Yet One More on Things Getting Better

Steven Horwitz

Over at his terrific blog Carpe Diem, Mark Perry links to my first post on things getting better (see also here) for the poor and very helpfully adds a table of his own comparing the hours of labor at the average hourly wage it took in 1973 and 2009 to buy the same household basics.  As you'll see below, rising real wages along with dramatic reductions in costs have cut the work time needed to buy these products to a fraction of their 1973 values.  This is how the poor keep getting richer and what explains my data (not two income households or excessive debt or the like).

Two comments on these data:

1. They understate the case because they do not account for increases in the quality of the goods in question.  There is no doubt that all of those household appliances last longer and do more things at better quality than in years past (the toaster and coffee pot and fridge are easy examples). 

The color TV is almost a whole different "thing" than it used to be.  Think of it this way:  the TV that Perry priced was from an Eaton's catalog.  Following his link, you can see that the $399.95 TV was a 17" color portable (the most expensive TV there was a $680 26" color in a wood cabinet).  The 17" had no advanced features other than a handle.  I was just at Wal-Mart looking at LCD TVs.  I'm going to buy an RCA there for about $550 in 2009 wages that is a 40" Hi-def with excellent sound that can be used for a computer, a Gameboy, or whatever else fits in it.   For less than a third (29.4 vs. 97.1) of the hours worked I get a product that is WAY better than its 1973 equivalent. (The same is true of other high-price durables like houses and cars.) For a lower nominal price, I can get the 40" LCD instead of the top of the line from 1973. 

2. These data only confirm what Julian Simon said:  humanity is the ultimate resource.  Another way to say that goods and services are dropping in "real" price is that the real value of human labor continues to climb.  A labor force with more/better human capital using physical capital that is itself more productive will command a higher wage, contributing to the rising standard of living that my first set of data illustrates.

Finally:  THESE are the Smithian and Schumpeterian horses of the gains from exchange and innovation in action.  Following in Simon's footsteps, I am willing to bet they will continue to outrace the horse of political stupidity over the decades to come, even if the political horse gains a little ground.

Comments

[Mario Rizzo]

Note what has happened. Many -- all? -- of these services were provided for the rich by human labor at, say, the beginning of the 20th century. Today, the devices substitute for human labor which has become more expensive in goods terms than ever before. Technological progress is continually replacing human labor with devices, machines. This was often condemned by labor unions as putting people out of jobs. In reality it is the source of the ever increasing product-command value of human labor.

However, unlike you and Pete Boettke I am not entirely comforted by the fact that the Smith-Schumpeter horse is faster than the political horse. Why? Because freedom is not wealth. I want freedom more than a better television.

[Flavian]

Do you know how much the price of a Big Mac has risen since 1973?

The Big Mac is an excellent deflator since it has remained unchanged in composition since 1973.

According to The Economist a Big Mac was $1,60 in 1986 and in 2009 $ 3,57.

[Rafael Guthmann]

Well, in terms of bread I think that the purchasing power of hourly wages stagnated in the US in the last 40 years.

[Rob]

An interesting post. However, I have to disagree with your view that the coffee pot is more durable now than it was in 1973, in that I have gone through 4 in the past 3 years.

Cheers

[Mitch]

Well, in terms of bread I think that the purchasing power of hourly wages stagnated in the US in the last 40 years. http://mediafiretorrent.com