Friday, September 7, 2012

Lower Taxes Means The Same Number Of Jobs

One of the GOP's core principles is that lower taxes means more jobs.  They make this claim repeatedly and without any evidence.  They try to use the words 'job creators' when discussing the wealth, despite the fact that majority of wealthy do not create jobs, (at least not in America), they often destroy them by outsourcing.

This principle is based on the assumption that if you pay people more, they do a better job.  It's not that hard to understand, and most people believe it to be true.  In fact is true for most of human history for most jobs.   The entire reason why communism failed is that they did not understand that most people do most jobs better if they are paid extra for better work.  The core jobs you need to maintain a civilization all get more done if you offer real rewards for hard work.

But not for all jobs.  If you offer more rewards and bonus pay for certain jobs, you get worse results.

I know what you are thinking - that crazy liberal does not know what he is talking about.  Well, I didn't come up with it.  The Federal Reserve Bank of the United States and the London School of Economics did.

I heard it from Dan Pink.  You can read more about this  best selling author and reluctant graduate of Law school here (personal web page).  He explains it quite well in this TED Talk.   If you have some time, I suggest you watch it. But I'm going to hit the high points of his talk and expand on it.

The studies by the Federal Reserve Bank and the London School of Economics found that for many of the best jobs paying people a reward or bonus fails to get them to work harder.  It's not that hard to understand.

Work can easily be divided into two forms*:
  1. Effort Work
  2. Creative Work 
*Note, this are generalizations - most jobs contain a mix of both types of work - but one predominates.
Effort work is anything where direct effort increases results.  If you dig a ditch, build a building, cut diamonds, clean a house, repair a car, etc. you are doing 'effort work'.  The more effort you put in, the more work you get done and/or the better quality.    The key thing here is there is a direct connection between effort and the result.  If you do more work, you get more done.  

Financial incentives do wonders for effort work. 

But creative work is different.  Working harder does not get more done for creative work.  Sometimes, the best work takes the least effort and sometimes more effort and work destroy the product.  Compare how well a movie with one script writer does to one with 20 script writers.  They put all that extra effort in and the end result is to turn an OK script into a horrible one.
I am a writer, it is one of the most creative work around.   Putting in more time does not always give me more writing, and it definitely does not give me better writing.   Why?  Because most of what you write is crap.  It needs to be edited, re-done, thrown out and restarted, re-examined.  Then when it is all done, it still doesn't matter.   Then sometimes I will come up with a brilliant idea and it just flows out of me as if God on high is using me to send a message to the world.  My best work takes less time and effort, not more. 

The point is, you can not beat, let alone join the ranks of Shakespeare, Twain,  Kipling, Heinlein, Hemingway, Tolstoy,  Virgil, Homer, Ovid, Orwell, Cervantes, Tolkien, Dante, and Kafka simply by buckling down and working harder.

In addition, we don't write for money.  No one does - the odds of making money writing are so low it is ridiculous.  Too many people willing to do it for free.   For example, this website is free.  The few things I have published (magazine article, etc) paid practically nothing.  Also, making it big has as much to do with luck as skill.  If the right person reads this blog and likes it, it could be turned into a column.  If not, it stays undiscovered.

Financial rewards work very well - for straightforward solutions.  Digging a ditch is a straightforward problem.  If you pay the guy more he can do it faster or better (don't expect both - it can be done, but it's a more creative event).   I write this blog because I NEED to tell the world these things.  If I didn't have paper or computers I would be expounding on them to all my friends and family, driving them insane with a constant talk about politics.  Some posts no one reads - but that's OK - someday, thousands of years from now, a historian will find and marvel at my prose...)

Does that mean I don't want money?  No.  I do.  If I was paid for writing, I could write more - but mainly because I could quit my day job and have more time to write.  But it's not my only motivation, nor even the most important one.  Why not? Well, creativity is undependable.  You can't rely on it.  So if you need money you must find other sources for it.  Your money related needs have to get met outside of creativity.

Financial rewards don't help creative work.  The harder you try to be creative, the less creative you become.   You end up putting out the same old junk.  To be creative, you must play.  You must look at thousand other things not related to the issue and just maybe one of those random things will trigger an idea.  You need to familiarize yourself with the problem, then, while keeping it in the back of your mind, just go out and explore the world.  You can't do that if in the back of your mind there is a voice saying "If I do a good job I will be able to afford that car that is also a boat."  Creativity is not about working harder, it's about relaxing and thinking about everything else.  This lets you make new and strange connections.

Paying people for success simply does not work with creative jobs.  In fact, I would suggest doing the opposite.  If I wanted to get a lot of creative ideas out of some employees, I would not pay them for the best one.  Instead I would pay a small reward for the craziest idea.  This would free people up to think 'outside the box'. (Note I consider that cliche to be almost an oxymoron because using it is now about as 'inside the box' as you can get.)  But I would not use the craziest one.  I would ignore them and re-work the best idea into something I could use. 

So the question is what kind of work is job creation.  Is it effort work, where there is a direct connection?  Or creative work where there isn't?  Running your own business is definitely effort work.  You need to work your a$$ off, twenty-four seven.  The more effort you put in, the better a result.  But creating jobs is different from running your business - you can do either without doing the other.

Merely working hard either:

  1. Steals employees from other businesses.  By doing it better than your competition you steal their sales and having to hire new people to handle the sales - but they have to fire people because they lost the sales.
  2. Destroys one or more jobs because you yourself are doing the same work of several people
  3. Destroys one or more jobs by doing more efficient work, so less employees are needed.
To actually create new jobs rather than redistribute them from other companies requires you to either:

  1. Creates a new product, thereby creating new demand and new sales that didn't exist before.
  2. Engage in creative marketing that increases sales of an existing product rather than merely steal your competitor's clients. Also know as an Advertising Campaign.  It helps if you come up with new uses for your product/service, but that isn't as important as the Advertising.
  3. Convince people your product is worth more money - and pay some extra employees with the extra cash - presumably for making a better product.  Think Starbucks vs diner coffee. Again, this requires an Advertising Campaign and again, you don't actually need to make it higher quality - remember Starbucks.

Creating new jobs is clearly "Creative Work". That's why it's called 'creating new jobs', as opposed to 'efforting new jobs'. If it were effort work, it would be done already.  George Bush, or Obama would buckle down (or hire someone to buckle down), and create 10 million jobs.

This means that higher rewards, aka less taxes, will not create more new jobs.   Not if you pay a government employee to create jobs, not if you give the 'job creators' tax incentives, not if you pay them directly for each new job.  It simply does not work that way.   Creative work can not be increased by financial rewards, at least not according to London School of Economics.

Of course, taxes and other penalties can kill jobs.   But generally only if the taxes and penalties are incredibly onerous.   Once your taxes and penalties are reasonable, then lowering them more will not give you more jobs.  The United States is already at that point.   Other places may need to eliminate onerous taxes and penalties, but not the USA.   We can even increase taxes a small amount - say 3%.

Because if more pay meant more jobs, we would already have paid the price.

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