Cafe Hayek

"Essentials" On Cars

I like this post by Carpe Diem's Mark Perry.  Pay special attention to the table (toward the bottom of his post) that he reproduces from USA Today.  It presents yet more evidence that ordinary Americans are not stagnating economically.

"A Clean and Snappy Place!"

McDonald's makes the world a cleaner place.  So concludes Wharton's Adrian E. Tschoegl in his 2007 paper "McDonald's -- Much Maligned, But an Engine of Economic Development."  Here's the relevant passage (from page 12):

McDonald’s emphasis on cleanliness, including or especially in restrooms, has led its competitors to upgrade their facilities.  Before the first McDonald’s opened up in 1975, restrooms in Hong Kong’s restaurants were notoriously dirty (Watson 1997).  Over time, competitors felt compelled to meet McDonald’s cleanliness standards.  The same thing appears to be occurring in China (Watson 2000).  In Korea, McDonald’s introduced the practice of lining up in an orderly fashion to order food; traditional practice was simply to crowd the counter, with success in ordering accruing to the most aggressive (Watson 2000).  In the Philippines, Jollibee mimics McDonald's clean and well-lighted look.

Here's yet another small way that capitalism makes humans' environment safer and more pleasant.

Capitalism Day

On this Earth Day, I celebrate capitalism -- the institution that, far more than any other, has made human lives clean, safe, dignified, and culturally rich.  Capitalism is also responsible for giving people the wealth and leisure to permit them to mis-perceive nature as loving and bountiful, and to enjoy nature in a way that few of our pre-industrial ancestors could ever have enjoyed it.

So, on this Earth Day, I offer you here my essay, inspired by the work of Julian Simon, entitled "Cleaned by Capitalism."  Here are the central paragraphs:

Before refrigeration, people ran enormous risks of ingesting deadly bacteria whenever they ate meat or dairy products. Refrigeration has dramatically reduced the bacteria pollution that constantly haunted our pre-twentieth-century forebears.

We wear clean clothes; our ancestors wore foul clothes. Pre-industrial humans had no washers, dryers, or sanitary laundry detergent. Clothes were worn day after day without being washed. And when they were washed, the detergent was often made of urine.

Our bodies today are much cleaner. Sanitary soap is dirt cheap (so to speak), as is clean water from household taps. The result is that, unlike our ancestors, we moderns bathe frequently. Not only was soap a luxury until just a few generations ago, but because nearly all of our pre-industrial ancestors could afford nothing larger than minuscule cottages, there were no bathrooms (and certainly no running water). Baths, when taken, were taken in nearby streams, rivers, or ponds, often the same bodies of water used by the farm animals. Forget about shampoo, clean towels, toothpaste, mouthwash, and toilet tissue.

The interiors of our homes are immaculate compared to the squalid interiors of almost all pre-industrial dwellings. These dwellings’ floors were typically just dirt, which made the farm animals feel right at home when they wintered in the house with humans. Of course, there was no indoor plumbing. Nor were there household disinfectants, save sunlight. Unfortunately, because pre-industrial window panes were too expensive for ordinary families and because screens are an invention of the industrial age, sunlight and fresh air could be let into these cottages only by letting in insects too. Also, bizarre as it sounds to us today, the roofs of these dwellings were polluted with all manner of filthy or dangerous things. Here’s the description by historians Frances and Joseph Gies, in Life in a Medieval Village, of the roofs of pre-industrial cottages:

Roofs were thatched, as from ancient times, with straw, broom or heather, or in marsh country reeds or rushes. . . .  Thatched roofs had formidable drawbacks; they rotted from alternations of wet and dry, and harbored a menagerie of mice, rats, hornets, wasps, spiders, and birds; and above all they caught fire. Yet even in London they prevailed.

Peace and free trade.

Adding to the Prosperity Pool

One of my earliest posts at the Cafe -- dated June 28, 2004 -- is on what I call "the prosperity pool."

This article in today's Wall Street Journal, about new technology on automobiles to help protect drivers from crashes, offers yet another example of the countless ways that our lives become materially more prosperous, almost on a daily basis, in small steps -- steps so small that we seldom notice any one of them, but so large in number that they make us much wealthier than we realize.

Here's the article's sub-headline:

Systems Are Trickling Down From Luxury to Mainstream Vehicles

And here's the article's opening sentence:

Sophisticated technology that helps drivers avoid a crash is accelerating its descent from the rarified reaches of super luxury cars.

No Cause for Pessimism

George Will has long been one of my favorite conservative columnists.  I often disagree with him, but even more often I agree with him.  And, boy, do I agree with the lesson he conveys in his column appearing in today's Washington Post.  Will's point is that to call today's economic woes a "crisis" is to define the word "crisis" way, way down.  Here's are the opening few paragraphs from this excellent column:

During presidential elections, when candidates postulate this or that "crisis" for which each is the indispensable and sufficient cure, economic hypochondria is encouraged, so a sense of suffering is rampant. Recently the Wall Street Journal, like Joseph Conrad contemplating the Congo, surveyed today's economic jungle and cried, "The horror! The horror!"

Declines in housing values and the stock market are causing some Americans to delay retirement. A Kansas City man had been eager to retire to Arizona but now, the Journal says, "figures he'll stay put for another couple of years." He is 59.

So, this is a facet of today's hydra-headed "crisis" -- the man must linger in the labor force until, say, 62. That is the earliest age at which a person can, and most recipients do, begin collecting Social Security.

The proportion of people aged 55 to 64 who are working rose 1.5 percentage points from April 2007 to February 2008, during which the percentage of working Americans older than 65 rose two-tenths of one percentage point. The Journal grimly reported, "The prospect of millions of grandparents toiling away in their golden years doesn't square with the American dream."

Oh? The idea that protracted golden years of idleness are a universal right is a delusion of recent vintage. Deranged by the entitlement mentality fostered by a metastasizing welfare state, Americans now have such low pain thresholds that suffering is defined as a slight delay in beginning a subsidized retirement often lasting one-third of the retiree's adult lifetime.

George Will's wisdom inoculates him from the pessimistic bias.

I would add only that government subsidies to Americans in their 60s and older (most notably, Social Security and Medicare) are not the only forces enabling Americans today to retire earlier than in the past.  The increasing wealth generated by the private sector is another reason -- in fact, I suspect, the principal reason.

Optimal Population?

In his new book, Common Wealth, Jeffrey Sachs expresses his concern about population growth.  Worried by a U.N. prediction that global population will rise to 9.2 billion by the year 2050, from 6.6 billion today, Sachs says (on page 23 of his new book) the following about these additional 2.6 billion persons:

I will argue at some length that this is too many people to absorb safely, especially since most of the population increase is going to occur in today’s poorest countries.  We should be aiming….to stabilize the world’s population at 8 billion by midcentury.

(HT Karol Boudreaux)

Eight billion.  I'm not sure where Sachs got that number.  And, to be frank, I'm not curious about where he got it.  He could have dreamed it up in his sleep, or taken it from a multi-year study conducted by a lavishly funded committee made up of the world's most accomplished economists, demographers, environmentalists, statisticians, physicians, and other Very Smart Experts.  No matter where the number comes from, it's worthless.  There is simply no way to know how many persons the earth can "support" in the year 2050 (or any other year, for that matter).

First is the question: support at what standard of living?  Even if we grant the validity of the resources-are-very-tightly-limited supposition (upon which fear of population growth chiefly rests), there is no objective, scientifically determinable "optimal" number of people who can be alive at any one time.  According to the resources-are-very-tightly-limited supposition, the less that people consume, the greater are the amounts of resources that will be left for the future -- the greater is the earth's carrying capacity.  In this view, resources are simply 'out there,' waiting to be gathered, processed, and consumed by humans.  So more humans (or the same number of humans consuming more) will deplete resources faster than will fewer humans (or the same number of humans consuming less).

So on this resources-are-very-tightly-limited supposition, as people decrease their material standard of living, the earth can sustain a larger population.

How do we know today at what average standard of living persons alive in 2050 will seek to achieve?  We don't.  It's conceivable that the typical person alive in 2050 will have become so devoted to saving the earth that the prevalent culture and norms will dictate that most persons settle for material living standards lower than those that ordinary Americans enjoy today -- or, perhaps even lower than ordinary Americans enjoyed in 1950.  If so, then surely the "optimal" global population in the year 2050 will be lower than it would be if most persons alive in 2050 will seek to achieve living standards much higher than ordinary Americans now enjoy.

A much deeper problem with Sachs's eight-billion number is that, in calculating it, there is no way to predict how human creativity will alter the world during the next 42 years.  It's ludicrous to pretend that we can know now what, say, the average MPG will be for internal-combustion engines in 2050.  Hell, we don't even know if automobiles and lawnmowers and the like will still use such engines then.

Will another Norman Borlaug arise, between now and 2050, to spark another green revolution?  Will someone invent a way to efficiently power automobiles with air?  Will someone develop new and better techniques for defining and enforcing private property rights in ocean-going fish stocks so that the tragedy of the commons called "over-fishing" is eliminated?  Will an enterprising entrepreneur invent a means for ordinary households to power their homes with mulch or autumn leaves or small fragments of fingernail clippings?

Think back 42 years to 1966.  Who in that year imagined personal computers in nearly every home in America?  The Internet?  Digital cameras?  Cell phones?  Quality wines sold in screw-top bottles?  Buying music with literally the click of a button (and not having to burn fossil fuels in driving to the record store).  Aluminum cans that contain only a fraction of the metal that cans contained back then?  The Kindle (that will reduce the number of trees cut down to enable people to read books)?  Medical advances that make hip-replacements about as routine as getting cavities filled by the dentist?  Microfiber?

There is no way -- literally, no way -- to know how technology and social institutions will change between now and 2050.  Given this impossibility -- and given the fact that we can nevertheless predict with confidence that technology will advance and that social institutions will change -- to assert that "optimal" population in the year 2050 will be eight-billion persons is ludicrous in the extreme.  It's faux-science, and deserves only ridicule.

Commerce and Nature

Over at Say Anything Blog I find this wonderful quotation from the late science-fiction master Robert Heinlein:

There are hidden contradictions in the minds of people who “love Nature” while deploring the “artificialities” with which “Man has spoiled Nature.” The obvious contradiction lies in their choice of words, which imply that Man and his artifacts are not part of “Nature"-but beavers and their dams are.  But the contradictions go deeper than this prima-facie absurdity.  In declaring his love for a beaver dam (erected by beavers for beavers’ purposes) and hatred of dams erected by men (for the purposes of men) the “Naturist” reveals his hatred for his own race-i.e., his own self hatred.

In the case of “Naturists” such self-hatred is understandable; they are such a sorry lot.  But hatred is too strong an emotion to feel toward them; pity and contempt are the most at any rate.

Reading this Heinlein quotation -- which, because I've never developed a taste for reading science fiction, I've not encountered before today -- reminds me of one of my favorite passages from Thomas Babington Macaulay's History of England.  I re-run Macaulay's passage below (I've run it before), for it is both eloquent and wise -- and should be reflected upon deeply by all, especially by those persons who profess to love nature and who worry about commerce and civilization spoiling nature:

Indeed, law and police, trade and industry, have done far more than people of romantic dispositions will readily admit, to develop in our minds a sense of the wilder beauties of nature. A traveller must be freed from all apprehension of being murdered or starved before he can be charmed by the bold outlines and rich tints of the hills. He is not likely to be thrown into ecstasies by the abruptness of a precipice from which he is in imminent danger of falling two thousand feet perpendicular; by the boiling waves of a torrent which suddenly whirls away his baggage and forces him to run for his life; by the gloomy grandeur of a pass where he finds a corpse which marauders have just stripped and mangled; or by the screams of those eagles whose next meal may probably be on his own eyes. . . .

It was not till roads had been cut out of the rocks, till bridges had been flung over the courses of the rivulets, till inns had succeeded to dens of robbers . . . that strangers could be enchanted by the blue dimples of lakes and by the rainbows which overhung the waterfalls, and could derive a solemn pleasure even from the clouds and tempests which lowered on the mountain tops.

The Pessimistic Bias

Reading the comments on this post (which in many ways are very much like the comments on many other posts, both here at the Cafe and on other blogs) prompts me to make a couple of points that I've put off making for too long now.

In his indispensable book, The Myth of the Rational Voter, my GMU colleague (and EconLog's) Bryan Caplan finds powerful evidence that non-economists suffer from the "pessimistic bias," which Bryan defines (on page 45 of his book) as

a tendency to overestimate the severity of economic problems and underestimate the (recent) past, present, and future performance of the economy.

Russ and myself (because we're economists?) and many of the commentors here at the Cafe are not pessimistic about the long-run.  Problems come; problems are solved.  Inability to see the details of the future scare many people; this inability doesn't scare me.  As long as individuals have a sufficient quantum of freedom, their self-interest and creativity and inevitable competition will "solve" almost any problem over the long-haul.  It's a pattern repeated countless times over the past two-hundred years in capitalist countries.  (Please, please don't trot out the Great Depression as a counter-example.  First, it was clearly worsened by the Federal Reserve's catastrophically bad monetary policy, and by the worldwide spread of protectionism -- helped along by the Smoot-Hawley tariff.  More importantly, there's compelling evidence that the risks of full-throttle socialization of the economy were then real enough to scare investors away until the mid-1940s.  And even this greatest of all of America's depressions lasted only ten or fifteen years, depending on how you define the end of the Depression.)

Being optimistic doesn't mean being blindly insistent that the future will always be better than today.  Take away enough freedom and, kaboom!, the economy implodes.  (Or should I instead say "moobak!"?)  Fortunately, though, the capitalist economy is so remarkably robust that it can take lots of beatings -- lots of interventions -- lots of unnecessary taxation -- lots of foolish dissing -- and keep on keeping on at raising living standards.

I'm more optimistic today than I was ten or twenty years ago about just how much counterproductive regulation and taxation the capitalist economy can take before it really starts to fail.  But my sense is that the American economy still retains enough freedom -- that property rights remain sufficiently secure -- to ensure continued economic growth over the long run.

I remain bullish over the long run.  Very bullish indeed.
....
My second point is that it is a curious phenomenon that those who want more government control over the economy tend to be those who insist that the American economy has performed poorly over the past thirty-five years.  Again, as regular patrons of the Cafe know, Russ and I are quite sure that the economy has done very well during these years, even for poor and middle-class workers.

But if I were a pro-regulation and high-tax kinda guy, why would I dispute the claim that America's economy has performed remarkably well for everyone even since 1973?  Why would I not say "See, the government programs enacted from the New Deal forward are working!"  At no time during the past 35 years has Uncle Sam's budget been severely reduced.  During those years, some welfare programs have been scaled back, while others have been expanded and even newly created.  Trade is freer today, but the post-WWII trend toward freer trade began in the 1940s, long before those allegedly blissful years of the early 1970s.  Since the early 1970s, some regulations have been repealed, while others have been created at both the state and national levels. 

In short, despite what some pundits mysteriously assert, America during the past twenty-five to thirty-five years has emphatically not been a laissez-faire society.  Not even close.  So why do so many persons on the political left see in the economic data of the past three decades a compelling case for even greater government control over our lives and pocketbooks?  And why don't more of these same persons on the left respond to those of us who advocate less government by pointing to the evidence of continued and widespread growth in prosperity by saying proudly "See!  We're right and you're wrong: government intervention does work well!"

I believe that I know the answer to my (non-rhetorical) question, but this post is long enough, so I'll end it here.

Falling Housing Prices and Labor Mobility

Do falling home prices distort the labor market, as Louis Uchitelle argues in today's New York Times?  That is, are workers really generally unwilling to sell their homes -- because home prices have fallen -- even if failure to do so keeps these workers from moving to locations where employment prospects are brighter?  My initial instinct is to doubt the severity of this problem -- as this first of two letters that I sent today to the NYT explains:

Louis Uchitelle reports that falling home prices keep workers stuck in their homes, unwilling to sell and, hence, unwilling to move in order to take better jobs in different locations ("Unsold Homes Tie Down Would-Be Transplants," April 3).  Perhaps; but I have my doubts.

While it's true that people prefer to sell their homes at high prices, it's also true that people prefer to buy their homes at low prices.  So why should people's disappointment at being unable to sell their homes at prices as high as they once thought possible not be offset by their happiness at being able to buy new homes at prices lower than they once thought possible?

But my respect for many of the findings of behavioral economists is sufficiently high to cause me to grant the possibility that this phenomenon is real.  The endowment effect and loss-aversion might well make workers unusually resistant to sell their homes at prices lower than they've become accustomed to suppose that they could fetch for their homes.  So perhaps the phenomenon identified by Uchitelle is real.

When I sent the above letter to my list of letter-recipients that I keep, I prefaced the letter with the following remark:

Even if this phenomenon is real (perhaps it's one of the anomalies identified by behavioral economics), what does it say about the prosperity of America's workers if such considerations stymie their willingness to move in order to get better jobs?

A few minutes after I sent this letter to my list, NYT science writer John Tierney wrote me back expressing his agreement with this prefatory comment.  John's e-mail prompted me to write and send this second letter:

Louis Uchitelle reports that falling home prices keep workers stuck in their homes, unwilling to sell and, hence, unwilling to move in order to take jobs in different locations ("Unsold Homes Tie Down Would-Be Transplants," April 3).

But far from being evidence in support of your incessantly expressed belief that American workers today are in desperate shape economically, this phenomenon instead suggests that American workers are doing very well indeed.  Persons in miserable economic straits would not allow loss-aversion on their real-estate holdings to prevent them from taking better jobs.

Sincerely,
Donald J. Boudreaux

Are workers falling behind because of rising health care costs?

As is often the case, the glass is half-empty over at the Washington Post (HT: Steve Chapman). The headline on today's front page:

Rising Health Costs Cut Into Wages

Higher Fees Squeeze Employers, Workers

The article begins:

Recent history has not been kind to working-class Americans, who were down on the economy long before the word recession was uttered.

The main reason: spiraling health-care costs have been whacking away at their wages. Even though workers are producing more, inflation-adjusted median family income has dipped 2.6 percent -- or nearly $1,000 annually since 2000.

Employees and employers are getting squeezed by the price of health care. The struggle to control health costs is viewed as crucial to improving wages and living standards for working Americans. Employers are paying more for health care and other benefits, leaving less money for pay increases. Benefits now devour 30.2 percent of employers' compensation costs, with the remaining money going to wages, the Labor Department reported this month. That is up from 27.4 percent in 2000.

So the point is that because of rising health-care costs, workers are worse off. Pretty depressing. And there's a graphic to help make the point:

Unfortunately, the text accompanying the graphic is a non-sequitur--"The annual increase in the cost of benefits for workers has far outpaced wage increases in recent years." That sounds bad. That sounds like the costs of health care is growing faster than wages and higher health care costs would seem to imply a lower standard of living for workers. But it doesn't imply that at all. It simply says that the benefits component of compensation has been growing faster than the wage component.

And what does it mean that the "cost of benefits" is rising? What does the word "costs" mean in that phrase? It's a cost to employers. But to workers, benefits are, well, benefits. Higher compensation. What the chart shows is that benefits have been rising rapidly. That's actually a good thing. Yes, part of that increase is that employers are covering health care costs that have been rising. But it also includes other types of benefits, forms of compensation that are usually tax-free to employees.

To find out whether workers are doing better or worse than they once did, you want to look at whether total compensation is growing faster or slower than inflation.  Look at the graphic--it shows that other than a couple of months at the end of 2005, total compensation has been growing between 3% and 4% a year since 2000. But between 2000 and 2007, the CPI increased about 20% or less than 3% per year. So real compensation has been rising.

It's not clear from the graphic whether this is compensation per worker or per hour or whether it's total compensation across all employees. So the conclusion could be distorted by increases in the labor force since 2000. But what is clear is that the graphic has nothing to do with the pessimism of the article and seems to refute it.

As for the 2.6% fall in median income since 2000, the one seemingly hard piece of evidence in the  article, if the number is from the Census (which I assume it is), the Census income figures don't include health care benefits or employer contributions to retirement. So those income figures tell us nothing about the role of rising health care costs' effect on the standard of living of the median worker.

The rest of the article is a series of anecdotes about how expensive health care is. There is no hard evidence for the central claim that rising health care costs have reduced the standard of living of the average American. In fact, the graphic implies the exact opposite.

 

Stagnation Contest

Spencer suggests in a recent comment that no one is really claiming that middle class incomes are stagnant and to dispute this claim is to attack a straw man. I don't think he's right, though I always appreciate the perspective of our readers who do not agree with everything said here at the Cafe. So I thought we'd have a contest to find examples from the web or the media that make the claim that our standard of living is stagnant or that the middle class can't get ahead and so on. Or better yet that the middle class is falling behind. Or that all the gains of the last x years have gone to the top 1% or the top 20%.

I'll kick things off with a quote from Michelle Obama from a recent speech:

And things have gotten progressively worse throughout my lifetime, through Democratic and Republican administrations. It hasn't gotten better for regular folks.

I saw many versions of this quote in the news and the blogosphere but I struggled to verify it. I found an audio clip here. The quote starts at the 3:55 mark of the clip. To be eligible for the contest, you must provide a URL or verifiable source for the quote. Incidentally, Michelle Obama was born in 1964 but I'll give her some wiggle room for when she believes the decline in the quality of life for regular folks began.

Half Full or Half Empty?

In this post, I showed that net worth per household had risen dramatically in recent years. Of course, I admitted that the average might be skewed by the high end households but that I thought the median was up as well. The Washington Post has a piece today with the data for the median household, Turns out it's up 35% in real terms (that is, corrected for inflation) between 1989 and 2004. Pretty good news, and the article is generally sympathetic to the surprising possibility that the middle class is thriving.

But the graphic that goes with the article is much gloomier:

I don't know if you can read it, (you can click on it and make it bigger) but here's the first sentence that goes with the graphic: "Between 1989 and 2004, the net worth of the average American family increased by 35%, but household debt more than doubled as more families used debt to finance day-to-day expenses."

Here is another way to describe the data: "Between 1989 and 2004, Americans accumulated more wealth. They decided to  use some of that wealth for increased consumption today."

Notice the chart to the right on productivity and wages. By ignoring benefits, it paints a much gloomier picture than is the reality.

UPDATE: As Randy pointed out in the comments to this post, $55,000 seems like a lot of debt for the median household. Actually the number is not correct. It's taken from the Federal Reserve Board's Survey of Consumer Finances. It's the median debt among families that have debt, about 3/4 of all families. So it is not analogous to the income in the chart. It's not clear what kind of debt it includes. When I find out, I'll post on it.

Wealth, Savings and Debt

One comment on this post about the state of America mentioned our rising debt, negative savings and so on. Savings is mismeasured in the US--it doesn't include investment in human capital and ignores asset appreciation. As I said in the post, yes, debt is rising. But debt isn't what matters. It's net worth. Here are the data on real net worth. It's at an all-time high.

And yes, I know this is the total and doesn't hold for every individual. The same data for different quintiles of the income isn't quite so cheery. But they're still cheery. The chart is taken from a post by Michael Mandel at Business Week. Read the whole thing.

Prosperity and making stuff

Harold Meyerson thinks we've become a nation of shoppers rather than a nation of producers:

If 19th-century England was a nation of shopkeepers, the United States today is a nation of shoppers, and our role in the world economy is to buy what other countries -- or U.S.-based corporations with factories in other countries -- make. It was not ever thus. In the four decades following World War II, our largest employer was General Motors; for the past decade, it's been Wal-Mart.

It's a fact. Sort of. Actually, the federal government is the largest employer—1.7 million employees and that excludes the Post Office. Does that mean we've become a nation of bureaucrats because a little over 1% of all employees work for the government? Does it mean we're on a perilous downward path where instead of making things, we regulate things? That would be a silly statement. It is equally silly to conclude that because Wal-Mart is the largest private employer we've stopped making things.

Actually, making things is not the road to prosperity. The road to prosperity for a nation is to use the skills of its citizens wisely. The wise use of those skills depends on the skills and desires of people in other nations. Sometimes that means making stuff. Sometimes it means providing services in exchange for making stuff.

And as it turns out, we do make a lot of stuff here in the United States. Manufacturing output is dramatically greater today than 30 or 40 or 50 or 60 years ago, the halcyon era that Meyerson imagines once existed. Manufacturing output has almost tripled since 1970. What has happened over the last 60 years is that productivity in the manufacturing sector has increased greatly. That has allowed the US manufacturing sector to produce a lot more stuff with  roughly the same or even a declining number of employees.

Wal-Mart is a red herring. It's success hasn't come at the expense of the manufacturing sector. The trends in the manufacturing sector go back 60 years, long before Wal-Mart existed.

Meyerson continues:

GM followed in the footsteps of Henry Ford, who by 1913 had concluded that he needed to pay his workers enough that they could afford to buy a new Ford. Wal-Mart, by contrast, pays its workers so little that they are compelled to shop at Wal-Mart.

But even if Wal-Mart weren't a downward force on wages throughout much of the economy,

Sorry to stop the quote in mid-sentence, but it's such a great stopping point. Wal-Mart is a downward force on wages throughout much of the economy? What does the word "much" mean in that sentence? I think it's a hedge for the author. It covers a lot of ground. It would be absurd to argue that Wal-Mart lowers wages in Manhattan so maybe it's a geographical qualifier. It would be absurd to argue that Wal-Mart lowers wages in baseball or journalism or the computer industry, so maybe it's a sectoral qualifier.

But where is the large part of the economy (much, after all, means a substantial part) that Wal-Mart does affect wages in a downward fashion? Is it in certain geographical areas where Wal-Mart stores have opened, like say, in DeKalb county, outside of Atlanta? When Wal-Mart opened a store there recently, 7500 people showed up for 400 jobs. Did Wal-Mart attract those people by offering LOWER wages than were being offered elsewhere?

And how is it that a company that employs slightly less than 1% of the labor force affect wages in much of the economy, however you define "much?"

But Meyerson has a worse problem to explain. How does a nation of shoppers thrive when incomes are stagnating, as he believes they are?

Here's the full quote:

But even if Wal-Mart weren't a downward force on wages throughout much of the economy, consider the implications of a nation whose chief economic activity is personal consumption -- more particularly, personal consumption at a time when incomes are stagnating. The only way such a nation can get along is to go into debt, which is precisely what Americans have done.

Do you see the problem? How can a nation of stagnating incomes get to enjoy so much stuff? It must be debt. We're living beyond our means. We're borrowing to support a lifestyle we can't afford.

Debt is up in recent years, but so is wealth. I'd like to see evidence that the prosperity of say the last 25 years is due to borrowing. The prosperity of the last 25 years is real. It has been driven by productivity increases in manufacturing and the service sector, created by an explosion of innovation in how we handle information.

Meyerson's solution to our alleged economic crisis is to elect either Hillary or Obama:

One of the crucial differences between the two parties this year is that Hillary Clinton and Barack Obama have both revived the idea of a national industrial strategy -- better late than never -- while John McCain still acts as if banks and corporations, left to their own devices, would revive our economy through their investments. Problem is, we've left banks and corporations to their own devices for decades, and they've funded the rise of low-wage, high-profit East Asia . Nonetheless, McCain calls for across-the-board corporate tax cuts, though that money may well be bound for Shanghai. Clinton and Obama, by contrast, call for the public sector to take up the slack created by the private sector's reluctance to invest in the United States.

Ah, that's the ticket. Let's try the Japanese economic strategy. And what does he mean by the private sector's reluctance to invest in the United States? Everybody wants to invest in the United States. Foreign governments, foreign investors, American investors and American companies. The money flows in because the United States is the most productive economy on the face of the earth. Would someone let Harold Meyerson in on this secret?

If Simon's Bet Had Been Repeated.....

If the famous Ehrlich-Simon wager -- the one that ran from 1980 to 1990 -- had been done again from 1990 to 2000,  Julian Simon would have won that bet, too.  My former research assistant at GMU, Prof. Mark Perry, has the story over at his excellent blog Carpe Diem.

American Consumption

Mike Cox and Richard Alm have an excellent op-ed in today's New York Times.  It exposes as (at best) facile the view -- expressed just yesterday by the Gray Lady's columnist Bob Herbert -- that "[t]he middle class is hardly flourishing" -- that America's middle-class is disappearing and needs to be "resuscitated."

Here are some key paragraphs:

Income statistics, however, don’t tell the whole story of Americans’ living standards. Looking at a far more direct measure of American families’ economic status — household consumption — indicates that the gap between rich and poor is far less than most assume, and that the abstract, income-based way in which we measure the so-called poverty rate no longer applies to our society.

The top fifth of American households earned an average of $149,963 a year in 2006. As shown in the first accompanying chart, they spent $69,863 on food, clothing, shelter, utilities, transportation, health care and other categories of consumption. The rest of their income went largely to taxes and savings.

The bottom fifth earned just $9,974, but spent nearly twice that — an average of $18,153 a year. How is that possible? A look at the far right-hand column of the consumption chart, labeled “financial flows,” shows why: those lower-income families have access to various sources of spending money that doesn’t fall under taxable income. These sources include portions of sales of property like homes and cars and securities that are not subject to capital gains taxes, insurance policies redeemed, or the drawing down of bank accounts. While some of these families are mired in poverty, many (the exact proportion is unclear) are headed by retirees and those temporarily between jobs, and thus their low income total doesn’t accurately reflect their long-term financial status.

So, bearing this in mind, if we compare the incomes of the top and bottom fifths, we see a ratio of 15 to 1. If we turn to consumption, the gap declines to around 4 to 1. A similar narrowing takes place throughout all levels of income distribution. The middle 20 percent of families had incomes more than four times the bottom fifth. Yet their edge in consumption fell to about 2 to 1.

Let’s take the adjustments one step further. Richer households are larger — an average of 3.1 people in the top fifth, compared with 2.5 people in the middle fifth and 1.7 in the bottom fifth. If we look at consumption per person, the difference between the richest and poorest households falls to just 2.1 to 1. The average person in the middle fifth consumes just 29 percent more than someone living in a bottom-fifth household.

The vanishing middle class

Here is a very nice video from Reason.TV of Drew Carey talking about how the middle class actually is alive and well. Although I like the economics, I also like the clips from Dobbs et al relentlessly trying to scare people.

Viktor Schreckengost

Ever hear of Viktor Schreckengost?  I hadn't heard of him until this morning when I read his obituary in the Washington Post.  Mr. Schreckengost died recently, at the age of 101.

So why do I care?  Why should you care?

I care and you should care because Mr. Schreckengost likely has done more to make your life better and pleasant than has nearly any of the politicians you can name.  Measuring any one person's contributions to a society whose essence is vast and on-going social cooperation is inherently difficult and often speculative.  Still, I'll speculate.  I have a strong sense that the positive value of Viktor Schreckengost's contributions to human well-being exceeds that of FDR, Richard Nixon, Jimmy Carter, Ronald Reagan, any Kennedy or Bush, Kofi Annan, Nancy Pelosi, Tip O'Neill -- you name the political operative.

A good sense of Mr. Schreckengost's contributions comes from the opening paragraph of the Post's obit:

Viktor Schreckengost, 101, a celebrated industrial designer whose products included mass-produced dinnerware, riding lawn mowers, bicycles and coffins, and who revolutionized trucking by putting the cab over the engine, died Jan. 26 at his condominium in Tallahassee.

Read the entire obit to learn more fully just how much this man has contributed.

His mass-produced dinnerware is especially interesting.  Here's more from the obit:

Mr. Schreckengost -- whose name means "frightening guest" in German -- was born June 23, 1906, in Sebring, Ohio. He learned clay sculpting from his father, a commercial potter, and said his parents expected their children to make their own toys.....

In the early 1930s, he was hired by American Limoges to design what is widely believed to be the first modern mass-produced dinnerware. Its patterns had a Manhattan theme and became ubiquitous in homes of that era.

So Mr Schreckengost contributed in a major way to a commercial enterprise that was in competition with his father's profession.  With the advent of mass-produced dinnerware -- designed, by the way, by a man whose work was sought after by the likes of Eleanor Roosevelt -- millions of ordinary families could acquire higher-quality or lower-cost dinnerware from large-scale producers.  Surely this development wasn't good for the business of most commercial potters.  But it was good for ordinary people.

So rest in peace, Mr. Schreckengost.  I salute you.  I salute your creativity, your work, your life.  Even though I, like most people, had never before heard of you, know that I am happy not only to have learned of you but, perhaps ironically, also to live in a society that encourages creative people such as yourself to work for my betterment without my having to grovel before you, to enslave you, or even to pay you the kind of modest homage that I offer here.

UPDATE: Steve Horwitz has these important reflections on Mr. Schreckengost over at The Austrian Economists.

"24" circa 1994

I watch very little television, so I've never seen the show "24."  (I don't even know what it's about.)  But I understand and enjoy this spoof on "24" -- a pilot for the show allegedly shot in 1994.  For those who believe that America's middle-class has been economically stagnant, this short video gives you some reasons to doubt the stagnation hypothesis.  (HT to Mathieu Bedard)

Not stagnant

Here is Harold Meyerson in the Washington Post, singing the same old false song (HT: Co-host Don Boudreaux):

...we face an economy that's been warped by two developments we've not seen since FDR's time.

The first of these is the stagnation of ordinary Americans' incomes, a phenomenon that began back in the 1970s and that American families have offset by having both spouses work and by drawing on the rising value of their homes.

Unfortunately for Meyerson's unrelenting pessimism, median family income (median, not mean) corrected for inflation, was up 23% between 1973 (a good year in the early 1970's that the gloom and doomers like to call the good old days.)

Is that increase due to both spouses working? For families where both spouses work (so holding constant the number of workers in the family), the increase is 36%.

The data are from the US Census and can be found here.

These income numbers do not include employer contributions to health care or retirement unless they get converted into income. They correct for inflation using a flawed index that probably overstates inflation by 1% a year for the last ten years. They include composition effects of an increase in immigration that reduces the measured median by adding in newcomers who have fewer skills.

Incomes in America have not been stagnant since the 1970s.

Freedom and the Ultimate Resource

The Wall Street Journal's Mary Anastasia O'Grady summarizes the findings of the latest - the 14th - Heritage Foundation / The Wall Street Journal Index of Economic Freedom.  Here are the opening paragraphs of Ms. O'Grady's summary:

Are the world's impoverished masses destined to live lives of permanent misery unless rich countries transfer wealth for spending on education and infrastructure?

You might think so if your gurus on development economics earn their bread and butter "lending" at the World Bank. Education and infrastructure "investment" are two of the Bank's favorite development themes.

Yet the evidence is piling up that neither government nor multilateral spending on education and infrastructure are key to development. To move out of poverty, countries instead need fast growth; and to get that they need to unleash the animal spirits of entrepreneurs.

....

The Index also reports that the freest 20% of the world's economies have twice the per capita income of those in the second quintile and five times that of the least-free 20%. In other words, freedom and prosperity are highly correlated.

As Julian Simon taught us, the ultimate resource is the free human mind.  A land rich in petroleum, arable land, and iron ore and other minerals is useless to a society of humans incapable of rational thought and intolerant of change.  Nor would such a land of potential plenty realize its potential if its inhabitants are restrained by tyranny or by widely shared misconceptions that individual enterprise, innovation, profit, and the pursuit of worldly pleasures are degrading or sinful.

But unleash people from the countless foolish and rent-seeking constraints imposed by government and from constraints imposed by their own superstitions and they will create resources.  They will flourish and prosper, not only materially but also culturally and intellectually.  A free people can and will build a dynamically prosperous society in even relatively barren and inhospitable places such as New England, Arizona, and Hong Kong.  An unfree people will languish in poverty even in lush paradises such as much of Central and South America and in lands teeming with 'natural' resources such as Congo and Russia.

Nano Technology

In today's Washington Post is this report about how terrible it is that countless more Indians will be able to afford automobiles now that Tata has introduced its Nano, priced at $2,500.   Chief among the laments, of course, is the fact that such prosperity will result in the creation of more greenhouse gases.  (But Mira Kamdar, the author, rather inconsistently also frets that such an inexpensive car might further diminish the U.S. auto industry.)

For a much more clear-headed assessment of what the Nano means for ordinary Indians, read this blog post by Barun Mitra.  Here are some key paragraphs:

Not surprisingly, there are many who have expressed concerns about the prospect of the masses accessing personal automobiles. The issues they raise range from the impact on oil prices and a concern for global warming, to traffic congestion. Most such commentators have not been known to eschew their personal automobiles, or other modern conveniences, but have no qualms in frowning upon the masses enjoying some of the same benefits. This desire to keep others off the life-boats of their standard of living is a common feature of many who claim to have social or environmental concern in their hearts. One fact worth reminding them of is that transportation is one of the biggest expenses faced by rural poor seeking health care.

 The opposition to Nano is also an illustration of the head-in-the-sand mind-set, which pits rising demand for consumption against environmental conservation.

In fact, as more Indians are able to afford more cars, the scale of consumption will help improve the technology, improve efficiency and clean up the environment. It is not a coincidence, that Toyota's ascent up the world auto league has been accompanied by its pioneering efforts in new technologies and innovation. Though counter-intuitive, it is true of most areas of enterprise that only enhanced scales of consumption lead to improvement in efficiency - in this case, easily measured by tail-pipe emission. It is worth noting that while Toyota sold well over 9 million vehicles in 2007, Tata Motors took ten years to sell its millionth passenger car.

Government cheer

Even government is getting better all the time. Well, not exactly. It's bigger, which is worse. But it is better in some dimensions. There is no reason for the U.S. Post Office to exist. Yes, it has too many employees and is probably inefficiently run. Yes, it shouldn't have a monopoly on normal (as opposed to overnight) letters. But my guess is that it is dramatically more efficient than it once was. Why is that? I think much of it has to do with Fed Ex and UPS and email changing the expectations of consumers. Its structure is not the same as it once was. It has been semi-privatized since 1971 and appears to no longer run deficits every year. This is progress. The glass is half-full.

Even the Department of Motor Vehicles isn't what it once was. I renew my registration online. It's essentially a pleasant experience. Why has it changed? People demanded it. It took too long, sure. And it's probably too expensive. But it seems to be better.

EZ Pass makes driving better. You don't have to stop and pay tolls. All those toll-collectors put out of work (or at least I imagine so) yet the better technology triumphed. How did that happen? One reason is that it makes it easier to raise toll rates and toll revenue—drivers with EZ Pass are probably less aware of the cost. But surely it has something to do with our ever-higher value of time and our expectations about the role of technology we expect as customers.

Of course, change in the public area takes a long time. Gregg Easterbrook reports:

Last week, I found myself in a group of dozens of cars and SUVs, almost all of which had their engines running even though they were stopped and not expecting to move. Where was this? At a Maryland state emissions testing station. The testing station had six lanes, each with a dozen cars waiting to be tested, the vehicles creeping forward about once every five minutes. I got out and walked around the cars and SUVs. Although it was obvious to drivers they would advance only every five minutes or so, nearly all left the engines running, wasting gasoline. And causing smog emissions! Not only was it absurd that drivers kept their engines running while mired in a slow-moving line, it was absurd that dozens of cars were stacked up, pointlessly emitting pollutants, at an emissions testing station.

Emissions testing stations themselves are technological dinosaurs. In the 1980s and early 1990s, the Environmental Protection Agency used Clean Air Act authority to pressure states into building emissions testing centers that were designed to attach hoses to tailpipes and catch old clunkers or poorly maintained cars emitting more air pollutants than 100 properly maintained cars. State governments fought the requirement because voters hate having to take half a day off from work to pay for the privilege of waiting in line for time-wasting tests. But eventually, most states built centralized emissions testing centers, creating a bureaucracy the states now seek to sustain. All cars and SUVs sold since about the start of the decade contain computer chips that report on emissions performance; the emissions centers no longer test the tailpipe, merely jack in to the chip for a few seconds. This could be accomplished wirelessly by attaching a small transmitter to the engine chip and putting receivers along highways; any car or SUV that was violating pollution standards would announce that fact -- and its VIN -- whenever it drove past a receiver, and the owners could be warned by mail. Setting the system up this way would ensure clean air while allowing the elimination of emissions testing stations, saving voters time and ending the long lines of cars idling at the stations, wasting petroleum and emitting greenhouse gases. However, centralized emissions testing now has interest groups that support it as a jobs program, another example of how government can create programs but cannot end them.

My colleague Dan Klein knew about this opportunity to use technology long ago. it will happen but it will take a long time.

More sunshine

More cheer, this time from the Gallup Poll (HT: Drudge):

Yes, I know everyone says the middle class is dying out. Yes, everyone seems to think that job security is at an all time low. Yes, the sky is always falling. But evidently, much of the alarm about the state of America comes from a presumption that others are doing badly. Maybe things aren't so bad after all.

Affordable Health Care

Are many Americans really unable to afford health care?  No.  Or, more precisely, the question is flawed -- as I argued in this column a few years ago.  Here are some key paragraphs:

But health care, like most things in life, is not like pregnancy. It comes in an enormous range of degrees. At one extreme is the amount and quality of health care that Bill Gates might purchase -- personal physicians and pharmacists, each devoted exclusively to Gates; monthly physicals conducted with the most advanced technology; immediate transportation in a private jet to the world's finest hospitals for treatment by the world's most acclaimed physicians; and recuperation at luxurious Swiss resorts attended round-the-clock by a staff of doctors, nurses and dieticians of unparalleled excellence.

Now imagine the opposite extreme -- the case of someone who can afford no health care at all. This horribly unfortunate person would not only be unable to visit a physician to check out that runny nose or that blurry vision, he could not afford even to buy over-the-counter antihistamines, aspirin, cough drops, rubbing alcohol, hydrogen peroxide, reading glasses, Band Aids, athlete's-foot spray, vitamins, toothpaste, condoms, or any of the many other health care and personal hygiene products for sale in every supermarket.

Almost all Americans, of course, consume an amount and quality of health care somewhere between the amount consumed by billionaires and the amount consumed by homeless paupers.

That '70s Show

Joel Kotkin, always thoughtful and provocative, does a nice job in today's Washington Post advising us denizens of the first decade of the 21st century not to take our fears too seriously.  Here are his opening paragraphs:

The country is in a funk. Oil prices are at record highs, and the dollar is plummeting. Foreigners are buying out leading U.S. business assets. Environmentalists say the world is headed toward an ecological crackup of biblical proportions.

Today's headlines? Well, yes. But for those of us old enough to remember, they could just as easily be bulletins from one of the grimmest decades in recent U.S. history: the '70s.

That decade, when all the promise of the 1960s fizzled into disappointment, holds up a mirror to our contemporary pessimism. Then as now, Americans felt uncertain about the present and insecure about the future. But we found a way out of the gloom -- and if that decade is our guide, we're likely to do it again.

I came of age in the 1970s, and I agree with Kotkin.

But They Now Have A Larger Carbon Footprint!!!

In poor Laos, the benefits of trade are visible.

The pineapples that grow on the steep hills above the Mekong River are especially sweet, the red and orange chilies unusually spicy, and the spring onions and watercress retain the freshness of the mountain dew.

For years, getting this prized produce to market meant that someone had to carry a giant basket on a back-breaking, daylong trek down narrow mountain trails cutting through the jungle.

That is changing, thanks in large part to China.

Villagers ride their cheap Chinese motorcycles, which sell for as little as $440, down a dirt road to the markets of Luang Prabang, a charming city of Buddhist temples along the Mekong that draws flocks of foreign tourists. The trip takes one and a half hours.

“No one had a motorcycle before,” said Khamphao Janphasid, 43, a teacher in the local school whose extended family now has three of them. “The only motorcycles that used to be available were Japanese, and poor people couldn’t afford them.”

Inexpensive Chinese products are flooding China’s southern neighbors like Cambodia, Laos, Myanmar and Vietnam. The products are transforming the lives of some of the poorest people in Asia, whose worldly possessions a few years ago typically consisted of not much more than one or two sets of clothes, cooking utensils and a thatch-roofed house built by hand.

I'm Lovin' It!

George Will celebrates a great American institution: McDonald's.  Here's a key paragraph:

McDonald's exemplifies the role of small businesses in Americans' upward mobility. The company is largely a confederation of small businesses: 85 percent of its U.S. restaurants -- average annual sales, $2.2 million -- are owned by franchisees. McDonald's has made more millionaires, and especially black and Hispanic millionaires, than any other economic entity ever, anywhere.

Future Jobs

The following letter of mine is published in today's edition of the New York Times:

To the Editor:

Bob Herbert quotes the observation by Andrew L. Stern, president of the Service Employees International Union, that Americans today “cannot see where the jobs of the future are that will allow their kids to have a better life than they had.” Mr. Stern adds, “And they’re not wrong.”

But when could Americans of any generation foresee future jobs? Did the blacksmith in 1890 foresee jobs in the auto industry? Did the corner grocer in 1940 foresee his son prospering as a regional manager for Wal-Mart?

Did the telegram-deliverer in 1950 foresee his child designing software for cellphones? Did the local pharmacist in 1960 foresee his daughter’s job as a biomedical engineer?

Our inability today to see the details of the future is no more worrisome than was the same inability of our grandparents. 

Donald J. Boudreaux
Fairfax, Va., Dec. 22, 2007
The writer is chairman of the economics department, George Mason University.

The change in our standard of living

My next book, The Price of Everything, is about the transformation of our standard of living and wealth creation. The widespread improvement in the quality of life that comes from the creation of wealth is hard to quantify, Is the average person today five times richer than in 1900? Ten times? Thirty? In many ways, qualitative measures are more effective at conveying the improvement—the increase in access to luxury goods by the masses, changes in life expectancy, the reduction in the dangers of the workplace as we’ve moved from an agricultural economy to a service economy.