Who To Thank?

On our trip to Tennessee we passed through Williamson County in both Illinois and in our destination state.  Thus (?), we have two posts today connecting Kevin Williamson, now back at NRO and maps.

Kevin has a nice article about clarity, Thanksgiving, and economics, For These Gifts We Are Truly Grateful, at NRO.  In discussing human charity points out the obvious but rarely discussed point:

Here is a truth that almost never is spoken: All of the money that ever has been saved and invested in profit-seeking productive business enterprises has done incalculably more for the poor — more by many orders of magnitude — than has all of the money that ever has been put to charitable uses, formal or informal, mainly by preventing them from ever being poor in the first place. That saving and investment, and the innovation and labor that have gone along with them, are the only thing in the history of this little blue planet that has made its inhabitants less poor.

His observations lead us to the confusion of who to thank and a couple of recent examples.  We are somewhere near the middle of the distribution on modern technical skills.  A text said we could speed checkout at the pharmacy if we downloaded a matrix barcode for each prescription.  We did.  The shock came when the person at the window said we were the first to do it.  The incremental gains necessary to expedite this sale are extensive: two levels of barcodes, cell phones, texting, Internet, etc.

Shortly after that we bought a set of AirPods.  We couldn’t wait for Christmas because we have a trip in December.  First warning: It is likely that we will be unable to post from 12/2-12/23.  We were not sure we needed them but after being a first adopter at the pharmacy we were on a roll.  They are great.  Then through the wonders of cell phone confusion we heard The Offspring.  It turns out that something good musically did come out of the eighties.  It is our second new band this month.  Don’t forget the Brooks Hubbard Band  with its North Middlesex roots.

As this examples point out it is hard to know who to thank for the bounty we have been bestowed.  Here is what Kevin says:

But as you cut into that turkey today, remember that somebody did the hard and dirty work of raising it, butchering it, packing it, driving the truck that brought it to your town, stocking the store shelves — and the very difficult work of figuring out how to get all that done, from domesticating turkeys to fueling that truck, a long unbroken line of human effort and ingenuity stretching back to the first guy who figured out how to chip a piece of stone a certain way to make it more useful.

Markets help us stand on giant’s shoulders and become giants ourselves.  We are so fortunate that the growth fairy came to visit and stayed.

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The Growth Fairy Visits

Economic growth created our current state of economic grace.  Deirdre McCloskey calls it The Great Enrichment.  Jonah Goldberg calls it The Miracle.   Both of them would agree, we think, that it wasn’t planned.  After thousands of years of human life being short and brutish, in the past few centuries there has been a dramatic change in the quality of human life.  The [economic] growth fairy visited, because of the miracle of compound interest (separate from Jonah’s Miracle), and left us with riches and resources that the richest folks from a century (and especially two) could not imagine.

As an example, Jules Verne published Around the World in 80 Days in 1873 (set the year before).  The hero takes over, Wikipedia helpfully converts it into 2017 pound sterling, two billion pounds or about three billion dollars to make the trip.  We will take the Lady de-Gloves to Changsha, China in a little over a day for about a thousand dollars (and another thousand for the round trip) in a few weeks.  It is a nice comparison of how life has change in a century and-a-half.  Ordinary people now can do far more than the rich could do ten or 15 decades ago.

Economic growth is crucial to our future well being.  If the economy grows at one percent the compound growth over your child or grandchild’s 80 year life span is about 120% but at three percent it is about 960%.  It is a big difference.  It is important because the growth fairy has revisited the US economy after being away for a few years.  The WSJ tells us:

The Commerce Department reported that the economy grew at a robust 3.5% in the third quarter, a mild slowdown from 4.2% in the second. Consumer spending led the way with a 4% increase rooted in a tight job market and wage gains that have bolstered economic confidence. The economy has now grown by 3% over the last 12 months.  The U.S. economy hasn’t grown at 3% in a calendar year since 2005…

We, along with the WSJ, John Taylor:

When policy moves closer to those three attributes, as in the 1980s and 1990s for the advanced countries and more recently for emerging market countries, the economy does well, growing in a stable manner. When policy deviates from those three, as U.S. monetary policy did going into the tragic global financial crisis, the economy does poorly.

and many others believe in the growth fairy.  We do not believe that we can eliminate economic cycles.  Rather, we believe that good policy leads to, on average, better results and bad policy leads to bad results.  There are numerous examples of bad policy with Venezuela being close to the worst possible policies.  We think the WSJ is pretty close on its summary of good and bad policy in the US:

Can economic growth from tax reform and deregulation stand up to the headwinds from higher interest rates, tariffs and perhaps a Democratic Congress?

The WSJ position on interest rates isn’t clear.  It seems like they are saying increasing interest rates are a problem but are they suggesting action to reduce them?  We are with John on a rules based monetary policy rather than worrying about and trying to manipulate interest rates.  So do you believe in fairies?  This is one you really don’t want to die.

 

Suicide Of The West

Jonah Goldberg’s Suicide Of The West is a book everybody should read.  It is not a great book but it has parts that are absolutely awesome and is full of thought provoking moments.

The best part is the discussion of what Jonah calls The Miracle and Deirdre McCloskey calls the Great Enrichment.  On titles, we’re with Deirdre but we will use Jonah’s here.  Jonah does a great job of explaining the extent of The Miracle.  We love his “most important “hockey stick” chart in all of human history” on page eight.  It shows actual global GDP over the last two thousand years and we get a hockey stick.  He doesn’t limit himself to one method of teaching so everyone should get it.

Sidebar: We thought of saying that everyone should be required to read Jonah’s introduction and appendix but we can’t count on everyone’s sense of humor.  Everyone should read it but we are not into coercion.  End Sidebar

Jonah’s book’s appendix has a nice summary of his four core arguments which we have abridged even more here:

The Miracle has caused us to be unnaturally prosperous
We stumbled into The Miracle and we can stumble out
Human nature is fundamentally unchanging
Human nature can overpower the institutions that make prosperity possible

We agree.  We are fans of the growth fairy so we would add (and think that Jonah agrees based on the last argument) that we now have the knowledge to make prosperity more likely.  We think that Jonah would say that our romantic side, the feelings of human nature, cause the conflict that might end prosperity.

Part of his stumble out argument is that we got The Miracle by argument and rhetoric and we can lose it the same way.  Here Jonah cites Deirdre’s article above.  We love both of them and especially Deirdre’s Rhetoric of Economics.  It was a light from above in our understanding the intellectual differences between economics and accounting.  When Deirdre finds rhetoric for the second time it is less convincing to us.

The conflict of the book is the the rationality of the discussion of economics and human nature and Jonah’s feelings towards The Donald.  Jonah despises The Donald because he has brought tribalism to the right.  With an already tribal left then there is little to do but despair for The Miracle because corruption will set in and capitalism will become ineffective.

In summary, we were beyond delighted that somebody made such a beautiful and sincere argument for capitalism.  Jonah hasn’t convinced us to share his pessimism but we are concerned.  It is an important book that you should read but it is not a great book.

 

Measuring Inflation

There is a problem with measuring inflation as technological change continues to accelerate.  Andy Kessler at the WSJ gives us a couple of examples of the problem of measuring inflation over time when products didn’t exist at the start of the period. He uses the examples of automatic emergency breaking on cars and cell phones that were not available in the seventies.  He could have compared our 19 inch TV that weighted 80 pounds (a guess) and was called a portable.

He doesn’t tell us how he made the estimate but he has a reasonable argument that the Consumer Price Index (CPI) overstates inflation over a time frame that is long enough to encompass technological change.  He comes to an extreme answer:

Freezing today’s lifestyle and going backward, I estimate a “true” median income of $347 in 1973 against the $51,640 of 2016. Today’s middle class isn’t hollowed-out. It’s living high on the hog.

That’s right, Andy is telling us that income went up by 14,785% rather than down by 4%.   We need to see more data to be convinced that Andy is close but we remember the seventies.  Cell phones, Internet, tablets, and personal computers did not exist.  Vinyl is still great but we have more audio options now.  TV is incomprehensibly better on both our sets and the ability to record images.  The difference in watching sports on TV is astounding.  We think he is right about the direction of the adjustment if not the extent of it.

Sidebar: We have been reading Sue Grafton’s mystery series that start in 1982.  We are up to one published in 1993.  The heroine still has to use pay phones to communicate at critical times.  A brief review: The Kinsey Millhone series is like a TV show.  You must read them in order and you’ve got to get to J to be able to evaluate the series.  End Sidebar.

Andy is on to something on the CPI.  It is a big deal.  We make policy on it.  Is the middle class hollowed out?  We make payments like Social Security based on it.  We adjust tax brackets based on it.  We need some one handed economists.

 

Great Terminology

The great terminology is not Intellectual Dark Web even though it is a useful term.  It comes from Holman W. Jenkins, jr. at WSJ.  He says:

Careers like Mr. Cuomo’s are built on running down what might be called “good policy” political capital. Mr. Cuomo is using up the state’s margin of energy survival to burnish his green potentials. He is sacrificing upstate’s economy to burnish his green credentials.

We agree.  Later Holman says:

This is the good-policy capital buffer at work. Mr. Cuomo is doing statewide what Mayor David Dinkins did for New York City in the early 1990s, using up the buffer. [Emphasis added]

Well said.  We think the term we have bolded, good-policy capital buffer, is great.  It fits with our conception of the growth fairy.  When you engage in good policy you feed the growth fairy and when you engage in bad policy you starve the growth fairy.  A great example of bad policy was the Obama requirement to raise MPG standards (CAFE) to 54.5.  Interestingly, the Washington Post called it uncontroversial.  Foolish would have been kind.  Fortunately, The Donald and friends have been undoing Obama’s handiwork.  The linked author is not happy but you should be.  The connection is not always instantaneous but it gives a buffer to all the anti-growth things that governments do.  Let’s call it the good-policy capital buffer in the future.