Today we turn back to our grim work…connecting the dots…trying to figure out what is really going on.
And we begin with George Gilder. We’ve been a Gilder fan for at least 40 years. His book, for example, The Scandal of Money, is brilliant. It describes how the government has abused its power to provide money, using it instead to rip off the common labouring man in order to reward speculators and insiders.
Naturally, we are proud and pleased to have him on The Agora team.
But Dear Readers ask: ‘Don’t Gilder’s studies show that you are wrong about everything?’ In a nutshell, we say things are getting worse; he says they’re getting better. Here, we attempt to reconcile the two.
And we will approach the subject in our customary way: with unhelpful sarcasm and mockery.
Yes, Dear Reader, we are preparing to announce our first annual Paul A Samuelson Prize. The prize goes to an economist who commits one of the cardinal sins of the profession: projecting his modest observations where they ain’t s’posed to go.
Samuelson has been called the ‘father of modern economics’. He sired a whole race of modern economists and was awarded a Nobel Prize largely for adding a lot of numbers and pretending to turn economics into a science.
The most famous illustration of this was his study of the Soviet Union. He realised he could count the tonnage of steel coming out of the Soviets’ dark, satanic mills and the kilowatts of electricity generated by its turbines. This, he believed, told him that the Soviet economy was growing faster than the US’ and would surpass the American economy ‘no later than 1997’.
Similarly, Gale Pooley and Marian Tupy make the worthy observation that the typical human is better off today than he was 40 years ago. This, they say, is because technology and innovation have rendered ‘50 foundational commodities’ cheaper (64% cheaper, by their calculations), in terms of the time the average person must spend to buy them.
George Gilder cites Pooley and Tupy frequently. Most recently, he used their work to show that we are wrong about the plight of the US proletariat. Here is a letter from one of his readers…his reply…and an elaboration from Gale Pooley:
Reader Question: I’m confused because per research by Bill Bonner and Co., it takes nearly twice as long for the average worker in the US to buy an F-150 pickup truck as it did back in 1970. Have food and other commodities gotten cheaper while manufactured goods have gotten more expensive?
– Jay A.
Gilder’s Response: It may be a hopeless cause, but…I have to point out that manufactured goods (see the iPhone) have dropped in time-price far faster than food and other commodities since Tupy and Pooley’s 1980 starting date for their time-price tables. I am not an expert on the Ford F-150 pickup truck, but judging by the general advance of vehicular technology, I suspect it is a new product today, with some 600 microchips, wireless connectivity, scores of new features, greater safety and durability, and close to two times the mileage per gallon.
And here comes Pooley, piling on:
‘According to the National Auto Dealers Association NADA Guide, in 1970 you could buy a basic Ford F150 for $2,599. Blue-Collar compensation was $3.93 per hour, indicating a time price of 661.3 hours.
‘A 2019 basic F150 is now $28,155 and blue-collar production worker compensation is around $32.50 an hour indicating a time price of 866.3 hours.
‘This would indicate a time price increase of around 30%.
‘But the 2019 model is of a completely different species than the 1970 model.
‘Mileage is 100% better at 22 city/30 highway versus 12 city/14 highway.
‘Other differences include power, safety, and comfort factors.
‘If one were to conservatively estimate all of these factors at 100% better than the 1970 model, the time price for the 2019 relative to the 1970 has actually fallen to 433 hours indicating a time price decrease of 35%.’
First, let’s square up the numbers. Pooley and Tupy say the typical working stiff has to put in 30% more hours to get the typical F-150. Our figures show more like 100%.
We agree on the prices for the F-150. We agree on the average wage in 1970. But what typical wage earner takes home $32.50 an hour today? Pooley must be adding non-dollar ‘benefits’ to wages, just as he is to products.
The Bureau of Labor Statistics says the median fellow earns $23.59, which is much closer to real-world experience. At that rate, the working man puts in about (no false precision here!) 1,194 hours on the job to buy the F-150 today. In 1970, he put in about 661. Is that about twice as long? Close enough.
But the big error goes beyond the numbers. Following in Samuelson’s footsteps, Pooley and Tupy use the math like a ticket to a fantasy world. No matter that the F-150 costs more, they say, because it’s ‘worth’ more.
How do they know that? Things are given value only by willing consumers in a free market.
You can go on the internet and search for a Ford F-150 1970 in NEW condition. What will you find? Not a truck selling for $2,600 as it did in 1970… or a truck selling for an inflation-adjusted price of $18,000. Instead, it sells for around $28,000, as if all the enhancements of the last 50 years were worthless.
We doubt that a mass-marketed 1970-version F-150 sold at $28,000 would prove a big hit. But a 1970 version, sold today at a 1970 price — $2,600 — would probably fly off the lots.
Pooley and Tupy are actually using the same technique as the Bureau of Labor Statistics. It’s called ‘hedonic adjustments’, in which prices are deflated by what the wonks see as ‘improvements’.
The Bureau of Labor Statistics, too, thinks it knows what those improvements are worth, even without computing time prices. Its geniuses simply decide for themselves, distorting the real information value of real prices with made-up imposters.
That is what Pooley and Tupy are up to too. They observed that humans are, in terms of time, more able to buy the ‘50 foundational commodities’.
But people do not buy foundational commodities. They buy finished products, such as the F-150. And they buy them with the wages they actually earn, not with wages embellished by time-value studies, enhanced by hedonic adjustments, or pumped up with the silicone of comparable gains in China.
Pooley and Tupy’s calculation is based on planetary wage growth, not wage growth in the USA. Since the Chinese have made such stunning advances in wages, it naturally flatters the planetary average in Duluth and Tupelo.
But does the wage earner in Donora bask in the warm reflection of China’s good fortunes? Does that make it easier for him to pay his mortgage or afford an ordinary lifestyle?
It does not. And he is likely to resent it…and think the Chinese are pulling a fast one.
But it’s not the Chinese who are cheating him. It’s the US Feds and all the Samuelson-trained economists who enable them.
The F-150 is made of those foundational commodities that, according to Pooley-Tupy, have fallen 64% in time value over the last 40 years. That should mean, roughly, that a 1970 pickup should require only 238 hours of labor today. In another few decades, it should be free. Instead, it already costs twice as many hours as it did in 1970.
In money terms…and in time terms…the average man is getting poorer.
What this shows, to us at least, is the danger of silly extrapolation. Samuelson thought the Soviet Union was getting richer, thanks to its mass production and central planning. These professors — Pooley and Tupy — think the US working man is getting richer too.
So let’s look again at what is really happening — in time.
While the average man’s wheels became twice as expensive, so did his lodging. It cost $23,000 in 1970 to put a roof over his head. Today, it’s $240,000. In time, it costs about twice as much. Is it a ‘better’ house? It’s certainly bigger…with more gadgets.
A lot of people still live in houses built before the 1970s. Poor things. And what are they other than heaps of ‘foundational commodities’? So, the typical unimproved 1970s house today should sell for 64% less time than it did in 1970. Good luck finding it.
And what about the average man’s medical care? From the National Health Statistics Group, we get a figure of $356 per person in 1970. Today, the number is around $10,000.
This is a little more complicated because in 1970, we tended to pay for what we got directly. Now, insurance and the feds muddy the water. But just using the numbers we’ve got, that’s an increase of 28 times. In time, it went from 91 hours to 424 hours…almost a five times increase.
Is it better medical care? Hard to believe it. Life expectancies for men are now going down. So now they have less of the world’s ultimate currency…and less money too.
But at least they’ve got the pride of knowing that the human race is making headway…that they can buy more bushels of wheat and pounds of steel than ever before in history…and that they have those 600 microchips under the hood.
More to come…
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