Monday, September 21, 2015

Best Economics Comment of The Week So Far

From Gary North, and this is going to be difficult to beat:
Recently, I wrote an article on how the Bureau of Labor Statistics, an agency in the Commerce Department, underestimates the tremendous economic improvements that Americans have enjoyed since 1970....I received a critical response. This email is typical of those people who dwell in the past. It was clearly written by an old-timer. He may even be my age. These people think the good old days, economically speaking, were good -- better than today. Put differently, they do not recognize that the free market has made the whole world richer, and with the world, Americans are richer. No, no, no, they insist. Things were good in Richard Nixon's first term. Really good. Better than today...[He writes]Improved cars and appliances sounds like the hedonic CPI quality adjustments criticized as a distortion of the real cost of living by most Austrian economists...
I will say this of "most Austrian economists": they perceive that free market competition and innovation lead to quality improvements. They see this from introspection. They have memories of changes that have made their lives better. They may even collect old items, such as typewriters. They no longer use these items, because these items are obsolete. I do not call this the "hedonic calculation effect." I call it the buggy-whip effect. Anyone who is unaware of the fact that buggy whips are obsolete is probably Amish. But, then again, he does not read my articles online...
My article was on the Bureau of Labor Statistics. If my critic thinks that the so-called hedonic (buggy whip) adjustments are questionable, how would he have the BLS to factor in non-market phenomena that leave no statistical traces in market prices?

My critic lives in a fantasy world called the good old days. I close with the observation of libertarian humorist P. J. O'Rourke: "When you hear about the good old days, think 'dentistry.'"...
CONCLUSION: I suggest that people living in the good old days, when things were so much better economically, should keep their opinions to themselves, in order to avoid snickering behind their backs. But those who refuse to take my advice should take this advice: don't send a critical email to someone who prefers the present. Send a letter with a stamp on it.


  1. Depends what part you focus on. I think the good old days reference is usually in regard to the tenor of the times, the character of the interpersonal interactions, the relative degree of economic freedom. Not the absolute level of technological process.

    For example going to the dentist 50 years ago meant an hour long visit with a 30-year experienced dentist and clean, smiling, ample staff bustling about with purpose and efficiency. Free coffee and donuts. Then they rip your bad tooth out with pliers.

    Nowadays it's months to get a 20 minute appointment slot in a dirty crowded fluorescent lit cranny where a harried nurse practitioner numbs your gums and bangs out a filling. Then you spend an hour fighting indifferent front office staff about insurance reimbursement.

    On one hand, who could not like the advancements in dental technology. On the other hand, the modern experience is indeed just not as good as the old days.

    1. Where on earth do you live? I have never had an experience anything like you describe.

  2. Things have come a long way, but just imagine where we would be today if we had kept sound money, true free markets, etc.?

    1. Why, we'd all be child laborers working 80 hours per day in a coal mine, where the company store takes our entire pay check instead of merely 70% of it!

    2. Company stores require *unsound* money.

      Regarding "quality improvements", how much of that is due to our ability to export inflation?

      When the FRN's real purchasing power is revealed to be zero, are we going to say that capitalism, all of a sudden, went away? Or are we going to say that we haven't had it for some time, and we've been just been living on borrowed time?

      Don't get me wrong, the market always wins, and what little capitalism we have has made some quality improvements even in the context of our century-long false boom.

      But a large correction needs to be made, and then capitalism will make quality improvements even in the context of a poorer America which needs to be allowed to sink or swim on its own merits.

  3. I think some people are hung up on how "real" (whatever that means!) median household wages haven't changed much in a long time, but that also don't mean the same thing as it did a long time ago. Now you can add food stamps! Ok, bad joke. The real problem is it's just another Keynesian aggregate, as subject to error and disrespecting of individual preferences as the rest.

    However, inescapable "flat" taxes which eat a huge chunk of most anyone's income, like payroll taxes, rose substantially over the same period. Now throw on Obamacare, 15+ years of abysmal interest rates on savings, and repeat boom-bust cycles that have left stock indexes without returns.

    It has become difficult to save your way out of a rut. The new iPhone 666 or whatever probably isn't going to help anyone accomplish that.

    If we could deduct the full cost of living and investments from all taxes, more like corporate taxes and the original income tax, that would sure help. And by deduct, of course I mean down to zero *wink wink.*

  4. The market has definitely made some terrific advancements. There's a lot of public debt though.

  5. I've been barraged with comments from Bernie Sanders fans lately. They just can not get over the fact that life is better now than it was 30+ years ago. Pseudo-Austrians sometimes fall into the same camp.

    "But house prices have drastically went up!"

    Did the cost per square foot go up as well?

    "But household income has fallen!"

    Household sizes have fallen. There are fewer wage earners per household. Isn't it a sign of increased wealth if one can afford to sustain a rent/mortgage with fewer earners?

    "But wages have fallen behind productivity. Elizabeth Warren says the minimum wage should be over $20/hr!"

    Using total compensation and alternate measures of inflation shows that the incomes are tracking productivity.

    "But poverty is higher now than it was 30 years ago"

    The Census Bureau has not altered its mechanism for calculating poverty. Poverty used to mean not having food to eat. Now it means qualifying for government programs to fill in the gap.

    We tend to forget how things were back then..... because we live in the moment. Just watch any Thomas Sowell or Milton Friedman video from the 1970's/1980's. Listen to their crowd's attacks; they are exactly the same as today's. The problem isn't standards of living. The problem for many is the inequality; I call it jealousy.

  6. Value is subjective. That means North and the good ole days guy are both right.

  7. At 75 I feel qualified to comment on the good old days. I remember when my dad called the doctor when my little sister was sick. He came to the house, sat around and chatted for a while, then took my dad for a ride in his new car. He charged three dollars which works out to just a little more in todays dollars than my copay for my office visit tomorrow where I will probably wait for a total of one hour to spend 4 minutes with the doc.

    The technology got better but the politics went downhill. Occupational licensing is evil.

    1. That would be the fault of the State, not the Market.

    2. On a 2010 survey asking many 65 and over "was there anything better about the old days?" the most frequent answer was less crime.