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Landsburg on Human Progress

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The Armchair Economist [2] Steve Landsburg has an outstanding article [3] 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.
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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 [4]‘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 [5]‘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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