The Main Problem With Jobs Growth Is Lack Of Demand, Not Taxes

Wall Street Journal editor and frequent Fox News guest Steve Moore claimed that concerns over a scheduled expiration of tax cuts is “the whole problem with the U.S. economy right now.” In fact, economic experts say that a lack of demand for goods and services is the main factor dragging down jobs growth, and several recent surveys of small business owners show that lack of demand is their main concern.

Steve Moore: Taxes Are “The Whole Problem” With The Economy

WSJ's Steve Moore: Taxes Are “The Whole Problem With The U.S. Economy Right Now.” On Fox News, Wall Street Journal editor Steve Moore said that raising “capital gains taxes, dividend taxes, I think would just hold back business expansion.” He later added that “the higher the taxes are, the less incentives there is for business to expand, for workers to work. I mean, this is the whole problem with the U.S. economy right now.” Moore also advised Obama that “to put some juice in this economy,” he should “call off that tax increase.” [Fox News, Your World with Neil Cavuto, 6/8/12]

But Experts Say A Lack Of Demand, Not Taxes, Is Cause Of Weak Job Market

WSJ: Economists Say “The Main Reason U.S. Companies Are Reluctant To Step Up Hiring Is Scant Demand.” The Wall Street Journal reported:

The main reason U.S. companies are reluctant to step up hiring is scant demand, rather than uncertainty over government policies, according to a majority of economists in a new Wall Street Journal survey.

“There is no demand,” said Paul Ashworth of Capital Economics. “Businesses aren't confident enough, and the longer this goes on the harder it is to convince them that they should be.”

In the survey, conducted July 8-13 and released Monday, 53 economists -- not all of whom answer every question -- were asked the main reason employers aren't hiring more readily. Of the 51 who responded to the question, 31 cited lack of demand (65%) and 14 (27%) cited uncertainty about government policy. The others said hiring overseas was more appealing.

Some executives echoed the survey's central finding. [The Wall Street Journal, 7/18/11]

Economist Bruce Bartlett: “It's The Aggregate Demand, Stupid.” In a post on the New York Times' Economix blog, former Reagan and George H.W. Bush policy adviser wrote that the “only policy that will really help” stimulate growth and job creation is “an increase in aggregate demand”:

Aggregate demand simply means spending -- spending by households, businesses and governments for consumption goods and services or investments in structures, machinery and equipment. At the moment, businesses don't need to invest because their biggest problem is a lack of consumer demand, as a July 21 study by the Federal Reserve Bank of New York documented.


The right policy can be debated, but the important thing is for policy makers to stop obsessing about debt and focus instead on raising aggregate demand. As Bill Gross of the investment firm Pimco put it recently: “While our debt crisis is real and promises to grow to Frankenstein proportions in future years, debt is not the disease -- it is a symptom. Lack of aggregate demand or, to put it simply, insufficient consumption and investment is the disease.” [The New York Times, Economix, 8/16/11]

Fed Chairman Ben Bernanke: “The Continued Weakness In Aggregate Demand Is Likely The Predominant Factor” In Continuing Long-Term Unemployment. From Federal Reserve chairman Ben Bernanke's prepared remarks at the 2012 National Association for Business Economics annual conference:

Is the current high level of long-term unemployment primarily the result of cyclical factors, such as insufficient aggregate demand, or of structural changes, such as a worsening mismatch between workers' skills and employers' requirements? If cyclical factors predominate, then policies that support a broader economic recovery should be effective in addressing long-term unemployment as well; if the causes are structural, then other policy tools will be needed. I will argue today that, while both cyclical and structural forces have doubtless contributed to the increase in long-term unemployment, the continued weakness in aggregate demand is likely the predominant factor.


[T]he fact that labor demand appears weak in most industries and locations is suggestive of a general shortfall of aggregate demand rather a worsening mismatch of skills and jobs. Counterexamples like the energy boom in the upper Midwest, where there may be some mismatch in the geographic location of suitably skilled workers or an overall shortage of potential workers with relevant skills, might best be interpreted as the exceptions that prove the rule; a mismatch story would suggest that strong labor demand would be appearing in more sectors or geographical areas by now. [U.S. Federal Reserve, 3/26/12]

NBER: “A Drop In Aggregate Demand ... Is Responsible” For Much Of Unemployment. A working paper from the National Bureau of Economic Research finds that “a drop in aggregate demand driven by shocks to household balance sheets is responsible for a large fraction of the decline in U.S. employment from 2007 to 2009.” The paper also stated:

Our estimates suggest that the decline in aggregate demand driven by household balance sheet shocks accounts for almost 4 million of the lost jobs from 2007 to 2009, or 65% of the lost jobs in our data. [National Bureau of Economic Research, February 2012]

Small Business Survey: Lack Of Demand Top Concern For Small Business Owners. A survey of small business owners conducted by the American Sustainable Small Business Council, The Main Street Alliance, and the Small Business Majority released February 1 “shows small business owners see weak customer demand as the most important problem they face right now”:

[American Sustainable Business Council, 2/1/12]

Gallup: 71 Percent Of Small Businesses List Demand As Main Reason They're Not Hiring. A Gallup survey of small businesses released on February 15 shows that 71 percent of small businesses that are not looking to hire new employees are holding back on hiring because there isn't enough demand to justify new hires. Dennis Jacobe, Gallup's chief economist, wrote:

Companies typically hold back on hiring when the economy is weak and when their operating environment is not providing sufficient revenues or cash flows. This appears to be the case right now, as the economy has been weak for more than four years.

[Gallup, 2/15/12]

NFIB: Weak Demand Has Been “Single Most Important Problem” For Years. The most recent National Federation of Independent Businesses survey of small businesses shows that for the past several years, sales have been the “single most important problem” to a higher percentage of small businesses than taxes:

[National Federation of Independent Businesses, NFIB Small Business Economic Trends Survey, May 2012]