From my blog Britishcitizen.blogspot.co.uk Fix the Economy; Understand Capital and Income (Conservatives Don't) (Thanks to EF Schumacher whose ideas in "Small is Beautiful; A Study of Economics as if People Cared" opened my eyes to this glaring problem.) The arguments on Capitol Hill and indeed between Cameron and Miliband each week in Prime Minister's Questions highlight one glaring thing about conservatives. Claiming to be the ingenious creators of the free market economy and wealth creation, they fundamentally misunderstand how economics works. In their pursuit of wealth, they cut out the feet of the system that feeds them, and their system is inevitably doomed to collapse. The crucial misunderstanding is between income and capital. Income is the wealth created by activities or labour, or the investment of capital. Capital on the other hand, is the asset that is used to create income, like buildings or machinery, but crucially, IT IS NOT INCOME IN ITSELF. The misunderstanding of conservatives is that capital is income. To demonstrate this, take the example of oil. Conservatives view oil as income, because burning it creates wealth. This is seen by the policy stance of Mitt Romney in the Presidential Debates of 2012, where Romney pushed Obama to open up more federal lands for drilling to create cheap energy for Americans. He claims to understand the economy, this position suggests otherwise. Oil is capital. And America has limited stock. By burning it to create more wealth in the false assumption that it is income cuts away America's own feet, because America is burning its capital. This precious resource is limited, and the income it produces has a cost, America will use up its capital and exhaust its asset to create income. What it should do, is preserve its oil reserves, and invest in renewable energy sources, to preserve it's capital, and preserve it's ability to create wealth, by using its current capital, to find a method of creating cheap, renewable capital. This not only creates opportunities for investment in clean energy, it opens new jobs and encourages technological innovation. Romney didn't understand this, and neither do other conservatives. Take another example, the opposition to the $9 an hour minimum wage from Obama's State of the Union address. Republicans say that this makes it harder for small businesses to employ people and create jobs, but once again, the focus is on pure money, and human greed to accumulate it. Accumulation of wealth, again, abuses the very system that feeds us. It encourages man to be selfish, and squander his capital in order to produce dollar signs. It means employing people at the cheapest price to do a job that has no creative element. But once again, this system defeats itself. By becoming robots in their jobs, workers lose their humanity and turn to escapes in their sparse free time when not at the purgatory that is their job. This can be alcohol, drugs, violence, sex, all contributing to a worse society. However, a worker who is well paid, with the opportunity for creativeness at work, will in fact relish their time at work, and form stronger relationships with the people around them. This means a more productive business, a happier workforce and a more united society built on stronger bonds. The sole desire for money becomes second place to the enriching experience that working gives. Employing people to do horrible jobs for barely enough to raise them above the poverty line actually destroys that which is another part of our capital; the human part. Finally, the opposition to climate change seen by conservatives especially in America once again defeats itself. The environment can only take so much. Our continuing greed to accumulate more wealth leads us to spend more of our capital, which in turn destroys the very system that sustains us. Fossil fuels and nuclear fuels damage the environment in small amounts. Our expansionist greed makes their increased use a necessity, which damages the environment more. If we continue to expand and spend our limited capital, not only will it run out, we will destroy the system that sustains us, and the longer we look for science to find a clever way to reverse this, the more we encourage the exponential expansion of wealth and fatal consumption of capital. Not only that, we leave less and less of the traditional fuels for developing countries to build their own renewable sources. We shouldn't look for a clever way to allow us to keep bingeing, we should downscale our operations and actually conserve the habitat that provides our capital. From what I can see, the arguments above are compelling, and represent a genuine problem with the way that conservatives think about the economy. They don't distinguish between income and capital, which on its current course, will break our entire planet when all the capital has been used up as income, instead of invested to create new capital. Not only this, the workforce will fester in inhuman working conditions, leading to its own breakdown in moral terms, which is seen in rising social problems like alcohol and drugs. When people are enriched at work, recompensed fairly and enjoy going to work each day, you have a healthy stock of human capital. Message to conservatives, understand this before it is too late.