There are two components to every economy: Labor and capital. Labor is the work that people do, and capital represents all of the tools they use to do that work.
Unfortunately, it's popular (but wrong) to focus only on one side of that equation -- and it's almost always an error committed on the side of labor. Politicians talk relentlessly about the need to "create jobs". Schoolkids are lectured at exhausting length about the importance of getting a "good job". People of working age devote untold effort to getting ahead in their jobs and doing things like "networking" in order to help them find new jobs.
But it's dangerous to tip so far to one side of that formula that we ignore the other half. And it's dangerous on many levels:
- A person or a family that spends all of their time focusing on job security or job training or job-related networking is likely to make bad choices about the capital side of their household budget. It's not enough to earn an income; one has to learn how to buy the right things (like a home or a car) and how to invest for the future. Families have always needed to plan for the future -- how many families both yesterday and today have had their seniors sharing a household with their offspring? Sometimes, that's a deliberate plan; other times, it's been the uncomfortable result of not having saved enough, or of not having a plan at all.
- A community that builds its economy upon workers who live paycheck to paycheck can find itself in dire distress when those jobs fade away. Detroit is but one of many modern examples, but there are many ghost towns all over America that are left over from economies that turned to dust -- coal-mining towns and oil-boom towns and gold-rush towns, all of which dried up and fell off the maps when the work went away.
- A nation whose political debates are only about "jobs" entirely misses the point that rising standards of living require real wealth that is invested in the capital needed to make those jobs work. Factories need machines and robots and assembly lines; computing companies need data centers full of servers and cables; restaurants need tables and chairs and ovens and dishware.
Ideally, we could all live doing a minimum amount of necessary labor and instead pursue whatever we wanted with our time. This isn't a fanciful fairy tale -- it's the real story about why life is better today than 50 years ago. In our homes, we have dishwashers and clothes washers, microwave ovens and deep freezers, computers and DVRs, power tools and vacuum cleaners. All of these things are good because they do work that we no longer have to -- or at least, they reduce the amount of pointless labor that we do. Instead of washing dishes and clothes by hand, and making every meal from scratch over a hot stove, and hand-cutting every fallen tree branch, we turn to machines to do much of our work, and then decide what to do with the time that those machines save us.
Those machines are capital.
And they affect most people's working lives as well, allowing us to do more work in less time. Many of them make life safer, as well -- whether they are sensors that detect toxic gases or bomb-squad robots that save lives via remote control or MRI scanners that see what doctors' eyes cannot.
Those machines are capital, too.
Ignoring the role of capital -- or worse, villifying it -- is a recipe for poverty. We live in an age when it's possible to do far better than just storing up the output of our work. There was a time -- maybe a hundred years ago -- when the best most people could expect to do was to work long, hard hours on a farm, doing much or even most of their work by hand, with the help of some hand tools and a few animals, and to save (by canning or other semi-reliable storage methods) enough food to last through the winter. Today, we can do vastly better: A person who works an 8-hour day can save the earnings from 30 minutes or an hour and invest those earnings in the stock -- that is, partial ownership -- of any of thousands of companies. The chosen company can be selected because it looks innovative (one doesn't have to be a computer programmer to own part of Apple) or because it has access to valuable resources (anyone can own part of an oil company) or because it does many things very well (like General Electric). The individual can buy shares in companies inside his area of specialty because he knows the best players in his industry, or she can take ownership in companies that have nothing to do with her job because that gives her diversification. And beyond simple stock-picking, we can lend our money to others (in the form of bonds), buy land (directly, or as part of groups like real-estate investment trusts), or start our own businesses. It's even possible to start up a "virtual" business -- one that has no real physical presence at all, but instead uses contractors and special agreements to ensure that all of the work is done reliably from start to finish.
The point is that capital and labor are both essential to the health of any economy -- household, local, national, or global. When we talk only about the labor component, and think and act as though jobs alone are the end-all, be-all of an economy, then we imperil ourselves. Because someone, somewhere, will be ready to take advantage of our blindness.
Sure, it can be hard to think about capital. A job is relatively easy (for most people): You show up, you do what you're assigned, and you receive a paycheck. Having and managing capital puts you in a different and more-active role, where your job is to look at lots of options and think about which one is most suitable for you to act upon, then to commit to putting what you have at risk in the expectation of having more when all is said and done. And capital takes patience -- most people don't receive a huge endowment or trust fund upon entering adulthood. Most people have to start small, and build patiently from there over a long period of time. But as Albert Einstein is supposed to have said, compound interest is the most powerful force in nature (or at least, it's among them). What grows at 5% a year doubles in about 15 years. What grows at 10% a year doubles in about 7. It truly doesn't take very long for a small amount of saved capital, prudently applied, to turn into much more. And, again, we have the advantage today of being able to choose from thousands -- perhaps even millions -- of opportunities to invest our own capital. We are far better-off in this regard than the people who (not that many decades ago) really only had the chance to save a little of what they'd created and then hope that it didn't spoil over the winter.
Practically speaking, opening our minds to the power of both labor and capital helps us make wiser decisions about things like government programs, as well. When we look at Social Security in its present form, we essentially see the government paying old people not to work. It is, more or less, a guaranteed job -- just a job doing nothing. The payments come regularly, and they cease when the person (and/or their spouse) dies. When we see it in this light, we see that it completely ignores the capital portion of the formula. That's why a more sensible program for old-age savings would offer a form of personal savings account -- one in which capital could be accumulated and invested. Because today's Social Security payments are like a job, and thus they cease when the recipient has died, there is nothing left to pass along to one's heirs. If we had personal accounts, on the other hand, we could have a place to store up what we've saved -- and let it grow -- and then give it to our chosen heirs when we're gone. It is only because we have been fear-mongered into thinking about labor (and labor alone) that so many people are blinded to all of the good that could be done if only we had personal accounts we could pass along. Not everyone would succeed with a personal account -- some good choices will be made, some bad -- so we can sensibly build-in safeguards to ensure that nobody would be left without some kind of safety net. But that's no reason to keep the rest of us -- who are forced to hand over 12% or more of our labor income to the program -- from taking those forced savings and turning them into something truly capitalistic.
Taken another way, when we are given sweeping promises about "jobs created" by government action, we are truly being sold a false bill of goods. Government could create two million jobs in a heartbeat: One million to dig an enormous ditch, and another million to fill it right back in. The two million jobs might have been "created", but as a whole, we would be no better off. In fact, we'd be worse-off as a society, because the money used to pay those two million ditch-diggers and ditch-fillers would have to come from the pockets of other people, with nothing to show for it in the end. Contrast that with the value of paying one meteorologist to look at the data from an expensive, high-tech weather radar system -- lots of capital, with proportionately far less labor. But the overall good to be gained by society can be enormous, especially if lives are saved by early detection and warning of threats like tornadoes. Jobs alone cannot be the only good we see -- we have to be looking for the greatest amount of return to society.
Seeing only the labor portion of the economic formula has made us blind to the other half of what creates wealth and leads to higher standards of living, and that is a blindness that we should be redoubling our efforts to overcome. We want wealth. We want high (and rising) standards of living. We want comfort and safety. And we cannot have those things unless we think about both labor and capital.