[quote=EconProf]
Thank you SK and CAR. You are both revealing two common mistakes about the economy that cloud your thinking. One is that the economy’s output is a fixed amount to be divided up, like a pie. That’s true in the short run, but in the long run, which is what really counts, it is dynamic and grows. So increased productivity tends to benefit all groups, albeit disproportionately. Your comment about wages being flat or declining for three decades shows this mindset. Total compensation, including health and other fringe benefits are clearly up, and actual living standards, which include technological changes in goods and services we buy push up living standards further. Secondly, you are ignoring incentives, for both workers and employers. Supply-side advocates, like myself, stress incentives and expanding the overall economy, while your demand-side approach only divides what exists in the short run.
We have now had six years of demand side monetary and fiscal policies, begun by Bush and expanded by Obama. We all know the dismal results in terms of employment, the growth in poverty, and weak increase in living standards. The increased taxes and regulations are the exact opposite of what supply-siders advocate. Result–1/10 of one percent growth in the latest quarter. Perhaps it is time to try something different.[/quote]
I’ve never suggested that output was static, but the world’s natural resources are finite. To me, the important question is: how is the “ownership” and control of these resources allocated among the world’s population? If, over time, it is concentrated in fewer and fewer hands (relative to the population), then wealth is not being shared, and the economy is not improving.
As for the argument that the poor are wealthier: technological changes and improvements over time are expected, and they are shared across the board with the greatest benefit usually going to the very wealthiest. After all, the world’s most powerful kings and emperors from hundreds or thousands of years ago didn’t have indoor plumbing, central heat and A/C, technologically advanced medical care, phones, grocery stores, etc. Does that mean that Joe Sixpack, who might have these conveniences today, is wealthier than yesterday’s kings? Wealth is relative; it is a measure of how much one has compared to one’s contemporaries. Wealth is not measured in retrospect.
The problem with supply-side economics is that it misses entirely the fact that people will not produce things for which there is no demand, or they will quickly go out of business. That demand has to come in the form of customers who are *willing and able* to pay for those goods and services. This is only possible if workers — the masses — make enough money to enable them to buy these products and services.
Which came first: labor or (private) capital? Capital could not exist without labor; labor creates capital. With industrialization and rentier capitalism, the profits created by labor are skimmed from every transaction. The people who own and control these profits and resources are today’s capitalists; most of them produce nothing of their own.
It is the denigration and exploitation of labor that has caused the problems we’re experiencing today. Research this on a historical basis, and you’ll see that when wealth and income are extremely concentrated, and when taxes are lowest for the wealthy, economies collapse. Conversely, when income/wealth are more widely distributed, and when taxes are progressively steep, economies thrive.
