Thats a great question. Business will not expand unless there is an increase in demand, and normally demand can not increase without either increasing net wages or an increase in the number of people employed. It's quite a conundrum.
This isn't always true. There are multiple reasons.
1) Demand it self isn't the only portion of the equation. Demand can increase by 3% year over year but I am producing annual increase in supply by 6% yoy.
2) A perfect time to expand is in a "trough" of economic cycle. Cheap money = better RoI. (in my opinion is not true)
You say that expansion only comes from capital, and I understand that capital is needed for expansion to happen, but even if plenty of capital is available, businesses will not expand without an increase in demand. Our current situation is the perfect case in point. Our banks are well stocked with capital, our corporations are having record profits and are flush with cash, yet expansion (job growth) is pathetic.
Business is forward thinking (or it should be). To say demand on the short horizon is a major factor ignores Businesses are for the long term. Business will expand if certain things are met.. it makes economic sense (cost) and certainty. That means major policy changes in Taxes, Health Care and Regulation (in SEC, CPA, EPA, and so on) will hamper any expansion as these costs can't be calculated until they are official policy. So for the last 4 years and another 3 or 4 years into the future no major company is gonna expand in the US because there is no defined cost to what these changes will cost.
Banks aren't well stocked, huge misnomer. Banks under go a major stress tests every year and each year capital requirements are increased to a have future capital requirement agreed to in Basel III, until the Basel III requirements are met and Dodd-Frank is hashed out.. Banks are gonna have to keep more and more money in the bank.
http://www.risk.net/operational-risk-and-regulation/news/2289959/fed-points-the-finger-at-weak-stress-testing-by-us-banks
Fed Boosts Pressure on Banks Over Capital Levels - WSJ.com
Companies are flush with cash where? Not in the US but their overseas accounts and guess where they are expanding? Overseas.
The private sector is basically "locked into" a quagmire, and it's gonna take an outside force to change anything. My suggestion would be to reduce the tax burden of those who have the highest propensity to spend. Thus new demand is created, companies start expanding, creating more jobs, which in turn creates even more demand. Now from a practical viewpoint, we can't really cut the income tax rate for the bottom half, because they don't pay income taxes, but what we can do is to reduce the income tax rates in the bottom few brackets, so that the middle and upper middle class can spend and save more.
Private sector isn't locked to into anything by it's own accord, rather Government polices are forcing natural economic expansion to a snails pace. Now I am all for tax cuts but I also understand tax cuts isn't gonna solve the problem. President Bush and Congress gave a cut taxes by 3% to the majority of Americans. Did it cause expansion? Absolutely. Did it create the right kind of expansion? Absolutely not.
But I find it ironic you call for more savings when you think a person shouldn't earn interest on their savings which would force them to spend that money over saving it. :lol:
Or, a higher minimum wage would have a similar effect of increasing demand. We don't need to be absurd with this, just restoring it to the same purchasing power that it had the last time we increased it would likely increase demand by a percent or two, which would create a percent or two of new jobs, which would result in a tighter labor market, less goverment welfare spending and unemployment spending, rising wages, more business profitability, etc.
Now don't take these comments as my views as I don't believe in a minimum wage for various reasons, rather this is analysis answer.
A higher minimum wage wouldn't increase demand outright. It's assumed it will but with consumer debt being the problem, the consumer would have to pay that off first and then consume. You have to "pay" for the horse before you can buy the cart in essence. To suggest a consumer should ignore his or debt by buying first only harms the economy in the long run.
Now, another problem with this is.. a one time hike is a one time solution that fails the next year. Minimum wage should be attached to CPI. If you don't you run into the same problems as we have now.
