LOS ANGELES, November 23, 2013 — Among the important issues being discussed in the political news today, one of the most disturbing is one that has received less and less attention since the end of the last election cycle: The entirely uninspiring state of the American economy,
It seems as if we have entered a permanent downshift in the engine of American prosperity, and with it the sad acceptance of a new normal that threatens the future of the American dream.
The statistics on America’s economic state are bad, though better than they were a couple years ago. The official unemployment rate sits at 7.3 percent, having declined very gradually from the 9 percent rate at which it was stuck for much of 2011. Yet the official rate does more to hide our true employment situation than to illuminate it. When you count those who are subtracted from the tallies of the unemployed because they have been unemployed too long to continue receiving unemployment benefits, the rate that we come up with is closer to 14 percent. Add to that those who are underemployed — working part time and seeking full time work — and it is higher still.
Just as disturbing is the decline in American earnings. Low wage employment outpaces social mobility, and median household earnings in America fell 4.8 percent between 2009 and 2012. According to all indicators, earnings have still not recovered. The poverty rate persists at around 15 percent, a high from which it has not come down since 2010, and a rate we have not seen consistently since the 1960’s.
These numbers illustrate the destruction of our children’s futures, the erosion of the quality of life of our people, and the erosion of opportunity in our country. Politicians and members of the media should be consistently focusing their attention on the economy. But it might also help to undertake some reeducation on the fundamentals of free market economics to help steer this conversation on a productive course.
One such fundamental truth is the fact that it is not money that makes a society rich, nor does money alone create jobs and opportunity. It is the ability of a society to create useful goods and services that creates wealth and jobs, elevating people’s standard of living and creating a demand for employment. It is this process that gives value to money and not the other way around.
This is literally one of the first principles that Adam Smith, father of classical economics, illustrates in The Wealth of Nations: “The value of any commodity, therefore, to the person who possesses it … is equal to the quantity of labor which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities.”
Labor is the true currency of the realm. This might seem obvious to some people, yet the economic conversation in America seems to revolve around increasing the money supply and paying down the debt. Neither of these will do much to create opportunity for labor in America. It is important that we pay our debts, and there may also be circumstances where there is just not enough money circulating in society to allow commerce to progress (very few though). But what do these measures do to increase the amount and the quality of goods and services in America, therefore increasing the demand for labor? Nothing much.
Allowing people to keep more of the money that they earn and to spend and invest it as they choose can help create the demand and the supply needed to incentivize and make possible the creation of more and new goods and services. At the same time it would not diminish the value of our monetary currency in the way that simply printing more and more money would.
Government spending, when applied to projects that actually increase the efficiency of our economy such as infrastructure development and research and development, can also help expand goods and services in our economy. Increasing the quality of our educational system, and giving students the skills to innovate and develop new and better products and services, is more important than anything in the long run in terms of increasing the amount of well compensated labor demanded in our economy.
America does not need more money. America needs to be creative. Ultimately that’s up to the American people. But policy makers can give us the freedom to create and the media can refocus the conversation in that direction. It is the talents of the American people that made this country prosperous. it is that resource that we must harness for the future.
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