Landsburg on Human Progress

by Don Boudreaux on June 9, 2007

in Standard of Living

The Armchair Economist Steve Landsburg has an outstanding article in today’s Wall Street Journal.  Here are some choice selections:

Modern humans first emerged about 100,000 years ago.
For the next 99,800 years or so, nothing happened. Well, not quite
nothing. There were wars, political intrigue, the invention of
agriculture — but none of that stuff had much effect on the quality of
people’s lives. Almost everyone lived on the modern equivalent of $400
to $600 a year, just above the subsistence level. True, there were
always tiny aristocracies who lived far better, but numerically they
were quite insignificant.

Then — just a couple of hundred years ago, maybe 10
generations — people started getting richer. And richer and richer
still. Per capita income, at least in the West, began to grow at the
unprecedented rate of about three quarters of a percent per year. A
couple of decades later, the same thing was happening around the world.
As far as the quality of the goods we buy, try picking
up an electronics catalogue from, oh, say, 2001 and ask yourself
whether there’s anything there you’d want to buy. That was the year my
friend Ben spent $600 for a 1.3-megapixel digital camera that weighed a
pound and a half. What about services, such as health care? Would you
rather purchase today’s health care at today’s prices or the health
care of, say, 1970 at 1970 prices? I don’t know any informed person who
would choose 1970, which means that despite all the hype about costs,
health care now is a better bargain than it’s ever been before.

The moral is that increases in measured income — even
the phenomenal increases of the past two centuries — grossly
understate the real improvements in our economic condition. The average
middle-class American might have a smaller measured income than the
European monarchs of the Middle Ages, but I suspect that Tudor King
Henry VIII would have traded half his kingdom for modern plumbing, a
lifetime supply of antibiotics and access to the Internet.

I have only one itsy-bitsy nit to pick with Steve’s article — and I’m not being sarcastic when I describe it as itsy-bitsy.  He concludes by saying that

Engineers figure out how to harness the power of technology; economists
figure out how to harness the power of incentives. Our prosperity
relies on both.

Although in some cases economists do indeed "figure out how to harness the power of incentives," I would say that economists (at least good economists, such as Steve Landsburg) excel at describing how spontaneously ordered property rights typically harness the power of incentives for good — and how such property-rights systems sometimes create perverse incentives, and, further, how political machinations usually muck such systems up to create incentives that are exceptionally perverse.

Steve’s example of Julian Simon’s suggestion for allocating overbooked airline seats is a fine case of one of history’s greatest economists helping to harness incentives for human betterment — but the history of economics also features instances of economists who, in attempting to harness incentives for the good, offer very bad advice.  Think of George Stigler‘s 1950 call, in his Fortune magazine article "The Case Against Big Business," for government to break up big firms so that the economy looks like something closer to the model of perfect competition.  Or John Maynard Keynes‘s advice to redistribute wealth from the rich to the poor because the poor are more likely to spend rather than save (and, hence, more likely to keep aggregate demand sufficiently high).

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Slocum June 9, 2007 at 11:02 am

As far as the quality of the goods we buy, try picking up an electronics catalogue from, oh, say, 2001 and ask yourself whether there's anything there you'd want to buy. That was the year my friend Ben spent $600 for a 1.3-megapixel digital camera that weighed a pound and a half.

I hate to nitpick because the point is valid, but it'd worth getting the dates and numbers right (or picking a more appropriate year — say 1998 rather than 2001). I bought a 4 megapixel digital camera in 2001 for $400, it fits in a jacket pocket and is still perfectly usable. Anybody who spent $600 for a 1.3 MP camera that weighed 1 1/2 lbs in 2001 was the world's worst shopper.

And actually, with digital cameras, the pace of progress has slowed considerably in the past couple of years as manufacturers run into limits on the resolving power of lenses and the sensitivity of small digital sensors. Don't look for the digital cameras of 20012 to be all that different than those of 2007.

Tim June 9, 2007 at 11:33 am

Don't look for the digital cameras of 20012 to be all that different than those of 2007.

I sure hope the digital cameras of 20012 are different than those of 2007! That's over 18,000 years in the future!

(Sorry, I couldn't resist! Otherwise, yes, I agree on getting the dates and numbers right.)

Sheldon Richman June 9, 2007 at 12:24 pm

Hear, hear! I have always been uneasy with the language of harnessing incentives. It's a short step from that to social engineering and even B. F. Skinner. Language and description are important. The incentives are natural and naturally "harnessed" to the "social good." I.e.: This is what you get when people are left in freedom. Let's not imply that human beings are needed to construct the system of natural liberty.

The Dirty Mac June 10, 2007 at 12:16 am

I had a comparable epiphany a couple of years ago. I woke up in the morning and used the auto drip coffee maker and got the late ball scores online. I got ready for work using, among other things, one of those fancy razors that are given away for free. I then drove a reliable air conditioned car with over 100,000 miles on it to the train station while listening to a compact disc.

The fairy tale ended when I got onto the train, which of course is a government run service. The railcar was put in to service during the Nixon administration. The tracks use an outmoded overhead wire system that has not been upgraded for several decades. IOW, the government run service was essentially the same as it was when my parents acquired their first air conditioner.

Bruce G Charlton June 10, 2007 at 1:44 am

The huge contribution of economists has probably been in understanding the meta-level processes by which productivity increases in a progressive and open ended-fashion: the market mechanisms of competition, selection, division of labour, trade etc.

But I agree with DB that when it comes to advising about the best specific micro-level policies to attain these goals the record is much less impressive – these require specific knowledge.

Indeed, devising efffective specific policies themselves is never going to be easy or reliable – the important thing is that the specific policies be subjected to selection mechanisms; so that those methods which work best (on average and in the longer term) are enabled to grow, and those which work less well are allowed to wither and extinguish.

The Cynical Libertarian June 10, 2007 at 1:26 pm

You know what I think is one of the great failings of economists?

I don't know when "supply and demand" was invented as a theory but I'll wager it's been a long time. And yet, people at car boot and yard sales still price their goods on the basis of how much they bought it for or how big the item is in physical dimensions, or how much it cost to make.

Hans Luftner June 11, 2007 at 2:09 am

I don't know of anyone who prices their yard sale items that way. In my experience, people price them so they'll clear. "What's the most I'll get for this item, but making sure someone buys it." They don't want to carry their stuff back inside; they want to get rid of it. That's how I got my $20 band saw & my $5 weedwhacker. Maybe I just go to enough yard sales that my eye won't register uncompetatively priced items.

But more to the point, I still the have the cell phone I bought around 2001. It was huge, expensive, & was phone only. I don't remember it working that well, either.

Methinks June 11, 2007 at 12:03 pm

HAH! I remember the cellphone I had in the early 90's! It was gigantic, came with its own over the shoulder carrying case and almost never worked (dead spots).

I loved that editorial so much I sent it to several people. However, I'm glad to see that I wasn't the only one squirming when reading the "harnessing incentives" statement.

C L June 11, 2007 at 1:54 pm

The article is just an exerpt from his recent book, I think.

jp June 12, 2007 at 5:23 pm

I have one other quibble. Landsburg writes, "For the next 99,800 years or so, nothing happened. Well, not quite nothing. There were wars, political intrigue, the invention of agriculture — but none of that stuff had much effect on the quality of people's lives."

I realize he's exaggerating for effect here, but it's worth noting that during the 2,200 years before the 18th century things WERE happening that made possible the tremendous wealth increases since then. The development of critical thinking (Aristotelian logic), fine-tuned systems of law and dispute resolution, bookkeeping, payment systems, and historiography, to name a few.

JT June 12, 2007 at 10:51 pm

I have nothing to nitpick. It was great, but I liked it better when I read it in The Mainpspring of Human Progress by Henry Weaver.

Josef Novak June 16, 2007 at 12:22 pm

In reference to the creation of modern man as we know him today you may want to read up on it in the so called "Earth Chronicles" by author Zecharia Sitchin. His first book "The 12th Planet" came out in 1976, another I highly recommend is "Genesis revisited" Some of his findings may be debatable but over all I do believe he right on target.It was that event of the creation of modern man about 300,000.00 years ago in South Eastern Africa what eventually found it's way in to history as the creation of Adam & Eve, the creation of the so called modern man. By the way none of these books deal with any kind of religious aspects. So, before you shrug your shoulders and shake your head and think just another weird idea, check out his theories, it just may give you something to think about where modern man has come from.

ArtD0dger June 20, 2007 at 5:46 pm

I agree with jp. I keep hearing these statements to the effect, "The world was stagnant until 200 years ago, and then BAM!, productivity took off." But I recently read Wealth of Nations (written, coincidentally, 200 years ago), and one point Smith hammers repeatedly is that the total produce of the land in 1780 was MUCH higher than it had been just a couple centuries earlier, and that the wealth of nations was already increasing at a huge clip.

One of the interesting things about an exponential curve is that it ALWAYS looks as though all the gains were made only recently. Let us work to ensure that our descendants 200 years hence will look back and think that we were the ones standing still.

PaulD June 27, 2007 at 10:09 am

I haven't read the article because a subscription is required, but I agree with the excerpts. Which leaves me with this puzzle: In an country that is so amazingly prosperous that even the poor are obese, and have cars, air conditioners, cable television, internet access and cell phones, how can politicians convince people that the economy is doing poorly and that massive government intervention is needed to help the less fortunate? From where does the idea that the middle class is struggling come?
I guess everything is relative, but as a person who grew up in the 60's and 70's, it appears to me that today's poverty level would actually be a decent middle-class income level from the 1960's.

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