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December 21, 2013


Economists on occasion are reasonably unanimous in their opinions, depending upon the topic to be examined and addressed. Jeff Madrick in his December essay in Harper’s and my old economics professors and even Adam Smith agree: That rising productivity is the source of the wealth of nations. It was not always thus. (We did not have the tools or even state-organized nations for centuries to make productivity rise, and now that we have spurts of productivity rise with yet newer innovation, the new wealth created by the innovative rise in productivity is currently being hogged by the rich and corporate class to the detriment of the rest of us – a topic to which I will return later in this offering.)

Without innovation, an economy seems to plod along forever, somewhere between the vagaries of a hunter-gatherer society aligned as a band or tribe or chiefdom or even state society – all stunted for want of innovation. Everything else is stunted, too, including but not limited to reductions in population brought about by wars over scarce resources, occasional plagues, weather-caused crop failures and a host of other potential downers due to chance or failure of innovation in the areas of the arts and sciences, especially the medical sciences (which were still “bleeding” patients to “cure” them as late as the early 19th century; George Washington is thought to be one of their “bleeding” victims in late 1799).

We now know that much if not most of such failure for humanity to advance can be traced to lack of innovation; that innovation almost alone provides avenues to rising productivity and thus more new wealth to be shared by those involved in the process. How we now organize the disparate groups involved in laying claim for their respective shares from the new wealth thus created, of course, takes on a political hue, all the way from Wall Street claims to ALL of such new wealth to communist demands (or pretenses) that such wealth be evenly distributed among the proletariat. As above suggested, currently the Wall Street crowd has somehow persuaded us (and their and our politicians) that it is entitled to call such new wealth from rising productivity all its own. Many of us suspect that this class is buying the politicians who make such decisions since the rest of us are relegated to stagnant or declining median family wages and are not sharing any wealth, new or otherwise. The numbers speak for themselves, and are currently exacerbating wage inequality to a breaking point. Something has to give – and soon.

How did all this happen? As an amateur economic historian, I submit the following. We must remember that we have been “modern” humans for 40,000 years but only able to escape the hunter-gatherer tag when we were able to finally start producing surplus food in the Fertile Crescent a relatively short time ago. Until then, everyone was a hunter-gatherer every day; we didn’t have time to turn into great sculptors, statesmen and adventurers on the high seas. We had to eat; we could not afford any special status. Wealth (amassed assets) as we know it today was not possible; one’s wealth in those days could be measured only in how much food he or she had amassed to avoid famine day to day. There was neither time nor pressure to innovate. Food first!

The idea of raising more food than you needed and exchanging such surplus for goods and services that could be provided to others finally free not to engage in farming released humans to specialize, though still hobbled by wars and pestilence. It was surplus agriculture that allowed humanity to escape the daily necessity of hunting and gathering for later state-defined societies like Greece and Rome and the return to such classical age during the Reformation with the still admired sculpting of Michelangelo and the great Florentine painters. Trade flourished, religion became organized; humanity had taken a great leap forward.

Even so, the really great leap forward awaited the Industrial Revolution with its innovation at breakneck pace, yet an era only some three centuries old as I write this, a blink in time when compared with the thousands of years in which we were hunter gatherers always on the edge of catastrophe. With the steam engine to and through the digital revolution to and through whatever is coming tomorrow, we have had huge if uneven splurges of innovation which have created unimaginable new wealth. That is a known. The issue is how we share it, which moves the issue from the economic to the political.

Not everyone was happy with the pace and result of innovation, especially when they were not sharing in the new wealth created by such rapid innovation. So-called Luddites were early 19th century artisans who were replaced by machine looms and reacted violently by destroying some of such equipment. They were not the first or the last to destroy such results of innovation. Madrick reports that many other workers were involved in the destruction of water mills, steam engines, electricity and assembly lines. We are seeing the same types of replacement here today with the increasing robotization of routine tasks that result in the reduction of need for human labor. I have read where even one Chinese factory executive has gone to automation because of the increasingly “high wages” paid Chinese human labor!

What Luddites and their ilk did not understand is that innovation (per Adam Smith and my old professors) would, over time, grow their economies and would create jobs, higher wages and the prospect that such new wealth would be distributed fairly among the general population; that democracy could be more firmly rooted with a vibrant middle class; and that new inventions and technologies would make life more pleasant for the vast majority of American workers. True, some jobs are eliminated, but more and better jobs would often replace them, so, on balance, and for the long haul, the Luddites were wrong to resist Industrial Age mechanization. After all, social programs could be devised to ease such displaced workers’ situations when frictionally unemployed. The Luddites and others of such a mindset were into instant economic gratification. They should have been more patient.

For this scenario to work today, of course, government regulation of wages, protection of labor unions, and a social safety net of unemployment insurance, employment tax credits and retirement and health care programs for those displaced as well as for the elderly are necessary. There is no other way other than by government intervention for them to share even a minimal cut of the new wealth created by innovation with the greedy and politically influential among us. Unfortunately, those hogging all the new wealth today are demonstrating their even further greed by opposing all these programs so that they (the greedy) can fatten their own bottom lines yet more at the expense of the old, the poor and working poor, the disabled and even what is left of the middle class, hence the vast inequality we see today.

It is at this juncture (as my followers know) that I part company with the unbelievable greed of the rich and corporate class as typified by their parasitic paper shufflers on Wall Street. Based on the Street’s contribution to innovation, it should be that sector that is begging for a share of our innovative wealth and not the rest of us who make up OUR ECONOMY (NOT THEIRS)! Let’s run our own show.  GERALD  E


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