Tag Archives: Human Progress

Behold Our Riches! Quality, Prices, Income, and the Purchasing Power of Labor

12 Tuesday Sep 2017

Posted by in Human Welfare, Markets

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coffeemaker

A steady refrain among pundits is that the American middle class can’t get ahead. The standard of living of average Americans has stagnated over the past 30 years, according to this view. It’s bolstered by government measures of average wage growth relative to consumer prices. But Martin Feldstein describes the flaws in constructing these measures; he says they may have led to an understatement of real income growth of more than 2% per year! Here is a link to Feldstein’s piece in the Wall Street Journal: “We’re Richer Than We Realize“. (If the link doesn’t work, an ungated link can be found on the WSJ Facebook page, posted at 10:30 a.m. on Saturday, Sept. 9th.)

Here are some of Feldstein’s observations:

“If there is no increase in the cost of production, the government concludes that there has been no increase in quality. And if the manufacturer reports an increase in the cost of production, the government assumes that the value of the product to consumers has increased in the same proportion.

That’s a very narrow—and incorrect—way to measure quality change. In reality companies improve products in ways that don’t cost more to produce and may even cost less. That’s been true over the years for familiar products like television sets and audio speakers. The government therefore doesn’t really measure the value to consumers of the improved product, only the cost of the increased inputs. The same approach, based on measuring the cost of inputs rather than the value of output, is also used for services.

The official estimates of quality change are therefore mislabeled and misinterpreted. When it comes to quality change, what is called the growth of real output is really the growth of real inputs. The result is a major underestimation of the increase in real output and in the growth of real incomes that occurs through quality improvements.

The other source of underestimation of growth is the failure to capture the benefit of new goods and services. Here’s how the current procedure works: When a new product is developed and sold to the public, its market value enters into nominal gross domestic product. But there is no attempt to take into account the full value to consumers created by the new product per se.“

It goes well beyond that, however, as great swaths of consumer value are completely ignored by government statistics:

“A basic government rule of GDP measurement is to count only goods and services that are sold in the market. Services like Google and Facebook are therefore excluded from GDP even though they are of substantial value to households. The increasing importance of such free services implies a further understatement of real income growth.“

Some of these criticisms are unfair to the extent that income statistics correspond to what consumers can purchase in terms of market value. That is a fundamentally different concept than the total value consumers assign to goods and services (market value plus consumer surplus). Nevertheless, there are efforts to adjust for quality in these statistics, but they fall far short of their objective. Also, GDP and income statistics purport to be measures of economic welfare, though it’s well known that they fall short of that ideal. It might be more fair to say that that official income statistics are reliable in tracking short-term changes in well being, but not so much over long periods of time.

The graphic at the top of this post is taken from Marian L. Tupy’s “Cost of Living and Wage Stagnation in the United States, 1979-2015“, on the CATO Institute‘s web site:

“… many, perhaps most, big-ticket items used by a typical American family on a daily basis have decreased in price. Over at Human Progress, we have been comparing the prices of common household items as advertised in the 1979 Sears catalog and prices of common household items as sold by Walmart in 2015.

We have divided the 1979 nominal prices by 1979 average nominal hourly wages and 2015 nominal prices by 2015 average nominal hourly wages, to calculate the “time cost” of common household items in each year (i.e., the number of hours the average American would have to work to earn enough money to purchase various household items at the nominal prices). Thus, the ‘time cost’ of a 13 Cu. Ft. refrigerator fell by 52 percent in terms of the hours of work required at the average hourly nominal wage, etc.“

Tupy’s post also covers the huge increases in non-wage benefits enjoyed by many workers over the past several decades, which are not captured in average wage statistics.

It’s clear that standard measures of income growth are distorted by the failure to properly account for changes in the quality of goods and services at our disposal. The narrative of middle class stagnation is flawed in that respect. As Don Boudreaux has said, most ordinary Americans are richer today than John D. Rockefeller was a century ago. The availability and quality of goods and many services today, affordable to ordinary Americans, are vastly superior to what Rockefeller had then or could even imagine. And many of those advancements occurred since the 1970s.

May You Live For a Thousand Years

27 Tuesday Sep 2016

Posted by in Human Welfare, Life Extension, Progressivism

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didnt-expect-to-live-this-long

What if human life expectancy doubles over the next 50 years? Triples? Mark Zuckerberg and many others with money to spend, such as Peter Theil and Larry Ellison, want to accomplish that and more. For example, Zuckerberg and his wife Priscilla Chan have pledged $3 billion over the next decade to “rid the world of disease”. The implications are fascinating to ponder. In developed countries, most of the life extension would come from reducing mortality in adulthood and late in life, simply because childhood mortality has already reached very low levels. Assuming that the additional years are healthful, the dynamics of population growth and the labor force would change. Family structure could take new directions, especially if extended fertility takes place along with life extension. The coexistence of six, nine, or more generations might make one’s descendants virtual strangers. And it might be possible for an individual to have children who are younger than the great-grandchildren of progeny conceived early in one’s adulthood. For love or money, your great-grandchild might couple with an individual a generation or more ahead of you. Scandalous!

Some pundits foresee dark implications for humanity. Alex Tabarrok comments on some musings in The Telegraph by Jemima Lewis, providing the following Lewis quote:

“We’d better hope they don’t succeed. What would it do to the human race if we were granted eternal health, and therefore life? Without any deaths to offset all the births, we would have to make room on earth for an extra 208,400 people a day, or 76,066,000 a year – and that’s before those babies grow old enough to reproduce themselves.

Within a month of Mr Zuckerberg curing mortality, the first wars over water resources would break out. Within a year, the World Health Organisation would be embarking on an emergency sterilisation programme. Give it a decade and we’d all be dead from starvation, apart from a handful of straggle-bearded tech billionaires, living in well-stocked bunkers under San Francisco.“

Of course, people will still die in accidents and from some illnesses that cannot be anticipated; some people will always engage in self-destructive behavior; and there will always be natural calamities that will take human life, such as earthquakes and hurricanes. Nevertheless, life-extending technologies will increase the human population, all else equal. I say bring it on! But Lewis’ attitude is that increasing life expectancy is a bad thing, contrary to our almost uniformly positive experience with longer lives thus far, including improvements in the quality of life for aging seniors. More fundamentally, her view is that people are a liability, a collection of helpless gobblers, rather than valuable resources with the promise of providing themselves with an increasingly rich existence.

Lewis’ article demonstrates a special brand of ignorance, now common to many on the left, going back at least to the time of Robert Malthus, at about the turn of the 19th century. Malthus’ pessimism about the world’s ability to provide for the needs of an expanding population is well known, and wrong. The Club of Rome‘s report “The Limits To Growth“, published in 1972, pretty much continued in the Malthusian tradition. That report predicted increasing shortages and mass starvation. Of course, the Club erred both empirically and theoretically, as Julian Simon forcefully argued in the 1980s and 1990s. The crux of Simon’s argument was the existence of a renewable resource of vast promise: human ingenuity:

“Because of increases in knowledge, the earth’s ‘carrying capacity’ has been increasing throughout the decades and centuries and millennia to such an extent that the term ‘carrying capacity’ has by now no useful meaning. These trends strongly suggest a progressive improvement and enrichment of the earth’s natural resource base, and of mankind’s lot on earth.“

There are certain conditions that must be in place for the planet to provide for ongoing advances in human well-being. Markets must be operative in order for prices to provide accurate signals about the relative scarcity of different resources. When particular resources become more scarce, their prices provide an incentive to use existing substitutes and innovative alternatives. Competition facilitates and helps perfect this process, as new producers continuously seek to introduce innovations. Needless to say, the more restrictions imposed by government, and the more the state gets involved in picking favorites and protecting incumbents, the less effective this process becomes.

From a global perspective, the human race has done quite well in eliminating poverty during the industrial era. Impressive measures of progress across many dimensions are chronicled at the Human Progress blog, where Marian Tupy writes of “Looking Forward To the Future“. These improvements fly in the face of predictions from the environmental left, and they demonstrate that humanity is likely to find many ways in which extended lifespans can be both enjoyed and contribute to the world’s productive potential.

Extended lifespans will bring changes in the way we think about our working years and retirement. Both parts of our lives are likely to be extended. Job experience utilizing incumbent technologies will become less scarce, and will thus command a lower premium. Continuing education will increase in importance with new waves of technology. There will be changes in the time patterns of saving and investment and the design of retirement benefits offered by employers, but long periods of compounding might reduce the pressure to save aggressively. Bequest motives would almost surely change. Mechanisms like family endowments benefitting members of an extended family via education funding, medical technology and end-of-life care might become common.

There will have to be many changes in our physical makeup to ensure that life extension buys mostly “quality time”. For example, it’s probably not possible for many parts of the human body to function reliably after a century of use. The technologies of skeletal, organ and muscle replacement, or rejuvenation, will have to advance significantly to ensure a reasonable quality of life in an older population. The bodies of older humans will either be cyborgized or freshly regenerated as life extension becomes a reality.

As more radical life extension begins in earnest, it’s likely to begin as the exclusive province  of the rich. However, like everything else, the technologies and benefits will eventually diffuse to the broader population as long as competitive pressures are present in the relevant markets. It will be a matter of choice, and perhaps the most unhappy among us will choose to forego these opportunities. However, such technologies, to the extent that they become a reality, would have the potential to improve the physical well- being of almost anyone.

Dramatically extending the human life span will bring dramatic change and many social challenges, but ending disease is a worthy goal, and one that most certainly will benefit mankind. Tabarrok casts Jenima Lewis as an Ayn Rand villain, though he must realize that she is simply ignorant of the forces that create growth and an improving existence. Unfortunately, she is one of many on the left enamored with a perspective that is “anti-mind, anti-man, anti-life” (to quote Tabarrok quoting Rand).

For additional reading on the left’s anti-human agenda, see this Fred Siegel piece in the City Journal, “Progressives Against Progress” (HT: Glenn Reynolds).

 

Those Halcyon Days of Desperation

18 Monday Jan 2016

Posted by in Capitalism, Markets, Poverty

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chickennostalgic

Nostalgia is hard to resist. Youth is fleeting, and for most of us, it seems more magical in hindsight than it might have been at the time. It’s also easy to imagine that certain historical eras were more interesting or romantic than the present. For example, my spouse tells me she’d love to have lived in the frontier days, yet she can’t tolerate the reality of a camping trip. We also tend to lionize certain leaders of the distant past, ascribing greatness based on history written by victors. Our objectivity may be obscured by narratives shaped over many years.

Today, some imagine and aggrandize the past in a different way: as a time when motives were “selfless”; when the world was inhabited by less acquisitive and more “minimalist” folk; when practices were more “sustainable”, or even “legitimate”. Despite the primitive conditions of that world, it was a better place for “free” human beings. So it is said, seriously!

Sarah Sqwire takes a look at these flights of fancy in “The Good Old Days of Poverty and Filth“. She dissects the views of one Luc Sante, a cultural historian, as an archetypical patron of primitivism. She invokes the French phrase “nostalgie de la boue, ‘longing for the mud,’ which means a romantic yearning for a primitive or degraded behavior or condition.” Here are some of Skwire’s colorful comments about the past:

“We don’t need every medieval romance novel to remind us that the heroine’s breath didn’t smell like cool mint Listerine. It’s probably for the best that the historical re-enactors at Colonial Williamsburg don’t actually use authentic colonial medical remedies for their health problems…. Any lover of history will occasionally find him or herself dreaming about attending a performance in the pit at Shakespeare’s Globe, or roughing it in the saloons and shacks of a gold rush town. … But a good student of history will acknowledge that the Globe was undoubtedly loud, smelly, crowded, and occasionally even dangerous for playgoers. And the rugged romance of the gold rush town is offset by the knowledge that you were probably far more likely to die of gangrene or cholera than you were to strike it even moderately rich. And those glorious 18th-century wigs? Heavy, hot, smelly, and prone to harboring bugs.“

She then quotes Sante:

“In the Paris I write about, people ran businesses to make a living, not to make a profit. Cafes, bars: they’re no longer public institutions or part of a community. There’s no possibility for eccentric self-determination amongst the shopkeepers.”

Skwire notes the odd distinction that Sante makes in the first sentence above, as if profit is not how proprietors ever made “a living”, or that they observed certain limits on their finances not imposed by market forces (i.e., their customers). She adds that businesses often seek to “create communities” as part of their business models, now in the era of social media more than ever, contrary to Sante’s presumption. Here’s Skwire’s verdict:

“Sante, though, has so much mud in his eyes that he is blind to the tangible and important progress that has been made in human wealth and welfare. His mucky nostalgia leads him to claim that our increasing wealth — which has given us more health, more discretionary income, more food, and more free time — is a danger more pernicious than terrorism.“

I am surprised that Skwire fails to mentions the environmental left in this context. It is, after all, the source of hysteria related to population and scarcity, and the source of so much criticism of modernity. As an antidote to such nonsense, I recommend the Human Progress web site. This recent entry on Julian Simon is instructive. I also recommend Matt Ridley’s Rational Optimist blog. Try this entry on “The Long Shadow of Malthus” for a start.

Skwire views Luc Sante’s infatuation with pre-modern life and lifestyles as an elitist’s prescription for “other” people. That may well be. It also fits the profile of many environmental elites. Whether or not Skwire’s characterization of Sante is accurate, he is at least ignorant of the great diffusion of prosperity taking place around the globe, fueled by markets and economic development. It seems awkward that anyone would bemoan economic progress when, in fact, world poverty is declining, yet that very misgiving is implied by many critiques of markets and modernity.