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Myths of Rich and Poor: Why We're Better Off Than We Think by W. Michael Cox and Richard Alm

Donald J. Boudreaux

Basic Books • 1999 • 256 pages + xvi • $25.00

I vividly recall a 1972 visit to the Sears store in our local mall. I was 14 years old and had never before seen an electronic calculator. But there at Sears, for the first time in my life, was this wonder to behold! Three different models were displayed beneath plexiglass cut so that the keyboards could be operated by shoppers but also so that no one would steal this valuable inventory.

My parents had difficulty dragging me away from these magical machines–so magical that the high-end models could even calculate square roots! Unfortunately, I couldn’t afford one. The cheapest model was priced at nearly $100. “Oh well,” I sighed. “In ten years when I have an adult job and a credit card, I’ll buy one.”

I’m sure that if a visitor from 1999 had then swooped down to inform me that in just a few years these technological marvels would cost no more than a movie ticket, I would have howled derisively. W. Michael Cox and Richard Alm aren’t visitors from the future; instead, they’re researchers of today who do fascinating and pioneering research on the progress of American living standards. They find, in a nutshell, that the affordability of nearly every good or service you care to name has risen over the years and continues to rise.

This finding contradicts the conventional wisdom spewed out daily by popular commentators. A favorite refrain is that the typical American today enjoys living standards that are no higher than those in 1973. The implication is that the market has sputtered for a quarter century.

Of course, personal observation over these years should be sufficient to convince most people of the absurdity of the “myth of ‘73.” Anyone born before 1960 can easily list dozens of marvelous goods and services that today are commonplace, but which were unavailable to ordinary Americans (or anyone else) 25 years ago. Here’s my (very) partial list: personal computers, online bookstores, cell phones, quality disposable diapers, automobiles that almost never need tune-ups, and Jiffy Lube.

But there’s no need to rely on personal anecdotes and observations now that the data-rich research of Cox and Alm has been collected in Myths of Rich and Poor. Cox, the chief economist at the Federal Reserve Bank of Dallas, and Alm, a reporter for the Dallas Morning News, use readily available data to directly confront and blow the “myth of ‘73″ to smithereens.

Cox and Alm calculate how long the typical American worker of the past had to work to acquire various goods and services versus the amount of time required of the typical American worker of today. This calculation is far more revealing than the more standard calculations drawn from data on wages or household incomes, for the Cox-Alm calculation measures directly what ordinary Americans are able to consume. (Wages and income are affected by inflation; the size of the average household has shrunk over time; and increasing amounts of compensation come as fringe benefits, all of which make changes in wages and income relatively poor measures of changes in living standards.)

The Cox-Alm findings are stunning. From milk and assorted grocery items to televisions and other home electronics to gasoline, automobiles, and housing, the time the typical American must work to acquire any of those items is today significantly less than it was 25 years ago.

This increasing affordability, of course, translates into greater material comfort for almost all Americans. Table 1.2 in the book is one of the most illuminating collections of numbers I’ve ever seen. It shows that poor Americans today are more likely to own almost all household conveniences than were typical middle-class Americans of a generation ago. For example, in 1971 about 83 percent of all American homes had a refrigerator. In 1994, nearly 98 percent of poor households owned one. The same general pattern holds for washing machines, clothes dryers, automatic dishwashers, stoves, microwaves, color televisions, air conditioners, and several other familiar items. So much for the canard that today’s prosperity is built on the backs of the poor.

While this is a superb book, it isn’t without some minor flaws. One is the authors’ claim that World War II “shook the country out of the decade-long Great Depression.” This is a curious claim coming from scholars who rightly emphasize that an economy’s performance is best measured by what its people can consume. Wartime production did not ease the lives of average Americans. Robert Higgs’s pioneering research shows that while the war years increased employment and military output, the Depression didn’t end until late 1946.

An even more curious claim by Cox and Alm is that “government can bolster competition through antitrust laws.” Not so. More than a century of antitrust regulation in the United States has provided ample evidence that such regulation is far more likely to stymie competition—by being targeted at especially entrepreneurial and successful firms—rather than bolster it. History also teaches that the market itself is extraordinarily adept at ensuring that, except for firms protected from competition by government, no company succeeds while behaving monopolistically.

The market’s ability to keep private firms from gaining harmful monopoly power should be evident to Cox and Alm, who explicitly (and properly) build their analyses upon the insights of Joseph Schumpeter. In his 1942 book Capitalism, Socialism, and Democracy, Schumpeter penned what remains today the finest explanation of the capitalist competitive process. Schumpeter understood that “pure cases of long-run monopoly must be of the rarest occurrence . . . unless buttressed by public authority.” Indeed. There’s no need to empower bureaucrats to parade around pretending to keep markets competitive.

My complaints with this book are minor. Myths of Rich and Poor is a major accomplishment. Buy a copy and learn how remarkably productive a free society is.

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