Re: Uli Behringer of The Music Group Q&A
Workers having jobs, so they have a income to spend on goods and services are what makes for more business investment. Without customers there is no need for businesses. It continues to amaze me that folks think that commerce can happen without demand for goods and services.
Supply and demand are related, as in demand will drive supply. More demand than supply will cause increased prices and those higher prices will attract new investment to make more supply.Too little demand will cause prices to drop, and repel investment to pursue other more profitable ventures. Jobs a re just a side effect of commerce, but as industries mature, workers get engineered out, so job creation is stronger in new industries.
Sustained demand is not something that you can create with short term artificial support. As expected the short term government stimulus ran it's course and now a few years later we're back to life without the stimulus tail wind, but an increased public debt to pay back. Priming the pump only helps get the pump started, it can't put water in the well that isn't there.
Business investment is motivated by the promise of profit or return on that investment. Uli invested in his factory and X32 development program, because he expects to get even more money back in profit (he will).
Capitalism creates new wealth by taking raw materials (like the components that Uli buys), and makes them worth more to the market, by configuring them into a digital console that customers are willing to pay even more for than the parts cost. That difference is "wealth" that Uli created, from thin air. The customers are happy, because they get a product that delivers good value for the money. That is the win-win of capitalism at it's best. The customer gets good value for his money, and Uli gets a nice return on his investment.
Yes Uli is creating wealth for himself, but a positive side effect of that pursuit of profit is that he pays many employees to help him create that added value, that his customers pay even more for. So these employees literally share in the wealth that he created.
If we want more jobs we need to get out of the way of businessmen so they can do what they do naturally, invest in profitable enterprises. Right now business is paralyzed by uncertainty about future costs and regulations, so the last thing they are going to do is make risky investments in the near future.
I predict one way or the other, for better or worse, we will have more certainty about the near future after just a few more weeks, and those left standing will address the most pressing legislative issues.
Of course I could be wrong...
JR
[edit- for an interesting example of what can happen when the government planners put their thumb on the scale and mess with true market demand, look at the solar electricity panel industry. For years that market demand was inflated by tax breaks and other government incentives, in Europe and US. While the western politicians pontificated about how they were creating "green" jobs and investing in the future, China responded to the apparent demand that looked real enough to them and invested into expanding manufacturing capacity. Europe ran out of money to maintain the high levels of subsidies so tapered them off, reducing the artificial demand. Simple supply and demand then causes prices to fall as there was too much capacity for the real demand. The price dropped so much that many western makers went out of business first, but even the Chinese are losing money these days. Right now the Chinese solar industry is limping along on government backed bank loans but that can't go on forever.
The chicken/egg thing with solar power is getting the cost low enough to be competitive and create manufacturing economy of scale. If the cost was low and the volume high enough it "should" be able to sustain itself. This could happen in several ways, either innovation and research figures out how to make them a lot cheaper, or the cost of electricity rises so high that they become viable in comparison. Unfortunately recent developments in the energy patch have thwarted getting the electricity prices high enough for the solar industry to prosper unaided. Even after pretty much shutting down any new coal fired electricity generation, and almost stopping nuclear development, they didn't count on the discovery of so much natural gas (on private land so harder to interfere with). Note: California has mandated that a fraction of electricity purchased there be from renewable sources, creating more false demand. The consumer pays with higher electricity bills.
My crystal ball shows solar electricity generation being useful in the future, just not quite yet. I think Pres Carter put solar collectors on the WH roof (hot water). Pres Reagan removed them. Both events were just politics, so solar is back up there in 2010, yawn. Solar hot water can be cost effective, solar electric someday but I don't know when. [/edit]
