do that. But the debt still needs to be paid. Savings levels still need to rise.


    All demand is not consumer demand (none / 0) (#30)
    by Politalkix on Tue Sep 07, 2010 at 08:34:49 PM EST
    in the US. Businesses can invest in America to produce industrial products for the domestic and export market even if we assume that U.S. consumer demand is weak. Brazil has not stopped manufacturing aircrafts, China and India have not stopped investing in infrastructure, S.Korea, Australia and a host of other countries are investing in their military capabilities and consumers in Pacific rim countries are in a position to buy product. Companies run by smart management boost their R&D spending during recessions to blow away their competitors once the economy improves.

    Demand? (none / 0) (#31)
    by BrassTacks on Wed Sep 08, 2010 at 12:27:17 AM EST
    If taxes are cut, won't people have more money to spend and thus create more demand for things?  
    I hear lots of businesses, and people, aren't going to spend a dime until they know how much their taxes are going to go up when the Bush tax cuts expire next year.  Does anyone know when Congress is going to decide?  

    You can eliminate (none / 0) (#32)
    by NYShooter on Wed Sep 08, 2010 at 07:27:40 AM EST
    taxes altogether and it won't spur demand.......if you don't know if you're going to have a job tomorrow.