Damn, I spent all day at the hospital going for my semi-annual check up in the Emory ALS clinic. I thought that I was tired enough to sleep for twelve hours straight. Then I opened this thread. I knew that I shouldn't do it.
Except the issue is that there is always competing interests and sides view the economy in different ways. One side sees the economy as providing jobs, and one sees the economy as providing the good and services for the end consumer. And they are different.
Both are half wrong. The economy is a whole and both are part of it. Only if you look at it that way will you understand it. The job of the economy is to take the resources of a society, to develop them, to produce real products that the society needs and to distribute them to the members of the society.
Capitalism is very good at the production side, it produces most of the products we need, it is very good at developing new products for us and it is very good at refining existing products.
Capitalism is not so good at limiting itself to producing real products. Part of the overheads of capitalism, the inefficiency of capitalism, is the need for a financial sector to determine the viability of capitalistic enterprises. If left unchecked the financial sector starts producing excessive amounts of paper financial products that provide income and the illusion of investment without the payoff of real production.
This burdens the productive side of the capitalistic economy, what Adam Smith's liked to charging excessive "rent" on the productive part of the economy. About 90% of his book,
... The Wealth of Nations, was warning about this tendency. His solution for the problem was simple, government interference in the financial sector to prevent it. The invisible hand was only mentioned once.
Because of this and other reasons capitalism is very bad at distributing "fruits of its efforts" to the members of the society. Capitalism distributes the majority of its resources by paying wages for the work involved in production. It also distributes resources in the form of profits to keep the internal mechanism of capitalism working. But profits are just that, part of the mechanism of capitalism, part of the overhead of capitalism, part of the inefficiency of capitalism, what Adam Smith called "rent" on real production. And as he said this rent should be minimized to only what is needed to keep the mechanism working well.
But no one questions profit any more. We are the product of years of propaganda by the people who collect the profits, surprise. According to them, wages are just costs to be minimized, but profits are the mother's milk of the economy, its very reason for existing.
No one is allowed to call profits what they are, part of the overhead of capitalism, part of the cost of goods and services too. In fact the only inflation that we have had for the last three years or so was due to increased profits. The costs of labor is in deflation, is going down.
The same questions that are being flung around about the proper level of wages can and should be asked first of profits, because they have soared over the last thirty years plus.
Bottom line is that an economy should be judged on how well it uses its resources to produce real products and how well it does distributing the bounty of that production to the members of society. On these two scores the US does very badly. In 1970 the financial sector of the US economy made 2% of the total profits in the whole economy. In 2007 the number was 40%. Of Adam Smith's rent. Wages have flat lined for all but the top earners while profits have soared. Income inequity, the measure of the efficacy of the economy's distribution, is approaching the terrible standards of the gilded age or of a banana republic.
There shouldn't be any question that wages have to start increasing and that profits should be decreasing, both as a percentage of the GDP.
Good night.
