Few topics dominate our political discourse more than the health of our economy. With the unemployment rate remaining high at the national and Ohio levels, we are all concerned with how to relieve our economic woes. Most folks have an opinion on how to fix our problems, and every politician has a plan. Yet those opinions and plans differ as much as the people making them.
The natural consequence is that there is a great amount of debate and animosity in the political arena while our economy continues to struggle. The key to ending the political division and, more importantly, to fixing our economy, is to start with a fundamental understanding of what is the purpose of an economy.
Most of our economic problems can be traced to the simple confusion of what constitutes wealth. The reality of life dictates that we must consume food and water and have shelter or we will die. On top of that, all of us desire more conveniences in our lives that we don’t necessary need to live but which make our lives more satisfactory. Those things range from shoes to a car to the latest smartphone. All of this physical stuff is real wealth because it directly satisfies our needs and wants.
Two things that are regularly confused with wealth are money and jobs. Money is a medium of exchange for trading wealth. Imagine a simple economy with three people. Person A has apples and wants bananas. Person B has bananas but wants carrots. Persons A and B would not be able to directly enter into an exchange absent an agreed upon medium that Person C, a seller of carrots, would also accept in exchange for his carrots. However, no matter how much money exists in this simple economy, the three people are no wealthier than the actual number of apples, bananas, and carrots that exist because only the food directly satisfies their needs. Another way to understand the difference between wealth and money is to imagine a magical island with a limitless amount of apples, bananas, and carrots. On such an island, there would be no need for money. In contrast, a limitless amount of money is worthless if there are no apples, bananas, and carrots on the island to eat.
Similarly, jobs are not wealth but a means to creating wealth. It’s not jobs we want but the actual goods and services that result from our labor. Again, imagine the magical island of limitless goods, and there is no need for jobs. In contrast, we could work all day planting seeds on the island, but if the island remains bare we would not become any wealthier in terms of satisfying our needs and wants.
In short, the goal of economic activity is not money or jobs. The goal of economic activity is to create more and more stuff that satisfies our needs and wants. Losing sight of this goal is the cause of our economic problems and our inability to fix those problems.
Many politicians love playing on this confusion of wealth. Their plans are designed to increase the amount of money in our pockets or the number of jobs in the economy while making us less wealthy in terms of available wealth and in our future ability to create more wealth. These issues will be fleshed out as we peel away the layers of our economic problems. As we dive into the complex issues of our national and Ohio economies, it must never be forgotten that economics comes down to the simple rule that we need actual stuff to satisfy our needs and wants. We need wealth.
Continue reading this series on OCR: “Let’s Divide the Work”
John Langenderfer is a practicing attorney with a focus in consumer and commercial law. He can also be reached on his Facebook page.
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