- Cafe Hayek - https://cafehayek.com -

Making the world smaller

Tweet [1]

We tend to romaticize manufacturing jobs and look down on service jobs. We associate the former with rugged steelworkers, grimy in their overalls, using a smelter. Service jobs don’t produce anything, say the critics. On the surface, Federal Express merely moves packages around. But actually Federal Express does something quite extraordinary—they make the world smaller buy getting packages from here to there more quickly.

Cheaper long-distance does the same thing. In 1920, it cost $26 a minute to make a phone call from New York to Los Angeles. Today, it’s virtually free as this article in today’s Washington Post points out. But that $26 figure was in 1920 dollars. In today’s dollars, the cost in 1920 was $287. Here [2]‘s the chart from the Post article showing the long decline, in real and nominal terms of the cost of long distance:

longdistance_080504 [3]

That change in costs makes the world smaller. I can talk to my parents and brother and sister and old friends around the world as if they lived around the corner instead of being scattered around the country.

Another revealing chart would be the number of people who work in the long-distance business per call made. That number has plummeted as well which is merely the flip side of saying it has gotten cheaper. We’ve substituted technology for people and freed up the people who would have been necessary to create the billions of minutes we use to instead do other things instead.

This is just another example of the point [4] made by my co-blogger Don Boudreaux that jobs are costs not benefits. The American economy is very good at creating jobs. The key question is what kind of jobs. Imagine keeping long-distance technology unchanged at its 1920 level. We’d have saved the jobs of all those telephone operators and made the world poorer and more isolated. We let those jobs go and created new jobs in all the industries we couldn’t have dreamed of in 1920.

Ironically, the process of substituting technology for people is what creates our rising standard of living over time. It appears to be the opposite—surely we can’t get richer as a people if we’re losing jobs in the telephone industry—surely that makes us poorer. But it makes the nation as a whole richer to have cheap long-distance. The telephone operators who lose their jobs have to find a new job. Sometimes it will pay less because their skills may not be as useful in other industries that will arise. But their children and grandchildren inherit a richer world where people are closer together. Do that in industry after industry and you get a change in our standard of living over the last 100 years of something between ten and thirty TIMES higher.

Comments