Thursday, 29 December 2016

Are things actually getting better?

The granddaddy of thinktanks, the Foundation for Economic Education, promotes the notion that it's human ingenuity that gives us progress:
Technology, Progress, and Freedom | Foundation for Economic Education
Steak and Seafood Are Signs of Prosperous Times | Foundation for Economic Education

As featured on this blog:
Futures Forum: Technology and economic progress
Futures Forum: Earth Hour vs Human Achievement Hour
Futures Forum: "Abundant, cheap electricity has been the greatest source of human liberation in the 20th century."

Here are a couple of end-of-year good-news pieces from FEE:

Why Are We Pessimistic When the World Is Getting Better?

On New Year’s Day, I wrote a piece for CapX entitled “Sixteen Reasons to be cheerful about 2016”.
Some of those reasons were general (poverty would fall, average IQ would rise) and some were tied to specific forecasts (driverless cars would move from the labs to the roads, Britain would vote to leave the EU).
The world continues to get cleaner, greener, healthier and wealthier.
Depending on precisely how you define them, I reckon I got between 12 and 14 of my prophecies right. Daesh has not been defeated, though my prediction that Mosul would fall to the Iraqi Army this year looks as though it may be out by only a few weeks. Nor has India quite made the breakthrough to the first rank of world powers – though, again, that is surely a matter of time.
But driverless cars are indeed on the roads in California and Texas, with Australia set to follow. The world economy grew – albeit by slightly less than was predicted last year. Extreme poverty continued to fall.
Our screens are filled with the horrors of Iraq and Yemen; but we forget about the conflicts where violence is tapering away: the Mexican drug wars, the Colombian civil war, the insurgencies in Burma, Xinjiang, North-West Pakistan and Burundi, the Eritrea-Ethiopia border war which claimed more than 70,000 lives. Even in Syria, the overall death toll continues to drop from its 2014 peak.
Meanwhile, the world continues to get cleaner, greener, healthier and wealthier.
So will we extrapolate from the uplifting news? Nope. We will continue to believe, like every generation that has gone before, that ours is a uniquely troubled, violent, corrupt and soulless age.
Books predicting disasters – planetary overheating, asteroid strikes, drugs-resistant superbugs, a collapse of the monetary system, the imposition of sharia law on Europe – will continue to sell. Few publishers will give time to authors who argue that, in general, things will get better – patchily and erratically, perhaps, but better none the less.
If you go to church over Christmas, you will be enjoined from the pulpit to think of the homeless and the hungry, and quite right, too. But you almost certainly won’t hear a clergyman admit that the homeless and the hungry are proportionately fewer than at any moment in history. This is the season when Christian ministers are meant to preach the Good News; yet they struggle, like the rest of us, to admit that it can have an earthly as well as a celestial manifestation.
Optimism, in the present age, represents a victory of intellect over intuition.
Why are we all such moaners? Because we still have the instincts of hunter-gatherers. On the savannahs of Pleistocene Africa, pessimism was a survival mechanism. Our ancestors lived in a world of constant danger and violence: strangers were more likely to be a threat than an opportunity. Hopeful and trusting souls were less likely to survive.
Optimism, in the present age, represents a victory of intellect over intuition. It reflects the rich, secure, interconnected world of voluntary exchange and private property, not the Hobbesian terror of the tribe.
And here’s the really good news. Once you accept, intellectually, what is happening to the world, you start to realize how extraordinarily lucky you are. When that happens, your emotions catch up, and you truly become more cheerful. Seriously – try it.
Republished from CapX.
Why Are We Pessimistic When the World Is Getting Better? | Foundation for Economic Education

Are We Really Worse Off than our Parents?

Steven Horwitz
A recent New York Times piece by David Leonhardt reports on the research of Raj Chetty which shows that the odds of a child earning a greater real money income than his or her parents has declined from 92 percent for children born into the average American household in 1940 to 50 percent for those born in 1980. The implication is that the “American dream” of doing better than our parents is dying and the policy prescription is, of course, that we must reduce the inequality that is causing this problem through the usual progressive wish list of government interventions.
Even if you make less than your parents, would you go back in time to the world they lived in at your current age even with their higher real money income?Let’s step back, though, and ask if the data Chetty presents really make the case they appear to. That is, even if it’s true that children are less likely to earn higher inflation-adjusted incomes than their parents, does that make them “worse off” in any deep sense? More specifically, is real money income the best indicator of one’s standard of living and therefore the best way to make these sorts of intergenerational comparisons?
Types of Mobility
What is meant by the “American dream?” Leonhardt implies that the dream is to earn more than our parents did. But another version of the dream is that everyone has an opportunity to work their way up the income ladder. Economists talk about this in terms of “income mobility,” or how easy or hard it is for people to move from one place in the income distribution to another (either up or down) in a later year.
We also distinguish intragenerational mobility from intergenerational mobility. The former refers to how easily households in one generation can move from year to year, where the latter refers to degree to which children end up in a higher or lower income range than their parents. The data on the first indicate that mobility is still alive and well, though slightly less than in the past.
Over pretty much any ten-year period since the 1970s, well over 50 percent of households in the lowest percent of the income distribution in one year had moved up at least one quintile by the end of the period. Some data sources indicate that over 80 percent of poor households were no longer poor a decade or so later.
With respect to intergenerational mobility, a 2007 study found that the children of the top 20 percent of income earners in 1969 had real incomes in 2000 that were roughly equal to what their parents had in 1969. At the other end, 82 percent of children of the bottom 20 percent in 1969 had incomes in 2000 that were higher than what their parents had in 1969. The median income in 2000 of those children of the poor of 1969 was double that of their parents. The differences between this study and Chetty’s may reflect differences in their data sources, but at least it suggests that taken on their own terms, Chetty’s results might not be the only way to parse the data.
Other Forms of Compensation
Even if our real money incomes are less likely to exceed that of our parents, what our incomes can buy us is far more than what our parents’ incomes could buy them.One other point to consider is that comparisons of money incomes ignore the question of non-monetary compensation, which has become a much greater portion of total income over the period Chetty is examining. As one example, just looking at money incomes ignores the value of employer-provided health insurance (as well as the value of employer contributions to retirement programs). A whole variety of studies have pointed out that once we look at total compensation, much of the decline in money wage growth rates since the 1970s disappears.
But even if Chetty is right on the data, his study does not address the question of what our real incomes can buy us. What ultimately matters for human well-being is what our real incomes enable us to consume. Consider the fact that even many of the poorest Americans are walking around with smartphones in their pockets that were not available at any price to the richest Americans of a generation ago. Consider the range of foods available at the typical grocery store in a middle class suburb, or even a rural town, and then compare it to the typical grocery store of the 1970s or 1940s.
Even if our real money incomes are less likely to exceed that of our parents, what our incomes can buy us is far more than what our parents’ incomes could buy them. From food to clothing to electronics to medicine to cars, most goods and services are cheaper and/or better than ever before in human history.
What Can We Buy?
One way to see this is to calculate how many labor hours at the average private sector wage it takes to purchase typical goods and services. For example, if the average wage in 1975 was $6/hour and a pair of jeans cost $24, it would take 4 hours of labor to buy them. Suppose the average wage in 2015 was $21 and the jeans now cost $42. It would take 2 hours of labor to buy them, cutting the price in terms of hours of work in half.
We can see this process at work with a variety of consumer goods over the last 55 years:

Other data
 make clear that these household items are increasingly available to poor Americans. In fact, Americans below the poverty line today are much more likely to have these sorts of things in their homes than was the average American family in the 1970s. And when we consider the higher quality of these goods and services, we are that much more well off than our parents were, whether rich or poor.
In 2013 this typical set of household appliances required less than 20 percent of the working hours than it did in 1959 and less than 30 percent of what it did in 1973. That we spend so many fewer of our working hours buying these items, not to mention food and clothing, is what makes it possible for us to afford smartphones, Uber rides, more widespread air conditioning, not to mention new medications and other health care.
It may well be less likely than in previous generations that children have real money incomes in excess of their parents, but that doesn’t mean they are necessarily materially worse off than their parents. Those born in 1980 have innovative new medicines and technologies, new production processes that have reduced the real cost of most goods and services, and breakthroughs that have improved the quality of many products as well.
Ask yourself this: even if you make less than your parents, would you go back in time to the world they lived in when they were your current age even with their higher real money income? My guess is no, and that’s the most powerful evidence that whatever your income, you perceive yourself as better off today than they were then.

Are We Really Worse Off than our Parents? | Foundation for Economic Education
We Are Approaching Exponential Innovation | Foundation for Economic Education

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