Repeated transactions among trading parties encourage trustworthiness.
Marian L. Tupy —
Competition is an essential part of a capitalist economy. It drives businesses to innovate and to provide consumers with cheaper and better products. If businesses fail to innovate, they go under. The market place can be a brutal place – just think of the way in which Netflix disposed of Blockbuster. “Capitalism without failure is like religion without sin,” as the American economist Alan H. Meltzer once put it. “It doesn’t work.”
But capitalism is also one the most cooperative of human endeavors. Goods and services are traded among strangers and across vast distances, guided – to a great degree – by the price mechanism and by the reputation of the trading parties. Repeated transactions among trading parties encourage trustworthiness – a moral side product of capitalism that we do not spend enough time talking about, let alone celebrating.
Competition produces winners and losers. As Amazon expanded, for example, neighborhood bookstores shuttered across the United States. Some people thought that was a great tragedy, for bookstores provided a pleasant way to browse through publications and, sometimes, meet interesting people. Ultimately, however, the convenience of the internet, and superior choices and prices, proved to be more important to the average customer. Amazon and its clientele won, while Barnes & Noble lost.
The losers, who emerge from capitalist competition, appear to confirm a zero-sum bias in the human brain. It is for that reason that many people tend to focus on the closed local book store, rather than revel in the falling prices and increased choice made possible by Amazon. Where did that bias come from?
For most of our existence in the environment of evolutionary adaptiveness (EEA), which is to say tens of thousands of years we spent wandering the planet as hunters and gatherers, the success of one, usually related, group of people came at the expense of another group. When the resources in an area occupied by group A ran out, group A moved onto a territory occupied by group B. Conflict ensued.
Conflict still continues to define the interaction among animals. Humans, in contrast, evolved additional ways of interacting with one another. Permanent settlements were a key part of that process. Strangers who settled next to one another had to learn how to cooperate. In that process, they either acquired a reputation for trustworthiness, or they became social outcasts excluded from a larger economy.
As a result, humanity advanced. So much so that by the time of the Roman Republic, the Latin term civis became a root word for both the city and civilization. Over time, of course, the city-state gave way to the nation-state and the nation-state became a part of a global economy. As human cooperation expanded, so did our economic horizons.
That was, unambiguously, a moral as well as economic phenomenon. People, who might have otherwise hated each other, were brought together in the pursuit of profit. By the 18th century, the extent of human cooperation within the context of the market economy reached levels that even philosophers, such as Voltaire, felt obliged to opine about. As the French philosopher wrote:
Go into the London Stock Exchange – a more respectable place than many a court – and you will see representatives from all nations gathered together for the utility of men. Here Jew, Mohammedan and Christian deal with each other as though they were all of the same faith, and only apply the word infidel to people who go bankrupt. Here the Presbyterian trusts the Anabaptist and the Anglican accepts a promise from the Quaker. On leaving these peaceful and free assemblies some go to the Synagogue and others for a drink, this one goes to be baptized in a great bath in the name of Father, Son and Holy Ghost, that one has his son’s foreskin cut and has some Hebrew words he doesn’t understand mumbled over the child, others go to their church and await the inspiration of God with their hats on, and everybody is happy.
It is noteworthy that many of the scholars who continue to influence those who are sceptical of capitalism are not economists, but biologists and ecologists. They include the Stanford University professor Paul Ehrlich, the doomsayer partially responsible for the over-population panic that started in the 1960s, Garrett Hardin, the exponent of the “tragedy of the commons” theory, and Jared Diamond, the author of such bestsellers as “Guns, Germs, and Steel” and “Collapse.”
Their analyses of human affairs tend to be analogous to the interactions observable among animals. But humans, while remaining a part of the animal kingdom, have evolved mechanisms that allow for billions of cooperative interactions to take place each day. It is time for the economists to steal the biologists’ thunder by putting a renewed emphasis on the cooperative aspect of capitalism.
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.
New Car-T Cancer Therapy Is Now Made At One-Tenth the Cost
“A small Indian biotechnology company is producing a home-grown version of a cutting-edge cancer treatment known as chimeric antigen receptor (CAR) T-cell therapy that was pioneered in the United States. CAR-T therapies are used mainly to treat blood cancers and have burgeoned in the past few years.
The Indian CAR-T therapy costs one-tenth that of comparable commercial products available globally.”
Vision Abundance Doubles on the LASIK Eye Surgery Market
The time price of LASIK eye surgery fell by over 50 percent since 1998.
Gale Pooley —
Summary: Time price calculations show that LASIK surgery costs have fallen significantly since 1998. Advancements in LASIK technology, such as the transition to bladeless methods and personalized treatments, have enhanced both safety and efficacy. Dr. Gholam A. Peyman’s pivotal patent in 1988 laid the foundation for LASIK innovation, contributing to its increased affordability and accessibility, especially in countries like China and India.
This article was published at Gale Winds on 2/28/2024.
According to Market Scope, the typical cost for LASIK surgery in 2023 was $4,492. This is up slightly from the 1998 price of $4,360. Let’s calculate and compare the time prices to see the true price difference. Unskilled hourly compensation in 1998 was around $7.75, indicating a time price of 562.6 hours. Unskilled hourly compensation is closer to $16.15 today, indicating a time price of 272.1 hours. The time price has fallen 51.6 percent. You get 2.07 eyes corrected today for the time it took to earn the money to correct one in 1998. LASIK has become 107 percent more abundant.
LASIK is the acronym for laser-assisted in situ keratomileusis. Keratomileusis is the medical term for corneal reshaping. Clearsight.com reports:
LASIK technology has significantly advanced since its inception. The initial blade-based approach has been replaced by the bladeless method, using femtosecond lasers for increased precision. Wavefront and topography-guided technology now allow for personalized treatment, while sophisticated eye-tracking systems enhance the surgery’s accuracy and safety. The remarkable advancements have not only improved visual acuity but also enhanced the overall quality of visual perception, offering patients the ability to see the world around them more clearly and vividly.
While thousands of ophthalmologists and researchers from all over the world have been involved in advancing the technology, Iranian-born immigrant to the United States Dr. Gholam A. Peyman was awarded the key patent in 1988. He holds over 200 US patents, including for novel medical devices, intraocular drug delivery, surgical techniques, and new methods of diagnosis and treatment. In 2011, President Barack Obama awarded Peyman the National Medal of Innovation and Technology.
Continuous innovation in LASIK technology is making vision correction safer, faster, more precise, and more affordable. If you want to save some money and take a bit more risk, the procedure is around $1,600 in China and under $1,000 in India. China performs the most vision correction procedures on the planet.
Remember, the learning curve ordains that with every doubling of production, costs per unit fall between 20 percent and 30 percent. This is because we discover valuable new knowledge every time we perform the procedure.
As noted, since 1998, LASIK has become 107 percent more abundant in the United States, in contrast to hospital services, which have become 37.7 percent less abundant. Why the huge difference? LASIK has been relatively free to innovate. Perhaps more important, health insurance does not pay for this procedure, and LASIK is globally competitive. We also note that elective procedures have enjoyed much greater abundance growth than insurance-covered surgeries.
When entrepreneurs are free to innovate and compete, prices fall and quality increases. The opposite happens when governments and bureaucrats step in to protect the status quo. Imagine where we would be today if the manufacturers of eyeglasses had prevented the innovation of contact lenses? Or the contact lens industry had prevented LASIK?
What Cosmetic Surgery Innovation Can Teach Us About Healthcare Costs
The average time price of 19 procedures has fallen by 50 percent since 1998.
Gale Pooley —
Summary: Hospital services costs have surged, raising questions about the effectiveness of regulation and government intervention in the healthcare industry. To investigate the potential impact of free markets on cost trends, we examined the time prices of common cosmetic surgery procedures, which are elective and typically not covered by insurance. Our analysis reveals a significant decline in the relative time prices of these procedures, indicating increased abundance driven by innovation and market competition.
This article was published at Gale Winds on 2/21/2024.
The Bureau of Labor Statistics reports that since 1998, hospital services costs have increased 61 percent faster than average wages and far outpaced consumer price index inflation. This industry is highly regulated, and government restricts supply and subsidizes demand.
Would free markets help to reverse these cost trends? To answer this question, we looked at the time prices of 19 common cosmetic surgery procedures. These procedures are elective, and insurance companies typically don’t provide reimbursements. Cosmetic surgeons also have been relatively free to innovate, and cosmetic surgery centers are globally competitive.
The American Society of Plastic Surgeons annually publishes prices for a variety of procedures. We compared the nominal prices from 1998 to 2022 against the average hourly wage rates of unskilled and blue-collar workers. This gave us relative time prices over time.
The average time price fell by 50.3 percent over this 24-year period. For the time it took to earn the money to pay for one procedure in 1998, you could get over two procedures today. Procedure abundance has increased by over 100 percent. The time price of chemical peels and laser hair removal fell the fastest by 87.7 percent and 80.1 percent, respectively. However, two procedure costs increased: upper arm lifts increased by 6.7 percent and facelifts by 1.6 percent.
The above analysis compares categories of wage earners over time, but what about individuals? We typically start as unskilled workers and then advance as we acquire more productive skills, knowledge, and experience. Categories remain constant while individuals are upwardly mobile. If we look at an unskilled worker who “upskilled” to a blue-collar worker, cosmetic surgery procedures have become dramatically more abundant.
From 1998 to 2022, nominal unskilled hourly wages increased by 102.8 percent, while blue-collar hourly compensation increased by 91.2 percent. The average between these two categories is 94.7 percent. If you started out in 1998 as an unskilled worker and moved up to a blue-collar worker, your nominal hourly compensation increased by 348.5 percent.
Comparing an upskilling worker’s hourly compensation to the prices of cosmetic procedures indicates that the average time price fell by 78.4 percent. These workers could get 4.63 procedures in 2022 for the time price of one in 1998. Personal cosmetic surgery abundance increased by 363.5 percent for upskilling workers, growing at a 6.6 percent compound annual rate, doubling every 11 years or so.
