If it were true that economic growth can only occur by cannibalizing existing resources, then there could be no net growth at all. And there are certainly more jobs and more money in the American economy now than there were in 1990, let alone in 1790.
The problem is that you aren’t realizing that money can be spent more than once. If Jill who gets a job at the new restaurant spends her whole paycheck on rent, utilities, food, and entertainment, then that money goes to other businesses in town which use it to hire employees and yield profits. Jill doesn’t have the money at the end of the year, but she has her necessities and luxuries that she bought with it. The same applies with savings – you only have what you’ve saved, but you also have everything you bought with what you didn’t save. Your savings are used by the bank to create money through loans, and your spending is in the hands of the next person. This is the basic way in which economies can grow and it works on any scale.
If your “you” refers to me, then this is incorrect: I’m well aware of the multiplier effect. Nor was I under any illusion that “economic growth can only occur by cannibalizing existing resources”. Honestly, I would have thought that was clear in the subject heading of my OP, which asked not “if” business creation can create new jobs, but what kinds actually do. And the last paragraph of my OP read as follows (emphasis added):
What I was really questioning was the idea, commonly reported, that any business of any kind that is newly opened creates X jobs, with X being the total number of employees hired at that business. I’m not sure what the opposite of “zero-sum” is, but the economy doesn’t work that way either–it’s somewhere in between. So maybe a new restaurant opening in town with 50 employees does help add net jobs–but not 50. Agreed?
Correct, there is an offset. And the offset will vary depending upon the degree of excess capacity in the economy. For example, if there’s lots of unemployment, the number of net jobs created might be closer to 50.
This hasn’t been cutting edge for a while, but these issues are addressed by economists with computable general equilibrium models. They are used to measure the jobs created by a new trade pact such as NAFTA for example or maybe a tax cut. Some of the same objections by SlackerInc apply.
Still, if a new restaurant hires 50 people think of those as gross jobs. And presumably all 50 workers are improving their immediate situation: otherwise they would turn the job down and work elsewhere.
Absolutely, agreed. But it also seems a nonzero possibility (especially in an area like mine that is never a hub of economic dynamism, not even when the country at large is in a boom like it was in the late '90s) that this new restaurant could fold within six months, while also taking the previously most marginal restaurant in town down with it, meaning six months later there are 50 fewer jobs available in that sector.
One would expect those to most likely come back at some point, but by the same logic you used, this is going to be in the short term (or medium-short term if we are starting at the first day the new restaurant opened) a blow to the 50 people who had been working at the established restaurant before the new one opened.
I remember my experience as a small business owner. It, like most such efforts, ultimately did not succeed. But it was a niche business of a type one would normally find only in at least slightly larger cities, so it was a dicey proposition to begin with (it was a labor of love for me, albeit without the trust fund subsidy some such businesses enjoy, as we discussed upthread). I was willing however to live with a relatively low level of income from it, as I am a thrifty person and had a part time job on the side to supplement my income.
But I feel my chances of even marginal operation in the black were pretty well torpedoed by another guy who opened a similar shop a few months after mine first opened. There was just absolutely no way in hell two such businesses could survive in this market. And we both went under around the same time, and nothing similar has popped up since to take our place.
Economics isn’t a science, it’s more a social science. The feedback loops can cause what seems to be illogical and unforecasted outcomes, a bit like the weather. Your new restaurant could establish a town as a place to go for good eats, taking custom away from nearby towns, or it could encourage people to eat out more often. A new technology may lead to less work hours to be spent on a task but those work hours could be spent on other tasks in the same company, improving its output per man hour, improving its profitability and ability to take on more staff. Even if the remaining staff just work fewer hours* they may still receive the same remuneration but have more time to spend on leisure activities, spending money on those and making the leisure companies more profitable.
*‘Work’ fewer hours but spend the same amount of time in work and use some of it shopping online.
Yes, but those are all “coulds” in the positive end. If that’s always how things tilted, we’d never have recessions. There are negative “coulds” as well, agreed? (I do acknowledge, again, that over time and overall, the positive steps forward are greater than the negative steps back.)
Yes, of course! The negative ‘coulds’ have been demonstrated very clearly, unfortunately, as manufacturing has moved East and the slack in the West has not been taken up by enough new industries to compensate.
The major problem is that the East, mainly China, does not have a sufficient social net and so encourages a saving, rather than consuming, society. And so they, the new producers/manufacturers, are still serving the consumer on a World-wide basis but aren’t putting their earnings back into the economy and so we get the multiplier-effect working backwards.