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Cash Rules Everything Around Me

Improvement in the jobs economy has yet to be seen. Businesses realize they can get away with hiring less employees and still make some very genuine profits. Obama’s new tax reform plan is to reduce payroll taxes, which puts money directly in company’s pockets, a very Republican solution. He estimates that this will “add 2 million additional net jobs in 2012 and bring the unemployment rate to about 8% by election time next year, down from 9% if there was no policy change” (LA Times).

If there’s anything you should have learned ever, it should be that everything is driven by supply and demand. If you were the CEO of a self-sustaining company that generates enough cash to pay for your (lavish) lifestyle, would you hire more employees? Only if there was a greater demand for your product, and you could meet that demand by hiring more employees.

I would say that several companies are satisfied with their position, or amidst a rebuild that will only fail with further spending and hiring new employees (HPQ). Sales are driven by consumers and they are easily influenced by the news; positive economic news spurs spending. Obama’s plan gives money directly to consumers, but why would they spend now with their crashed 401ks and low job security? Without consumer spending, there isn’t a greater product demand, and thus no need to hire more employees.

Cash directly in the hands of the companies leads to similar results because of the circularity of the economy. Low product demand yields no need for new employees.

NPR this morning featured Secretary Geithner touting his idea of “spend now, save later.” Please, at least give us a credible method. We all know:

More on this later.

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