Consumer sovereignty is the idea that in markets consumers call the shots. In capitalism, most mass production is indeed for the masses, and the masses have a big say in what gets done. All profits and wages of successful businesses come from consumers.
But don’t take this too far.
Consumers don’t “create jobs,” for example.
Recently, Clinton-era Labor Secretary Robert Reich has been floating this bizarre notion. To his Facebook audience, last month, he wrote that it is a myth that “the ‘job creators’ are CEOs, corporations, and the rich, whose taxes must be low in order to induce them to create more jobs.
Rubbish. The real job creators are the vast middle class and the poor, whose spending induces businesses to create jobs. That is why raising the minimum wage, extending overtime protection, enlarging the Earned Income Tax Credit, and reducing middle-class taxes are all necessary.”
So, we have people in roles of “producers” and “consumers,” and it is the consumers who “create jobs”? And they do this by “inducing” businesses to, wait, uh, “create jobs”?
Face it: businesses create jobs — out of capital from somebody’s invested savings. Entrepreneurs brace themselves to take big risks, fronting workers’ wages as well as hiring and purchasing capital goods and material.
Before a penny is spent by consumers.
Only when entrepreneurs guess right does the flow of money come full circle.
Reich repeated his quasi-Keynesian rap yesterday: it’s spending consumers who “get businesses to expand and hire.”
Truth is, Reich doesn’t “get” basic economics. But he does understand political equations, which is why folks on the Democratic left think he’s a genius.
This is Common Sense. I’m Paul Jacob.
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