When our microwave oven broke down a few weeks ago after almost 15 years of faithful service, it got me thinking about how valuable microwaves are to my family, which led to thinking about the consumer surplus we get from microwaves and to some bigger lessons about the value of economic freedom. So I wrote "Life Without a Microwave" for The Freeman. Some excerpts:
Doing without a microwave reminded me of when and why we got our first one. It was in early 1985. Our daughter Karen was only a few months old. We had been saving for a house in the expensive Monterey peninsula, so we didn't want to "waste" money on a microwave. But Karen regularly woke us up in the middle of the night to be fed. One of us, usually my wife, had to get up, go into the kitchen, fill a bottle with formula, get some water boiling on the stove, and warm the bottle. After a month or two of this, we decided to get a microwave. It saved valuable time every night and allowed my wife to be less awake while heating the bottle, which made it easier for her to get back to sleep. The microwave, which had seemed like a luxury to us, turned out to be one of the most valuable things we had ever bought.
Economists have a fancy and useful term for what I'm describing: consumer surplus. Consumer surplus is the maximum amount you are willing to pay for an item minus the actual amount you do pay. We got an immense consumer surplus out of an item whose price at the time was less than $150.
I went from microwaves to smart phones to modern plumbing:
Perhaps you're someone who doesn't get large value out of a smart phone. Okay. But what about the value of your indoor plumbing? Think of what you pay for that: say $10,000 or so upfront for a toilet, sink, bathtub, and pipes, most of which last for 15 years or more. Probably less than $100 a month for your water bill. Annual cost: about $1,000. How much would you be willing to pay for indoor plumbing?
I'm one of the few people still around who remembers what it's like not to have indoor plumbing. I grew up in a small town in midwestern Canada. We didn't get plumbing until I was seven. Even through Canada's harsh prairie winters, we had to go to the outdoor "biffy" to take care of our internal "plumbing." When we got actual indoor plumbing, it felt to us as if we were living at the Ritz. Remembering what it was like to do without plumbing, I would be willing to pay at least $20,000 a year to have it. Now that's consumer surplus.
And from that to penicillin:
Finally, consider penicillin. In one of the best economics articles in the last 20 years, titled "Cornucopia," U.C. Berkeley economist Brad DeLong makes the point succinctly. He writes, "Nathan Meyer Rothschild-the richest man in the world in the first half of the nineteenth century-died of an infected abscess." Had penicillin existed, his early death would have been highly unlikely. DeLong goes on to note that, had he not had antibiotics and adrenaline shots, he (DeLong) would have died of childhood pneumonia.
I went from that to the role of economic freedom in all this progress, pointed out, as DeLong did, that Karl Marx gave due credit to economic freedom and "the bourgeoisie," and then ended by pointing out that economic progress in the 20th century was even more fantastic than in the 19th century:
But here's the amazing thing, which Brad DeLong, in the aforementioned article, points out: Economic progress in the 20th century makes 19th-century progress look trivial by comparison. The main reason for that progress is a high degree of economic freedom. But we're losing that freedom. Let's not.