The economy grows when technological improvements or investments in human or physical capital boost productivity, when the labor force increases, or when investment in physical capital adds to the economy's productive stock--and thus total output expands.
But this begs the question: What boosts productivity or creates incentives to invest? Economists differ in their specific answers to these questions, but the different theories point to five primary factors:• The level of human capital and whether talent is encouraged to boost the economy's productivity
• Cost of and access to financial capital, which allow firms and entrepreneurs to make real investments that create technological progress to use in the economy
• Strong and stable demand, which creates the market for goods and services and allows investors to plan for the future
• The quality of political and economic institutions, including the quality of corporate governance as well as political institutions and a legal structure that enforces contracts
• Investment in public goods, education, health, and infrastructure, which lays the foundation for private-sector investment
Strong empirical evidence in economics and other social sciences suggests that the strength of the middle class and the level of income inequality have an important role to play for each of these five factors boosting productivity and spurring investment.
This election year, one man can pack an arena 15,000 strong, rail against income inequality and "robber barons," and have the crowd cheer his every word.
About Restoration Calls
President Franklin Delano Roosevelt, in his first inaugural address, told a country struggling under the weight of the Great Depression that the nation needed to take action to rebuild and rejuvenate itself. He said: "Restoration calls, however, not for changes in ethics alone. This Nation asks for action, and action now." It was a time not unlike our own, where misbehavior on Wall Street fed a widespread credit and confidence crisis that swept like a tornado through the U.S. and global economy. And as in 1933, Washington again faces the time-sensitive task of diagnosing how its institutions are ill-equipped to fix the nation's problems, and then building a new system responsive to America's new needs. This project will tell that story, through the eyes of the Americans affected.