Posted on 04/17/2004 4:04:07 AM PDT by snopercod
If economics is the dismal science, then you must consider W. Michael Cox a contrarian.
Cox is senior vice president and chief economist at the Federal Reserve Bank of Dallas. He's also, for lack of a better phrase, a cockeyed optimist — the most unpessimistic and undismal of economists.
Which is what makes Cox one of our favorite economists.
Using facts — numbers, figures and the long-term historical record — he has dispelled many popular myths about the economy.
His data convincingly show that Americans, whether we believe it or not, are much better off than we think — indeed, we are the wealthiest people in the history of the world.
Cox is the author of the bank's popular annual reports on rising U.S. living standards and the new economy. His book, the "Myths of Rich and Poor: Why We're Better Off Than We Think," is widely quoted.
We spoke with him about changes in the U.S. economy.
IBD: You've said Americans are better off now than they were 20 years ago. How about some examples?
Cox: Well, the Dow was at 776, and anybody who has money invested since August 1982, for example, certainly is better off.
If you had invested $10,000 in Dow stocks in 1982 and reinvested the money along the way, all the dividends, that $10,000 would be worth $218,000 today. So that's a lot better.
There's a saying that both adults have to work these days in order to make a living for the family.
But what I did was go back and say "is that really true?" And when are people talking about that things were so good?
I looked at how much it costs to live today, supposing you keep the living standards the same.
In other words, there's a difference between the high cost of living and the cost of living high.
When people today think they're talking about the high cost of living, usually they're talking about the cost of living high. They're not holding constant the lifestyle from, say, 1970.
So we said let's go back to 1970 and look at the size of the house a person would buy back then. The average size of a new house was only 1,382 square feet.
Let's hold the house constant and try to find a car today that comparable, say, to the Ford Fairlane 500 in 1970. Let's figure out how much gas they used in a year and suppose they still consume the same amount of gas, about 780 gallons.
Let's suppose they use the same amount of electricity, which they wouldn't, of course, because we have all these new gadgets. Basically equip the home with a new stove, refrigerator, dishwasher, clothes washer, dryer and a color TV.
After all that, it turns out that to have that same lifestyle today costs just a fraction of what it used to.
For example, the house, if you keep the square feet the same and adjust for all these amenities we put in our houses today, is less expensive in terms of work hours. The number of hours you have to work to afford that same house has gone down from 6,985 hours to 6,825 hours.
No matter where you look, you'll see the cost of having yesterday's lifestyle today is much cheaper.
And both adults don't have to work in order to make a living for the family. What we're doing is we're starting to consume a lot more.
But what matters is that both adults have always worked. It's not like my mom was sitting around the house doing nothing while my dad went off to work. The fact is she was working longer hours than my dad.
The data show in 1950, when the average workweek at the office was 40 hours, it was 54 hours at home. That's where the saying came from "a woman's work is never done."
All that's happening now is women are specializing, like men. Men first left the home to specialize.
If you go back 200 years, both were at home. The man felled the trees, grew the food, made the house, raised the livestock, slaughtered the animals. The woman canned the food, cooked it, raised the kids, darned the socks, made the clothing.
IBD: So why don't people think they're better off than 20 years ago?
Cox: I found the most interesting thing in American Demographics magazine about seven or eight years ago. They asked people ages 20 to 80, "What was the best decade in American economic history? Was it the '10s, the '20s, the '30s, '40s, '50s, '60s, '70s, '80s, '90s?"
For each group, the best decade happened to be the one when they were between 15 and 25 years old.
Because here you finally are. You have your complete, full body, you're ready to do anything you want, you have money from your parents, you don't have yet the responsibility of paying for your house, your parents are paying for your education, you have a car, you don't have to save for retirement, you don't have to hassle with kids.
Every day when you get up you're a bit stronger and a bit better.
I couldn't believe that it was this way. So I asked my dad, who is 87, "Dad, what was the best decade in American economic history?"
He said it was the '30s and '40s.
I said, "You're kidding me. Your family was in the Depression in the '30s and you had to quit work at age 12 to take care of the family and you were driving a milk truck before you were even allowed to because your dad had diabetes. Then you got drafted and joined the Air Force, were a B-29 pilot and got shot down."
He said, "Yeah, and it was great."
IBD: So let's look ahead. Given what has taken place in the last 20 years, what trends are most important?
Cox: I think we're heading into the imagination age. America has had four distinct ages already.
We had the primitive age in which there was no market economy. Folks just produced stuff out of their home and tried to do it all for themselves.
But when we left that, we figured out this is not a very good way of doing things. So we went to the agrarian age, and folks went to work on farms and specialized.
Then we left that and went to the industrial age where we put a lot of our efforts into making all the gadgets we consume, the cars, washing machines, telephones and stuff.
But then we got the computer and entered the information age in the 1940s and 1950s. Today, you can barely give information away. The guys on Google will give you a million hits on something you used to have to look up in an encyclopedia.
You can tell when you're leaving one age and entering another: The stuff that used to be dear becomes commoditized and eventually almost free.
We were in the agrarian age so long as food was really expensive, and we were starving and didn't have a way of making it cheap.
But then we got farm implements and machinery and engines and motors, and we discovered electricity and used it to power engines.
Baskets of wheat, baskets of corn — stuff got commoditized and production grew and the prices fell.
And what became dear was our ability to make industrial goods with machinery. The assembly line hadn't been perfected yet. Machinery hadn't been perfected yet. There was a high fixed cost of making this stuff. When Ford started making the Model T, he had to defend it against claims it was just a rich man's toy.
Then our manufacturing techniques became more sophisticated. Today they run a plant 24 hours a day and just pump out stuff. A VCR is $37 bucks, because it's only two hours of work. Factory goods have become commoditized.
So we moved to the information age where information was dear at first. We had these huge, expensive mainframe computers that we would timeshare and hope we didn't drop our (punch) cards. It was very, very expensive to get information.
Now information has been commodotized with the increasing processing power of the chips, storage and bandwidth on the Internet.
Now I have information from all over the globe at my computer in seconds. So information is free.
What's dear now is our ability to imagine what we can do with the technology that we already have.
Who's getting rich today and what are they bringing to the market? They're making their wealth off of imagination. Jeff Bezos imagined a new way of getting books, not at the bookstore, but through the Internet.
Mark Cuban imagined a new way of listening to the radio, not over the radio but over your computer.
Einstein was right: Imagination is more important than knowledge, and we're proving that today. We're moving into the imagination age.
IBD: What about things like demographics? Will the falling U.S. birthrate pose a challenge for the U.S., as it has in Europe?
Cox: Geographical and political boundaries are not economic boundaries. There have been some speakers going around and talking about how we're doomed, asking how will fewer working age people support a growing number of retired people?
The only demographic that matters is the world demographic. And the world demographic has no problem. In the world population, it's not possible to have a few workers supporting a lot of retired people.
So as long as the U.S. is accumulating wealth and our net worth is going up as a nation, we have a claim on the rest of the world.
Theoretically, to take this to an extreme, we could all retire at once — all 290 million of us.
How would we do that if nobody here is working? We would save during our life, create a claim on foreigners, create net wealth and then when it came time to retire the rest of the world would take care of us.
Now there are 20 people in the rest of the world for every American. The world population is about 6.3 billion, and we have about 300 million. So that's not a bad ratio at all.
All we need to be doing is basically accumulating wealth. The mean net worth in America in dollars of constant purchasing power is up from $96,500 in 1970 to $401,753 last year. The median has tripled from $31,315 to $87,461.
That means net of all the debt that people worry about, we've still accumulated a lot more assets than debt.
So our balance sheet is three to four times as good.
Interesting perspective. I want to know where he shops, though.
He said it was the '30s and '40s.
I said, "You're kidding me. Your family was in the Depression in the '30s and you had to quit work at age 12 to take care of the family and you were driving a milk truck before you were even allowed to because your dad had diabetes. Then you got drafted and joined the Air Force, were a B-29 pilot and got shot down."
He said, "Yeah, and it was great."
Classic. I have bookmarked this one. ROTFLMAO.
Not in the technical disciplines - engineering, manufacturing, etc. A simple search on monster.com will confirm that for you. Try using the search terms "engineer" and "power plant" and see how many hits you get.
We do have plenty of opportunities in our area to flip burgers, change motor oil, and clean porta-potties, though. (All of the above for less than $7 per hour.)
Another thing left out of the above stats was interest expense. The "average" household has $9,000 in credit card debt and $30,000 [!] in automobile debt. I don't have the figures for mortgage interest.
I may not have a job, but the wife and I have ZERO debt. I'm starting to like being a stay-at-home manwhore ;-)
Try stopping in at your local gas station.
If you look at the chart, that idiot Cox thinks it's only $1.34 per gallon.
Where did he put taxes? safety? single parents? dope? sex disease? church going? good movies? terrorist alerts?
Is that your best shot, Willie?
[Here] is the link to the original article on the Fed site.
''If we all join hands together and buy a new SUV, everything will be OK,''
Cars last 200,000+ miles (thanks to the Japanese), and tires last 50,000+ miles (thanks to the...shudder...french). Medical care is more expensive, but things that would have killed us thirty years ago are routinely cured these days.
You have to admit, we have it pretty good, even with the $hitty job situation.
Oh, to gauge inflation, I use the BPI, myself. Beer Price Index. In 1975, a six-pack of Coors cost $1.32. Now, it's $5.99. Simple.
Not the French, sorry.
In 1970 I could have sold you a set of Atlas Plycrons which would have given you 50K easy. That's the Exxon (Humble Oil) house-brand tire.
Of course, they were NOT radials, and if you hit a wet patch, don't bother to hit the brakes because the tire's rubber was hard as marble--but you'd get 50K out of them.
State taxes in the "thousands"? Thank heavens, it's great to be in Texas! (No state income tax) Must be all that oil...and gas...and petrochemicals...and cotton...and rice...and cattle...and wheat...and timber...and autos...and computers...and citrus...and veggies...and self-reliance...and work ethic...and good ole' gummint PORK!
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