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Thursday, June 24, 2010

What a World We Live In

Living standards keep rising.

The last two years have, for the most part, not been good for those who care about free markets and human prosperity.  The financial crisis and recession have led to a major increase in the size and scope of government intervention in the economy, and many people have seen their wealth take a major hit.  It’s easy to get down about the prospects for the future, but when one stands back and takes the longer view, one finds abundant evidence that we are, and will continue to be, more prosperous than ever before.

One set of evidence is in data showing the decline in the real cost of goods and services over the years and how they have become increasingly accessible to more American households, especially lower-income ones.  We can compare the cost of a good from some year in the past with the present-day cost by computing the number of hours of labor at the average private-sector wage needed to purchase the good at each time.  So for example, in 1973 it took 97 hours of work at the average wage to afford a $400 TV.  In 2009, purchasing a $300 TV took only 16 hours of work at the much higher average wage.  In labor time the cost fell 83.5 percent.

Or one can look at it this way:  In 1964 a moderately priced Radio Shack stereo system would have cost you $379.95, or 152 hours of work at the average wage.  That same amount of work today at the average wage would buy you just under $3,000 worth of goods.  If you chose to use it on electronics, you could buy all of the following:  a home theater system, a 50-inch plasma TV, an iPod Touch, a Blue-Ray disc player, a 300-CD changer, a portable GPS, a 14.1 MP digital camera, a Dell laptop, and a TiVo HD DVR.  What’s even more remarkable is that not one of those products was even available (or perhaps dreamed of) in 1964!

We can also show how this translates into real gains for even the poorest Americans by comparing the percentage of households that have various standard consumer goods in them from year to year.  The results are astonishing:  The typical poor household today is more likely to have almost every standard consumer good in it than was in the average household in the early 1970s.  When we look at washing machines, clothes dryers, color TVs, or refrigerators, the increases are clear.  And for items like microwaves, dishwashers, air conditioners, personal computers, and cell phones, the gains are even more dramatic.  Lest you think these are frills, consider how air conditioners, good refrigeration, and cell phones can save lives.  Note also that these data do not account for the dramatic increases in quality for each of these goods over that period.

Rising Living Standards … for Our Pets

The second set of evidence for our rising standard of living comes from a different source.  A friend of mine, who is broadly in the middle class, took her cat to the vet because it had trouble breathing. The vet gave the cat a nebulizer treatment and then X-rayed its heart to figure out what was wrong.

Stop and consider this for a minute: We are so wealthy as a society that a fairly average American can afford medical procedures for her pet that would have been extraordinarily expensive for a human being a generation ago and did not even exist for either her cat or her children a hundred years ago.  Average Americans are able to purchase high-quality health care and food (not to mention auto-accident insurance, spa treatments, and “luxury” kennels) for their pets that many could not have afforded for the human members of their households even a few decades ago.

Rather than seeing this as a kind of narcissism about household pets, I think it is more evidence of just how wealthy markets have made us.  The real cost of so many basic goods and services has fallen so far, and the real value of labor has risen so much, that the fraction of our income we spend on housing, food, and clothing for ourselves and our families has declined significantly.  As a result, we have all kinds of disposable income to spend on things like pampering and extending the lives of our pets.

It might be true that in the long run we’re all dead, but the more important truth is that in the long run private property, markets, sound money, and the rule of law make all of us fabulously richer.  The last two years have weakened those forces, but they have withstood other assaults in the past.  Those of us who understand the bounty that freedom produces need to continue making its case to ensure that it withstands the latest attacks.

  • Steven Horwitz was the Distinguished Professor of Free Enterprise in the Department of Economics at Ball State University, where he was also Director of the Institute for the Study of Political Economy. He is the author of Austrian Economics: An Introduction.