–Robert Frank, economist and professor at Cornell University, author of the “Economic View” column at The New York Times Professor Frank explained the point again, later in the segment:
A business hires a worker if it thinks it can sell the stuff that the worker’s going to produce for more than it has to pay him. In this case they’re not going to be able to sell the extra output they get from hiring an extra worker because people don’t have money that they’re spending to buy things. So it wouldn’t matter whether the owner of the business was a billionaire or a pauper; if you can’t sell what an extra worker would produce then there’s no economic reason to hire that extra worker.I’ve been trying to figure out if there’s something I’m missing. Like if I put myself in the position of the business owner maybe I’ll understand the counter-position. So let’s say I own a business and we make and sell 10 units a day. Then the recession hits and no one is buying so we’re only selling 5 units a day. So I lay off half of my employees because I’m not making the money to pay them and they’re producing more than I can sell anyway. So now the government gives me a tax cut - or heck, to keep it simple, let’s just say they give me the money outright. Let’s say the government gives me enough money to hire another worker. If I’m still only selling 5 units and I’ve already got enough workers to produce 5 units, why would I spend my new government money on another worker? Given the recession, why wouldn’t I save the money just in case things get worse? I guess I could see spending the money to make the workers I have left more efficient, so that would have some stimulating effect. If I’m a consumer of the units made by the company above and I lose my job, I have no money to buy units. I get an unemployment check, I resume buying units. The check isn’t for very much, so I’m not buying as many units as I would, but if I didn’t have this check, I wouldn’t be buying anything, right? I mean… right? What am I missing?
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"Businesses aren't investing because they can already produce more than people want to buy."