Profits=Investments=Jobs? : Miami IMC

PROFITS = INVESTMENTS = JOBS?

Business profits constantly rose in the last three decades along with unemployment. Economist Gerd Bosbach doubts a familiar economic thesis and questions the most important political-economic guideline.

By Michael Schmidt

[This short article published in: Tagesspiegel, 8/17/2008 is translated from the German on the Internet, http://www.tagesspiegel.de/politik/Gerd-Bosbach-Arbeitsplaetze;art771,2595049.]

Berlin – Gerd Bosbach had a suspicion that even politicians can err including an old chancellor like Helmut Schmidt (SPD) who was regarded as very competent in questions of economics. In 1974 Schmidt declared: “the profits of today are the investments of tomorrow and the jobs of the day after tomorrow.” That sounded plausible, Bosbach said. But as a professor for empirical economic- and social research, he asked whether this often repeated basic assumption of economics and politics held to be obviously true is actually correct.

Because Bosbach is an economist, he looks at the number skeleton of reality with the x-ray view of the statistician and concludes: business profits constantly rose in the past three decades – and also unemployment. This means, Bosbach says, the claimed connection between profits, investments and jobs is not right. It is not false since the reverse, no investments without profits and no jobs without investments, is true. The thesis is obviously one-sided, Bosbach says. “It does not grasp the whole reality.”

This was more a faith dogma than a scientifically proven fact that basically determines the action of entrepreneurs and the German government. Bosbach probed further with the mammoth economic research institutes and umbrella associations of employers. Since profits, investments and jobs are measured by economic statistics, the connections should be easily identifiable.

Bosbach commissioned his student Thomas Schneider to investigate. Schneider wrote to institutes and associations: “I am a student at the RheinAhrCampus in Renagen. In my research in the course of economic-political study, you would be very helpful if you could tell me whether you know studies on the effects of profits on investment activity and as a result in the creation of jobs.”

The result surprised the curious researcher-duo: “The feedback was remarkable,” Bosbach told the Tagesspiegel. Some like the Ifo-Institute did not respond. Others could not offer much enlightenment. The employer-friendly Institute of the German Economy from Koln wrote: “We do not know a study that directly grapples with your theme.” The Essen RWI research institute concluded: “a very complex theme is addressed with business profits, investments and creation of jobs that is usually hardly discussed.” “This is one of the basic principles on which our economic policy is based that was never examined with facts,” Bosbach says.

In a society where dozens of statistical surveys are cited day after day as evidence for almost everything, is it possible that “the most important political-economic guidelines are never examined?” Bosbach regards this as very unlikely. It is a lie.

“A glance at the data of the past 30 years on profits and unemployment shows that the results simply did not suit the lobbyists of the economy.” Orders or demand are more important than the profits that are invested for the creation of jobs. Whoever takes this seriously must adopt another policy, one whose preeminent goal is strengthening the purchasing power of citizens, not only one aiming at good conditions for businesses through tax reductions or wage restraint. But forceful advocates of this are obviously lacking.

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May knowledge-maximization replace profit-maximization! (cf. Rainer Roth)

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