Two things always occur to me when read about the projections that economists try to make on something as vast and complex as the American economy.

The first is this: How much spending does it take, or how much increased spending, to support various increases in total output? In other words, as I assume we are generally talking about production for consumption, how much extra consumption has to occur to support larger amounts of things produced.

As you might imagine this is not a trivial problem. The potential to spend probably has as many factors involved with it as are in all of the facets of human nature, because, the universe knows, we buy things for more reasons than simple need.

That being said, though, doesn't change the fact that you still need a certain amount of disposable income (say after paying the rent, or mortgage; paying for fuel to and from work, as well as to heat where you live; basic food requirements, and health care) to be able to buy everything after the necessities. And in this is a major issue of social equity because a good portion of our labor force at present doesn't earn enough to even pay for the basics (a lot of jobs, unless you walk, or bike, to work, won't even pay the fuel bill coming and going).

The other thing is that new part of the economy where ever greater numbers of dollars are being generated by activity where nothing is actually created, or it is only tangentially related to the creation and consumption of an actual item. In this, of course, is a whole host of financial instruments that get traded after an initial transaction. Stocks. Bonds. Secondary marketing of bundled mortgages etc. And for me the poster child of this kind of activity, the number cruncher houses where the trick is to have more of the fastest computers running the cleverest of algorithms to anticipate stock market, or commodity market, or even currency market fluctuations. Hell, for a while there all you needed were servers a few meters closer to the exchange servers so that you could see quotes, or sell prices infinitesimal seconds before everyone else.

The question then, with that kind of activity, is how much it affects the total supply of money, on top of the usual flow inputs. I suspect it's getting quite large, and will only get bigger. If that's the case how does the Fed, or anyone else, for that matter, take it into account when they try to figure things like overall productivity, or inflation?

Usually, of course, it is working folks who get the blame for too much money chasing too few products because they are supposedly spending more money than their accumulated output would justify. Simply put, can we still make that assumption any more?

Like I said, it gets complicated, and we still haven't talked about what affects people in other countries and their ability, let alone their desire, to spend hard won income on stuff we make; especially when they have their own problems in getting everything they make sold, usually because their wages are even less than ours on the whole.

The bias at work here is clear if you think about it for even a moment. All of the effort in the past to hold workers to account for their productivity, but so little effort in considering any kind of efficacy in profit generation, or in how investments of various types help, or hinder productivity. You only need to consider the notion of crunching numbers to simply get more numbers to understand that the resultant profits don't do much of anything to affect anybody's productivity. It is simply process that generates more counters.

The bottom line of what we are talking about here is really all of the ways of looking at why the electrification of Capitalism can have such contradictory effects, and there are certainly others. Such as the way that it allows for hard won experience to be translated into instructions that any machine can then use to do labor far more efficiently than any human could. Which then serves to make the human commodity of labor be, automatically, worth significantly less. Turning information itself into a far more important commodity than it ever was before, as well as making it the very essence of currency (as all of that now is simply zeros and ones in memory banks everywhere), is another. Capitalism just wasn't conceived to handle these sorts of things. I mean. How could anyone involved in its founding have possibly foreseen these kinds of developments?

But that is where we are now. And when you see these discussions of economics, and you see them still focused on the primarily old, mechanistic interactions of bygone eras, just remember that the people involved still haven't accepted the full implications of what electrified Capitalism entails. As such you should take everything predicted from the usual way of doing things with a great deal of skepticism.