We’re Richer Than We Think

There is a sense in which we’re richer now than any millionaire was back in the 80’s, but it isn’t immediately obvious to any of us.  What’s more, we could end up ruining it.

Granted, the last few decades haven’t brought a lot of gains in people’s net incomes, at least not in the way we measure that statistic.  But in our lifetimes, and particularly since the collapse of Communism, we have lived through a global boom in wealth in terms of the quality and quantity of what our relative income can buy.  We are, in a sense, rich beyond the wildest dreams of those who came before us.

When economists compare my earnings this year to what my father was paid thirty years ago, they use a variety of methods to adjust those numbers for inflation to get a “relative value.” That’s supposed to allow us to compare my purchasing power now to his back then, but there is a problem.  Inflation isn’t the only factor that is changing our buying power over time.

To get a real sense of comparative wealth over time you have to look at the amount of labor required to obtain a set of things.  How many hours of work did it take to get food, travel to and from a market, communicate with someone at a distance, and so on.  That’s not easy to do.

Twenty five years ago, I could go work at the junk yard with my dad or mow some lawns to eventually pile up $70. That would buy me a portable Sony Walkman that could play a cassette tape.  Stop.  Rewind on a five-count.  Stop.  Play.  I could listen to the drum intro to “Hot for Teacher” over and over again.  Life was sweet.

Now for the same price (far less if you factor in inflation) I can buy an .mp3 player that will store and play a hundred times that amount of music.  You see the problem for an economist?  In 1985, Steve Jobs could have mortgaged his entire empire and not been able to afford an equivalent of the disused old iPod shuffle sitting in my desk drawer right now.  I’m richer than the 1985 Steve Jobs.  Take that, historical Nerdlinger!

It’s that fundamental difference in purchasing power, almost impossible to quantify across time, that accounts for the massive increase in our wealth.  That increase is not reflected in our income statistics, but its real nonetheless.  That kind of advance in purchasing power has been accelerating at a dizzying rate in our lifetimes.

And forget about consumer toys.  Look at what the explosion of technology has done for communications, supply chain management, child safety, mapping, food production, medicine, banking, and capital investment, just to name a few.  And all the while, the basics of life like food and clothing have become easier and easier to obtain.  Human beings have never been able to clothe and feed themselves with so little expenditure of effort or money.

And poverty?  It’s still with us, but look at it closely.  In Dickens’ London a bad turn of luck could put a hard-working middle-class family in debtors’ prison, hungry and hopeless.  Spend a little time today in one of the worst neighborhoods in your area.  Focus your attention on people’s phones…  Poverty is still lousy in relative terms – relative to what other people have today.  But it is nothing like what it used to be.

What has produced the surge in wealth creation over the past quarter century?  A shrinking world with fewer barriers to trade and cheaper, easier means of communication.  Think of it this way:

There is no one human alive who can construct a functioning cellular telephone from scratch.  Period.  There never will be.  Here’s why.

To build it, first you must master the process of extracting oil from the ground and refining it into plastic.  You then need to locate, mine, and refine substances like silver, gold, copper, and iridium.  Then you need to shape them all into the appropriate parts.  That assumes that you have found the time to discover and model on your own all the different components that would be required, and model and build a delivery backbone for the signal.  By then, your weekend is over and it’s time to get back to your day job.

Take away trade, take away phone.

The smartphone you got for free with your service agreement is the product of thousands of lifetimes of man-hours spread out across centuries.   The skills required for building a mobile phone, or a printer, or an EKG machine do not reside in any one person.  They are accumulated and stored in a culture.

The opening up of the world that has happened in our time makes transmission of ideas faster and cheaper than ever before.   The labor and thought hours required for the next great technological leap are delivered faster because of increased collaboration, trade, and global competition.  The technology in your $500 laptop makes the Apollo Program look like a Sunday project, but we take it for granted and it does not show up at all in the standard measures of relative income.

New productivity improvements are coming at a constantly accelerating pace, allowing us to live in a world our grandparents could not dream of.  A smaller, more urban world is quickly becoming a wealthy one.  Even as we sit here, stalled in a near-depression, the gloomy predictions of ’70’s environmentalists sound silly.  We are richer than ever before, living in a more stable, more environmentally friendly world than those people could have dreamed.  And we owe it to global capitalism.

Having overcome the skeptics of the left, capitalism now faces an unexpected and perfectly bizarre challenge from the right.  That accelerating spread of ideas brought about by trade?  It terrifies religious extremists the world over.  When ideas can be shared at the speed of electrons they find their closeted worldviews assaulted in ways they cannot tolerate.

The rising wealth of people outside of Europe or America is fueling fears of “culture war.”  A cycle of destruction and creation shifts job patterns constantly, rattling those who once hoped to pick a career at twenty-two and never look back.  Our new prosperity has enemies.

The same ideological block that helped nurture this wealth explosion is now organizing to shut it down.  No more immigration.  Eliminate “unfair” trade agreements that are bringing quiet wealth to both sides while generating very visible and frightening changes.  Stop “big government” from investing the kind of infrastructure like schools, communications, and transit, that are the lifeline of capitalism.

The people on the right or the left who want to roll back the tide of globalization, close our borders, end our trade agreements, shut out immigrants, and restore a religious and social order from our imagined past could accomplish their goals if we let them.

They could succeed in making us all more self-sufficient.  They could stall (not halt) the wrenching pace of change – at least briefly.  But in so doing they would surrender our leadership in a world that would carry on without us.  They would create a country that would be poorer, hungrier, weaker, and less free.

Long Live Capitalism.


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