American politicians are confused about the difference between job creation and wealth creation. This means they're both wrong about the role of government in the economy. Both President Obama and Governor Romney are guilty.
During the 2nd Debate, both claimed that government doesn't create jobs. Romney and Obama are both wrong. Government absolutely creates jobs. Government does not create wealth.
Jobs and wealth are not the same, not by a long shot.
Last time I checked, federal, state and local government are the largest employer in the USA. Cops, firefighters, soldiers, teachers, DMV workers, court clerks, elected officials and bureaucrats of all stripe are all government jobs.
Another pervasive element of this economic fiction is that money "confiscated by the government" (AKA taxes) falls into some deep, dark pit from which it never escapes. Only, the majority of total state and local government expenditures are payroll! That money is then spent on housing, clothes, food, education, cars, fuel and everything else that makes the economy run. By any definition, that's a job -- and it was created by government.
Wealth creation is an increase in total production caused by the implementation and successful sale of an idea. The iPhone created wealth which created jobs - though mostly in China. The iPhone created wealth by increasing demand for Apple stock which then rose in value. This created new wealth for Apple shareholders.
Adam Smith, author of The Wealth of Nations, defined wealth as "the annual produce of the land and labour of the society." Because iPhones sold well, the annual produce of our society increased and more wealth was created. The stock market simply acts as a convenient way to measure wealth and convert it into cash.
But government plays an important role in wealth creation. It's called infrastructure, or "the things a government can do to facilitate future commerce." Railroads, canals, airports, the interstate highways, human space flight and the Internet are a few examples of government infrastructure investments that led to spectacular wealth creation.
Consider the iPhone as a great example. Without government investment in electrical and Internet infrastructure, the iPhone could not exist. Plus it gets to the store via railroads and highways. History is clear -- every penny we spend improving America makes us all wealthier.
Recently, I read some political junkie argue that most infrastructure is already in place in the First World so there's no need for future investment. This is frightfully shortsighted. It ignores the reality of technological advance. New technologies will necessitate, or greatly benefit from, infrastructure investments.
But I digress...
And I promised to keep it short...
Anyway, that's my current problem with the Presidential race. How can either one improve the economy if they don't understand the difference between jobs and wealth?
R-Squared Computing | Lou RG | Nearly Free IT | Firm Wisdom
Subscribe for free insights: RSS | Email