Competition has an extraordinary tendency to enhance efficiency and bring down prices.
Chelsea Follett —
Many worry about international trade and the increased competition to which it leads, while overlooking trade’s incredible benefits. In a refreshing Wall Street Journal article, the founder and CEO of FedEx, Fred Smith, reflects on how trade and deregulation have improved American living standards over the course of his lifetime. He recalls how many luxuries enjoyed by few during his youth plummeted in price and became accessible to more people than ever before.
“Foreign travel was exotic, expensive and rare among the population as a whole” during the 1960s, Smith reminds us. Industry deregulation and international Open Skies agreements changed that. “Long-distance telephone calls were expensive, international calls prohibitively so,” and cell phones did not even exist yet. “From furniture to TVs and appliances, and especially automobiles, American brands dominated consumer spending” across the United States, and were often out of reach to the less affluent. Then trade worked its magic:
[Trade] has rewarded Western consumers with low-cost products that have substantially improved standards of living. [Today] Americans and Europeans don’t need to be affluent to afford cell phones, digital TVs, furniture and appliances.
The moral of Smith’s story is clear: competition, which trade and deregulation facilitate, has an extraordinary tendency to enhance efficiency and bring down prices.
As we have documented, the falling cost of living improves the lives of ordinary people irrespective of how fast incomes rise. The few areas where costs have gone up instead of down—education, housing, and healthcare—have been subject to severe market distortions. Subjecting education, housing, and healthcare to more competition could have salutary results. Falling cosmetic procedure prices, for example, provide insight into how deregulated healthcare might affect healthcare costs.
Smith’s article also recounts how increased competition has helped to move technology forward. Technology, in turn, has furthered expansion of trade—a virtuous cycle:
During the 1970s and 1980s, while container ships and planes became increasingly efficient with each successive model, newly developed fiber-optic cables (patented in 1966) began running underseas, connecting the world at the speed of light, lowering voice and data-communication costs by orders of magnitude. Financial markets became globally integrated and transactions multiplied at an astounding rate.
In addition to improving lives in the United States, trade has also helped lift billions of people out of extreme poverty around the world, notably in East Asia.
While the vast majority of Americans are made better off by trade, that is of small comfort to those working in industries that are having trouble competing with the rest of the world. Their disappointment contributes to the popularity of anti-trade political figures like Donald Trump and Bernie Sanders.
It is important to acknowledge the “destructive” part of “creative destruction”—and trade contributes to creative destruction—but also to put trade in a proper perspective. The positives markedly outweigh the negatives. As Fred Smith concludes:
More than three billion people are now connected to the Internet. Billions more have aspirations for a better life and are likely to come online as global consumers. The odds are good, therefore, that today’s remarkable transport systems and technologies will continue to improve and facilitate an even larger global economy as individual trade is becoming almost “frictionless.”
History shows that trade made easy, affordable and fast—political obstacles notwithstanding—always begets more trade, more jobs, more prosperity. From clipper ships to the computer age, despite economic cycles, conflict and shifting demographics, humans have demonstrated an innate desire to travel and trade. Given this, the future is unlikely to diverge from the arc of the past.
Get almost 16 today for the time price of one in 1971.
Gale Pooley —
Summary: Since the introduction of the first US commercial soft contact lenses, significant advancements have made them more accessible and affordable. This progress in abundance, driven by continuous innovation, underscores the importance of fostering an environment conducive to scientific and entrepreneurial advancements for the prosperity of society.
In 1971, Bausch & Lomb manufactured the first US commercial soft contact lenses. An eye doctor fitting ran around $550, and a pair of contact lenses cost $65, putting total costs around $615. Unskilled workers at the time earned about $2 an hour. This means the time price was about 307.5 hours.
Today an eye exam is about $120, and lenses start at $200 for a 12-month supply, putting the cost at $320. Unskilled workers now earn about $16.51 an hour, indicating a time price of 19.4 hours.
Unskilled workers can now get 15.9 sets of contact lenses for the time price of one set in 1971. Abundance has been growing at a compound annual rate of 5.35 percent, doubling in abundance every 13.3 years.
Today an estimated 45 million Americans wear contact lenses, of which 30 million are women. Imagine if the manufacturers of eyeglasses had used government regulation and coercion to prevent the innovation of contact lenses?
The more we make of something, the more we learn. The more we learn, the lower the price. The lower the price, the higher our standard of living. This truth was described by Adam Smith in 1776 in The Wealth of Nations.
And what is wealth? As George Gilder notes, “Wealth is knowledge and growth is learning.” The nation that is best at growing new knowledge will enjoy the greatest wealth. Artificial intelligence offers the hope that this learning process can be dramatically enhanced.
We can thank the continuous innovations of scientists and entrepreneurs in developing new contact lens designs and manufacturing techniques. America’s comparative advantage has been its visionary leadership in encouraging everyone in discovering and creating valuable new knowledge that can be shared in free markets. We cannot allow fear to blind us to these truths and prevent a future of innovation and greater prosperity.
This article was published at Gale Winds on 3/12/2024.
Most things are more abundant and affordable today.
Gale Pooley —
If you had a dime in 1900, you could buy a 1-ounce Hershey chocolate bar and a 6.5-ounce bottle of Coca-Cola. It sounds like those were happy days indeed. That is until you look at wages, which were around 14 cents an hour for blue-collar workers.
At Walmart today, a 1.55-ounce Hershey bar costs $1.17 and a 1.25-liter bottle (42.27 ounces) of Coke is $1.52. Blue-collar workers earn closer to $36.15 an hour in compensation.
We buy things with money but pay for them with our time. Money prices are expressed in dollars and cents, while time prices are expressed in hours and minutes. A time price is simply the money price divided by hourly income.
In 1900, it took more than 21.4 minutes to earn an ounce of chocolate and 3.3 minutes for an ounce of Coca-Cola. By 2023, the chocolate time price had fallen to 1.25 minutes, and sodas were down to 0.06 minutes (3.58 seconds).
Chocolate cost fell 94.2 percent while cola cost fell 98.2 percent. For the time required to earn 1 ounce of chocolate in 1900, you get 17.1 ounces today, and for the time required to earn 1 ounce of Coca-Cola in 1900, you get 55.2 ounces today. Chocolate is 1,611 percent more abundant while cola is 5,425 percent more abundant.
Things can get more expensive and more affordable at the same time. This is why you must always compare prices to wages to see the true price, which is how much time things cost you.
This article was published at Gale Winds on 3/19/2024.
Remember that it’s the time price, not the money price, that counts.
Gale Pooley —
Summary: The affordability of gasoline varies significantly worldwide due to varying taxes and subsidies. Analyzing the GDP per hour worked against the money price per gallon shows that the United States emerges as the most affordable country for purchasing gasoline, even compared to nations where gasoline prices are heavily subsidized by the government.
According to GlobalPetrolPrices.com, the average price of gasoline around the world is USD5.03 per gallon. However, there is substantial difference in these prices among countries due to the various taxes and subsidies for gasoline. All countries have access to the same petroleum prices of international markets, but countries do not all impose the same taxes. As a result, the retail price of gasoline varies significantly.
The money price of 16 selected countries ranges from $2.26 in Russia to $8.55 in Denmark. But what about the time price? To calculate the time price, we first calculated the GDP per hour worked in each country. The data to calculate this ratio come from the World Bank and the Conference Board.
We then divided GDP per hour worked by the money price per gallon. This gave us the gallons of gasoline that one hour of work would buy in each country:
We also divided the nominal price per gallon by GDP per hour worked to get the minutes required per gallon:
This chart illustrates how much more expensive relative to the US the other 15 countries are in terms of time price:
Of the 16 countries analyzed, the US is by far the most affordable place to buy gasoline. There are other countries where gasoline is more affordable, but the gasoline price in those countries is heavily subsidized by government.
Flying Abundance (And Safety) Has Increased Dramatically
Get 10.8 flights from New York to London today for the time price of one in 1970 and be 80.4 times safer.
Gale Pooley —
Summary: Since the Wright brothers’ pioneering flight in 1903, the aviation industry has made remarkable strides in safety, affordability, and accessibility. Comparing flight prices from 1970 to today reveals a staggering 90.8 percent decrease in the time price of flying, with transcontinental flights now affordable for the average person. Additionally, advancements in aviation technology have made flying dramatically safer today than it was in 1970, and are likely to improve flying safety in the future.
The Wright brothers launched the era of aviation on December 17, 1903, with a 12-second flight. Since then, aeronautical engineers and market innovators have made the experience safer, faster, and much more affordable.
For example, in 1970 the price for a roundtrip ticket from New York to London was $550. Blue-collar workers at the time were earning around $3.93 an hour in compensation (wages and benefits). This suggests a time price of around 140 hours.
Today, the ticket price has dropped to around $467. Blue-collar workers are now earning closer to $36.15 an hour, putting the time price at 12.9 hours. The time price has fallen by 90.8 percent: for the time required to earn the money to buy one flight in 1970, you can get 10.8 flights today.
Flying abundance has increased by 980 percent, compounding at an annual rate of 4.5 percent over the last 54 years. During this same period the global population increased by 4.3 billion (117 percent), from 3.7 billion to more than 8 billion. Every 1 percentage point increase in population corresponded to an 8.4 percentage point increase in flying abundance.
Now transcontinental flights are affordable for almost everyone. Free-market entrepreneurial capitalism isn’t about making more luxuries for the wealthy, it’s about making luxuries affordable for the average person.
While it is true that the 1970s flights may have had roomier cabins and better dining, flying today is dramatically safer. The Aviation Safety Network tracks airline accident data. Revenue passenger kilometer (RPK) is a standard metric used in aviation. Using this data, Javier Mediavilla plotted the ratio of fatalities per trillion RPK from 1970 to 2019 using five-year averages. The ratio decreased by 98.76 percent, from 3,218 to 40, during this 49-year range. Flying is more than 80.4 times safer today than in 1970, and safety has been improving at a compound rate of around 9.37 percent a year.
Considering both the time price and safety, flying has become 868 times more abundant since 1970 (10.8 x 80.4 = 868). If there had been no innovation in flying since 1970, New York to London airfare would be around $5,059 today. Only the rich could afford transatlantic flights in 1970.
The 3,442-mile flight takes around seven hours. The supersonic Concorde could fly it in less than three. While there are no commercial supersonic flights available today, Boom Supersonic, a private company based in Colorado, aims to bring them back to US airlines by 2029. Perhaps spending half as much time on flights will allow people to use their most valuable resource for other value-creating activities.
This article was published at Gale Winds on 3/26/2024.
