David R. Henderson  

Brad DeLong on Cornucopia

Is the Fed beginning to see th... Open Borders Meets the Writers...

I'm sitting in a United Red Carpet Club at LAX, having just used my last coupon that expires next year. That, in itself, is evidence of Cornucopia. I'm able to get on line, get "free" booze (although I opted for the sparkling water), and get good afternoon snacks.

But that's not the biggest evidence of Cornucopia. The biggest evidence is from the best study I know of that Brad DeLong ever did. I taught some highlights of it to my class in San Diego this morning and so I want to post while it's fresh. It's titled "Cornucopia: The Pace of Economic Growth in the Twentieth Century." In it, Brad shows the number of hours you would have had to work in 2000 at the average wage to earn enough money to buy items from an 1895 Montgomery Ward catalogue and then shows the much greater number of hours you would have had to work in 1895 to earn enough to buy those same items. For all but one of those items, you would have had to work much less in 2000. The one exception, which I'll get to in a minute, is interesting.

I pointed out to my students that if you ran the numbers in 2015, most of them would probably look even better. Take, for instance, the six volumes of Horatio Alger. DeLong computes that you would have had to work 0.6 hours to make enough to buy them in 2000, versus 21 in 1895. How about now? You can buy them for $1.99 now, which would take less than 0.2 hours at the average wage today.

The exception is interesting too: a silver sterling teaspoon, which took 26 hours in 1895 and took 34 hours in 2000. I'm a little suspicious about the 34 hours, but let that pass. As DeLong himself points out, that price is kind of irrelevant because we no longer need silver teaspoons. He writes:

For those who think that the important characteristic is that it is made of silver, it is indeed 25 percent more expensive than it was back then when you could pick the silver up off the ground in Nevada. But for those who think the most important characteristics [sic] is that it does not rust, a teaspoon today costs only one-fiftieth as much in labor times as it did a century ago.

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COMMENTS (7 to date)
Bob Knaus writes:

34 hours? Yes, I am suspicious too. The first page of an eBay search lists sterling silver teaspoons priced from $5 to $25 each.

Mark Bahner writes:

Going back further, from David McCullough's book on John Adams:

The furnishings Adams grew up with were of the plainest kind — a half dozen ordinary wooden chairs, a table, several beds, a looking glass or two. There was a Bible, possibly a few other books on religious subjects. Three silver spoons — one large, two small — counted prominently as family valuables.

So three silver spoons...available from Ebay for under $100..."counted prominently as family valuables."

Gene Laber writes:

Other studies show similar results--namely, fewer hours of work required to buy goods today compared with the past. But has anybody seen similar calculations for services--e.g., auto transmission repair, extraction of a tooth, etc? I suspect that including services in such analyses would mitigate the reduction in price/wage ratios.

David R. Henderson writes:

@Bob Knaus and Mark Bahner,
Thank you.
@Gene Laber,
Good question. I will look into it.

Mark Bahner writes:
But has anybody seen similar calculations for services--e.g., auto transmission repair, extraction of a tooth, etc?

I was thinking of a related thing in the shower this morning. Specifically, I was thinking that in 1895...let alone 1795, when John Adams was alive...there *were* no hot showers.

How this is related is that one of your examples was "automatic transmission repair." No automatic transmissions in 1895...let alone 1795.

And extraction of a tooth...today, you get your extraction with injected Novocaine. I don't think you could get injected Novocaine in 1895, and I know you couldn't in 1795.

So even if it's possible to find pricing for tooth extraction in 1895 or 1795, any true accounting would need to account for the vast improvement in quality for the procedure. (I could believe if ~1 percent of tooth extractions in 1795 actually resulted in death from infection.)

Yaakov writes:

I second Gene Laber's question. In order to respond to Mark Bahner's objections, I suggest we leave out medical care and look at other services, such as child care, education services (e.g., the cost of getting a degree in engineering), gardening, and home maintenance.

Mark Bahner writes:
In order to respond to Mark Bahner's objections,...

I wouldn't call them "objections." :-) They're more observations of aspects that could lead one to erroneous conclusions.

It seems to me, as general rule of thumb, services for which time cannot be shaved, and which must (to this point) be performed by a human would be things that don't decrease in cost, expressed as a function of hours worked.

For example, getting a haircut is probably no faster than it was in 1895, and considering that the barber's (oops, hair stylist's) salary has increased just like everyone else's, there wouldn't be a decline in price (expressed as a function of the average customer's earnings).

But if you took something like washing clothes, in 1895 (and 1795) if you didn't do it yourself, you'd need a maid, who would need to go down to the stream and wash the clothes. Today, even if you had a servant to do the laundry, he/she could just throw the clothes into the washer and dryer, which cuts down on the time required.

P.S. I was going to use the example of a travel agent, where in the 1950s through 1970s, the agent would need to examine a bunch of tables, where now Travelocity of some such program does the work. But I don't know if there even were travel agents in 1895...let alone 1795.

P.P.S. My personal experience is that the cost of getting a degree in engineering from a school in Blacksburg, VA, has gone up much faster than inflation from the late 1970s to the present. (I'm not sure about expressed as a function of earnings.)

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