Myths of Rich And Poor by Michael Cox and Richard Alm is a fascinating collection of statistics and explanations of the real wealth in the American economy, and it’s fun just to flip through, if nothing else, to look at the charts.
For example, there’s the chart comparing the American economy with those of Europe and Japan in terms of the percentage of households that own particular goods. Ninety percent of American homes have a clothes washer. That number alone is astonishing. Italy and Japan beat America, with 96 and 99 percent respectively. But Belgium, France, Germany, and the U.K. are at 88 percent, and Sweden is at 72 percent. 53 percent of American homes include a dishwasher, compared to 36 percent in Denmark, 32 percent in France, and 11 percent in the U.K. 99 percent of American homes have a radio, compared to only 84 percent of German homes and 75 percent of Japanese homes.
Then there’s lifetime earnings for American workers.
In 1951, workers reached their peak earning years in ages 35 to 44, when their average annual earnings were 1.6 times the income of those in the 20-to-24 age group. By 1973, the ratio had risen to 2.4 to 1. By 1993, the peak earning years had shifted to ages 45 to 564, and workers in this highly paid group earned almost 3.2 times more than 20-to-24-year-olds….Most likely, [this is] the by-product of broad changes in the way we work. When the economy was largely industrial, Americans worked with their hands and their backs. Today, more Americans than ever owe their paychecks to brainpower. The skills of the mind, unlike those of the body, are cumulative.
In other words, (gasp!) it’s outsourcing.
Or take the chart on the ages at which Americans engaged in certain activities. In 1870, the average age when starting work was 13. In 1950, it was 17.6. In 1973, it was 18.5, and in 1996, the average American started working at the age of 19.4 years old. Life expectancy has increased, too, of course; in 1870 it was 62.5, and in 1996 it was 77.1. Yet Americans haven’t spent all that extra time working. In 1870, the average number of years on the job was 49.5. It rose to 50.9 in 1950, but it has decreased ever since, and in 1996, the average American worker spent 42.8 years on the job. And the retirement age has decreased on average—in 1870, the average worker didn’t retire; he died. By 1973, the average retirement age was 64, and in 1996 it was 62.2. More people have more time to be away from work.
My favorite chart in the book compares wealth over time. This is very hard to do, because even if you account for inflation, it’s impossible to account for new technologies—how much was a washing machine worth to an ancient Egyptian? Nothing, and everything, since it wasn’t available. In that sense, most of us live lives of what a Pharaoh would have considered unbelievable luxury. Cox and Alm compare the costs of certain goods in terms of hours of labor it took to earn them.
In 1900 it took 56 minutes to earn a half-gallon of milk. In 1910, that fell to 49 minutes. In 1920, it was 37 minutes. In 1990 it was 8 minutes.
In 1900, it took 20 minutes to earn a Hershey bar. It had fallen to 2 minutes by 1950, and 1.3 minutes by 1960. Strangely, the price then went back up, so that today it costs about 2.1 minutes on average.
In 1900, it took 9 hours and 42 minutes for the average worker to earn a pair of Levis. That had risen to 10 hours and 36 minutes by 1920. In 1990, however, it had fallen to 2 hours and 48 minutes.
In 1900, how much did a three minute coast-to-coast telephone call cost? Well, it wasn’t really available. In 1910, it would have cost 90 hours and 40 minutes. Today it costs about 4 minutes of labor.
In 1900, a hundred miles of air travel wasn’t available no matter how much you worked. In 1930 it cost 12 hours and 46 minutes. In 1990, it cost 1 hour 11 minutes.
To me, Adam Smith’s great insight was in how he pictured the concept of wealth. “Consumption is the end of production,” he said. What that means is that we must take care not to measure wealth just in terms of the dollars on hand, but in terms of the things we have. What these statistics reveal is that in terms of actual prosperity, we are miles ahead of previous generations. When people speak of the evils of “outsourcing” or the “trade deficit,” they are ignoring Smith’s insight, and thinking of wealth just in terms of dollars. What they ought to see is how great it is that we are wealthy enough to buy the things we want from other people—we can afford to pay other countries to do our work for us. That increases everyone’s wealth, in terms of actual buying power.
Myths of Rich And Poor is ultimately a very optimistic book, and a good illustration of the advantages of a free economy.
Previous Libertarian Bookworm entries are here.
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