The world’s population has increased eightfold since 1800, and standards of living have never been higher. Despite increases in consumption, and contrary to the prophecies of generations of Malthusians, the world hasn’t run out of a single metal or mineral. In fact, resources have generally grown cheaper relative to income over the past two centuries. Even on the largest cosmic scale, resources may well be limitless.
How can a growing population expand resource abundance? Some of the ways are well known. Consider increased supply. When the price of a resource increases, people have an incentive to find new sources of it. Geologists have surveyed only a fraction of the Earth’s crust, let alone the ocean floor. As surveying and extracting technologies improve, geologists and engineers will go deeper, faster, cheaper and cleaner to reach hitherto untouched minerals.
Efficiency gains also contribute to resource abundance. In the late 1950s an aluminum can weighed close to 3 ounces. Today it weighs less than half an ounce. That smaller mass represents considerable environmental, energy and raw-material savings. Market incentives motivated people to search for opportunities or new knowledge to reduce the cost of an input (aluminum) to produce a cheaper output (a Coca-Cola can). Technological improvement drives a continual process whereby we can produce more from less.
Innovation creates opportunities for substitution. For centuries spermaceti, a waxy substance found in the heads of sperm whales, was used to make the candles that provided light in people’s homes. Long before the whales might have run out, we switched to electricity. Are you worried about having enough lithium to power all those electric vehicles on the road? Quick-charging sodium-ion batteries are already on the horizon. There is far more sodium than lithium on or near the surface of the Earth.
American Compass’s very reason for existence is to argue that American capitalism no longer flourishes largely because “globalization and financialization” are “undermining the nation’s prosperity.” The alleged evidence is that the typical American worker’s income has been stagnating for decades. The third sentence of Cass’s 2018 book, The Once and Future Worker, laments that “while gross domestic product (GDP) tripled from 1975 to 2015, the median worker’s wages have barely budged.”
This stagnation story, just as American Compass’s claims regarding talent, profit, and investment, does not hold up to scrutiny. The empirical evidence undercuts American Compass’s stated reason for existing. To be clear: It is true that America has many economic problems. In fact, Cato scholars regularly discuss countless ways to fix many of these problems. Unfortunately for American Compass, though, a broad stagnation (or decline) in Americans’ income is not a problem.
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Setting this flaw aside, American Compass uses its COTI [“Cost of Thriving Index”] to argue that living standards have declined, supposedly explaining why “America’s working families” are correct to “feel that they have come under increasing economic pressure.” However, as the American Enterprise Institute’s Scott Winship and Jeremy Horpedahl have documented, American Compass’s COTI methodology is just as flawed as its understanding of inflation‐based adjustments.
In their new paper, Winship and Horpedahl demonstrate that the American Compass COTI decline is the direct result of its design choices. Specifically, American Compass’s COTI ignores taxes and transfers (which tend to boost lower earners’ incomes), excludes full‐time workers younger than 25 years old, and excludes full‐time female workers. American Compass’s COTI also includes a very narrow range of goods and services, defining food, transportation, housing, health care, and higher education as “needs,” yet leaving purchases of clothing, home furnishings, utilities, and communications technology out of the COTI.
American Compass’s COTI methodology is consistent with its propensity for selectively choosing data to give the appearance of supporting evidence for its claims.
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It is also worth mentioning that American Compass’s COTI conflicts with other research that uses separate alternative measures of well‐being that do not depend on inflation‐adjusted income metrics. For instance, Bruce Sacerdote’s 2017 National Bureau of Economic Research (NBER) paper reports that consumption for two‐person households with below median income increased as much as 164 percent from 1960 to 2015. The paper points out that spending on food and clothing grew slower than the growth in total consumption during this period, and that this falling share of total consumption for food and clothing is consistent with real income growth being higher than income‐based measures suggest.
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The Simon Project, an endeavor of the Cato Institute’s HumanProgress.org, formalizes these ideas by creating an index based on the time price (how long someone must work to acquire a good) of 50 basic commodities. Their index shows that the average time price of these 50 commodities fell more than 72 percent between 1980 and 2018. In practical terms, this figure means that if it took one hour of work to buy a commodity – such as sugar, coffee, pork, or lumber – in 1980, it took only about 17 minutes of work to buy that same commodity in 2018. Put differently, if it took one hour of work to buy an item in 1980, that same hour of work would buy almost four units of the same good in 2018.
Michael Barone decries the mainstream media’s opposition to free speech.
Phil Magness’s letter in today’s Wall Street Journal is spot-on:
Joshua Rauh and Gregory Kearny’s op-ed “The Economists Who Would Rather Be Influencers” (July 17) highlights an unfortunate trend in scholarly research, extending well beyond the economics profession. Two decades ago, historian Michael Bellesiles lost a prestigious award after other researchers found evidence of data fabrication in his book “Arming America.” Had these events occurred today, an army of activist-journalists would likely rally to his defense out of agreement with the pro-gun-control message of his book.
Similar examples abound. Journalists fawning over the sloppy and erroneous modeling of Imperial College’s Neil Ferguson provided a crucial boost for lockdowns during the Covid pandemic. Media embrace of the error-riddled “1619 Project” propelled it into our K-12 classrooms as a new American history curriculum. And as Messrs. Rauh and Kearny allude, economist Gabriel Zucman first popularized the unfounded claim that the rich pay lower tax rates than the poor by releasing it to friendly journalists instead of other scholars, who quickly uncovered empirical sleights of hand in the underlying data.
To left-leaning academics, the incentives are clear. If your politics align with the press’s, it is now possible to bypass the inconveniences of peer review by taking your work directly to complicit cheerleaders in the newsroom.
Phillip W. Magness
American Institute for Economic Research
Great Barrington, Mass.
An American Enterprise Institute Senior Fellow named Michael Strain commented this week on the situation. Strain recognized that inflation was no longer increasing, but pointed out—perfectly plausibly—that “the labor market and consumer demand remain too strong.”
That’s when the trouble started. The immediate response (for example, see this Tweet and comments) was to go all populist class war on the claim that the labor market was “too strong.” The problem is that no one is claiming that real (that is, adjusted for inflation) wages are too low. It would be great if workers had substantial pay increases, provided those increases were the result of increased productivity and real increases in demand for those widgets and blodgets. But the problem here is that the “increased demand” is imaginary, the result of inflation. Rather than an increase in the relative price of my product, in my industry, there is a general price increase. Strain’s claim that the labor market is “too strong” may have had unfortunate wording, but it’s basically correct.
Imagine that you were going to run a one-mile race. To prepare, you drink a bunch of coffee, and as soon as the starting gun goes off you sprint as fast as you can. For several hundred yards, buoyed by the artificial stimulant of the caffeine, you are way out in front. But you are running too fast, you can’t keep that up, and you start to wear out the artificial stimulant. In the third lap, everyone else catches you, and you come in last.
You talk to your coach later: “What went wrong?”
The coach says, scornfully, “You ran too fast.”
But you are incredulous: “Ran too fast? It’s a race! Don’t you understand that running fast is the point?”
The coach sighs, and tries to explain. Sure, you want to run fast. But the race has to be run at a sustainable pace, saving enough energy for a kick in the last lap. Going at a dead sprint is actually wasteful, and using coffee artificially speeds you up for a little while, but in the long run you produce less speed, and come in last.
Central planning fails because its success would require the mind of God, yet planners are human. Even if they somehow weren’t corruptible, they can never be sufficiently informed to outperform the market, which is composed of the untold bits of detailed consumer and seller knowledge that are signaled through prices. Interference in the market process, whether it be through direct or indirect price controls, inevitably produces harmful unintended consequences.
Brendan O’Neill talks with Glenn Loury about “the cruelty of affirmative action.”
