In a recent discussion online, a somewhat calm conservative commenter made the following claim:
Obama is a decent man...but fundamentally misundertands the key to wealth and job creation...
That line is all too common. It's Romney's main pitch, but he's not the only one. You hear it up and down the conservative line.
What is Wealth? How do you define it?
The notion of "creating wealth" is a fallacy of modern (mostly, but by no means exclusively, conservative) economic dogma.
A good way of dividing up the economic system to understand where fundamental wealth comes from is to consider the primary, secondary, and tertiary economies, a breakdown originating with E.F. Schumacher.
The primary economy is that of natural resources: both the things we extract from Nature (oil, coal, copper, iron, etc.) and services it provides us for free (water purification and transportation, fisheries, etc.). This is the most often ignored segment of the economy, but it's also the most fundamental. In a classic study, ecological economist Robert Costanza and his team found that natural systems provide three times the annual equivalent GDP in free services to the human economy than all human activity combined.
The secondary economy is the one we're familiar with: it's the goods and services that are the bread and butter of any economy. The secondary economy depends upon the primary economy and builds upon what it provides to build (more complex) things that are of use.
Finally, the tertiary economy is the financialization of those goods and services.
Each segment depends upon wealth created in the lower more fundamental segment.
Much of the so-called wealth over the last few decades has been in the tertiary economy: money chasing its tail on Wall Street. While on paper that looks good, and when you don't break it down the GDP numbers might look good, it hasn't felt good to the average American. By breaking it down, it's easier to see where things went wrong. We've seen a shrinking primary and secondary economy over the last thirty years (decrease in available natural resources per capita, decrease in manufacturing, etc.) while the tertiary economy has boomed into the quadrillions of dollars. And eventually you end up with an inverted pyramid, teetering upon a inadequate foundation. (That's a simple way of understanding what went wrong in the financial crisis that started in 2008.)
There's some recognition of this:
But it's an incomplete understanding, since the base of that inverted pyramid isn't gold or silver, it's more fundamental natural resources like oil and fresh water.
While the talking point is that the mavens of the tertiary economy are "wealth creators", they're creating wealth we neither want nor need. Human beings aren't creating primary wealth: it comes from nature. At best we produce secondary wealth. And lately we've been producing far too much tertiary wealth---the kind that we all too often hear about as "wealth creation".
What might be an alternative to such an upside down way of building up a (financialized) economic system? Flipping things right side up. Dmitry Orlov, a curious and clever writer, gave a talk a few months ago on that question:
You can see the slides here. The talk is a bit long, but it's well worth it---I had many aha moments when watching his talk (here's a direct link to the video so you can avoid the dkos video / reloading issue). In it, he captures things that we all intuitively know, but never really think about: how do gifts work between people, how does trade work, etc.? He argues that we need to flip the economic pyramid right-side up again, and make our economy more about person-to-person exchanges and interactions (gift, barter, re-localization) and less about consumption in the anonymous global economy of industrial commodities.
If you're more interested in the subject, I highly recommend Greer's The Wealth of Nature.