In this new essay for the April EconLib site, I explain and expand on what I call “the prosperity pool.” (I thank David Henderson for inviting me to write this essay and for his expert editorial counsel.)
Some slices:
Modern society is like a gigantic prosperity pool. This pool is filled gradually, drop by drop, with small improvements in our standard of living. And just as the collection of an enormous number of water drops leads to a much higher water level in a real pool, in the prosperity pool, the collection of an enormous number of prosperity drops creates much higher living standards.
While it is often sensible to discuss a society’s overall level of material prosperity—such as U.S. GDP in 2016—these discussions promote insensibility to the countless tiny components of that prosperity. These discussions can blind us to the reality that our prosperity consists overwhelmingly of many tiny drops of prosperity.
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Look closely around your home. There, you will find rolls of disposable paper towels that make cleaning your kitchen much easier. Those rolls of towels were not invented until 1931. Moreover, unlike Arthur Scott’s original paper towels, today’s towels are two- and sometimes three-ply, and they are textured and embossed—all to increase their strength and absorbency. How much poorer would you be if your paper towels were flat and one-ply? Indeed, how much poorer would you be if no one had ever invented disposable paper towels to begin with? Somewhat, but not much.
Continue looking around your home. That can of soup in your pantry can be easily opened by a simple pull on the pull-tab that is now a common feature on canned goods. (When I was young, opening cans always required a can opener.) And the contents of that can are ready to eat, unlike a few decades ago when, to produce edible soup from a can, the consumer had to add water. Of course, these days, you can heat your soup in a microwave oven in a fraction of the time required to heat it using a burner on your stove.
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Consider a shoe-factory manager who reduces production costs by one percent. This improvement, on its own, is a tiny drop indeed. A one-percent decrease in the quantity of resources necessary to produce shoes—and the corresponding fall in shoe prices—will go unnoticed by first-world consumers. But the steady accumulation of small increases in production efficiency over time results in significant savings in resources and, hence, in greater affordability not only of shoes, but also of other goods and services whose supplies are increased by the release of resources from shoe production. If just once each year for a decade, that manager reduces production costs by one percent—and, driven by competition, passes those savings on to consumers—the real price of shoes will fall by about 9 percent in ten years. Yet, as a consumer, you’re unlikely to notice this price drop because it occurs gradually and in small steps and, thus, never captures your attention. While you might notice a one-time 9-percent fall in shoe prices that occurs once every ten years, you don’t notice the same drop in shoe prices that occurs only gradually over those ten years.
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As I recently argued on my blog, Café Hayek, ordinary Americans in 2016 likely live better than did American billionaires in 1916. Yet almost no ordinary American today feels that rich. The reason, I believe, is that the growth in our living standards occurs gradually, drip by drip. The resulting insensibility to this gradual growth is an important reason for those of us who celebrate and understand it to keep highlighting its phenomenal reality.
