Adam Smith in Wealth of Nations made significant points about labor and money that we desperately need to remember today.
First, Smith differentiated between labor that produces a good or commodity of some sort versus labor that does not. He said that an economy is in trouble when it relies more on "unproductive" (meaning not producing goods) versus productive labor. Productive labor creates tools, refrigerators, software, anything of value that can be sold in the market place, sometimes more than once. Unproductive labor includes lawyers, doctors, bureaucrats, domestic servants, and others. It is not that he has no respect for their work, but his point is that once that work is done, it disappears into thin air and cannot be resold in the marketplace. There is a place for these laborers, but your economy should not rely too heavily upon them or it risks having a bad foundation.
Federal environmental policies, union contracts, and other issues have created a significant competitive disadvantage for this country when it comes to expanding what Smith would call the "productive" labor force. He would argue that this puts our economy in peril.
Second, Smith argues about assets and money. If your economy has most economic assets tied up in capital, it has a strong foundation. Capital is money in your savings account, CDs, stocks, etc. Capital is improvements you make on your home or business to increase its value. An economy based upon spending is weak and vulnerable. We have relied way too heavily on the consumer sector for way too long as an economic jolt. In the past few years, public spending has increased considerably with an eye towards stimulating the economy. Adam Smith explains that an economy cannot thrive on spending. Public spending is even worse because it confiscates capital.
So according to Adam Smith we are headed in the wrong direction. It will take a fundamental shift in policy and prioities to get us back on track. Do we have the courage to set things right again?
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