Teaching Freedom: Myths of the Rich and Poor by Michael Cox

Teaching

FREEDOM a series of speeches and lectures honoring the virtues of a free and democratic society

Living Standards in the United States

By Michael Cox

The lecture below, by Michael Cox, was given to commemorate the HOBSO program of the 1950s.

HOBSO, which stands for How Our Business System Operates, was practically Michael Cox is the former chief economist of the Federal Reserve Bank of Dallas and is now director of the William J. O’Neil Center For Global Markets and Freedom at Southern Methodist University in Dallas. Professor Cox has spent more than 25 years at the Dallas Federal Reserve, advising its president on monetary policy and the economy. His contributions have included some of the most remarkable annual reports of any organization in the country, each one offering solid information about an important aspect of the American economy.

Among other titles, Professor Cox is the co-Author of Myths Of Rich And Poor: Why We’re Better Off Than We Think, published in 1999 and nominated for a Pulitzer Prize.

Cox has taught throughout most of his career, including at Virginia Tech, the University of Rochester and Southern Methodist University.

He is the past president of the Association of Private Enterprise Educators and a senior fellow at the Dallas Fed’s Globalization and Monetary Policy Institute.

a household word in the 1950s. DuPont Corporation started HOBSO in 1950 to instruct their employees on the nature of American capitalism, to help them become knowledgeable partners in their company, to understand the role that government should play and the role government should not play in business activities, and to be aware of the connection between capitalism and our standard of living…

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hank you for inviting me back to speak to students. It is vital that America’s youth get the message about our free-enterprise system as did previous generations from the HOBSO program. I’m going to give you some of that message tonight.

We need to look at the truth about American living standards and myths of rich and poor, which is what I aim to do here today. Capitalism is being thrown under the bus these days. There is a lot of capitalism bashing going on. It’s popular to bash free markets and conclude that we need more government to help us solve our problems.

The fashionable criticisms of America’s economy today are many. The rich are getting richer, and the poor are getting poorer. Economic growth has slowed from a pace that couldn’t be sustained by a capitalistic economy. The apex of American prosperity has been passed, somewhere around the beginning of the 1970s, when average real wages reached their highest peak ever and since then have been declining.

Both adults have to work these days in order to make a living for the family. We’re the first generation in history not to live as well as our parents. Our good jobs are

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2 short, is freedom to make choices.

Wealth is important to me, but I also don’t want to work 76.5 hours a week – the standard work week in 1830 – to earn that. I’d like to have a 30-hour work week. In other words, wealth. Leisure time and recreation are important.

going overseas and being replaced with low paid service sector jobs. We’re becoming a nation of hamburger flippers.

In the modern world, this comes from the media, warning you about corporate greed, job loss, downsizing, business failure, recession, pollution, stock market crashes, globalization taking our jobs, gasoline prices being so high, growing consumer debt, a disappearing middle class, outsourcing, the trade deficit and so on. Even Wal-Mart is characterized as being bad, going around gobbling up all the little mom and pop stores and costing us jobs.

The point is that you’re being programmed by a constant drumbeat of negativism out there, and it’s negativism about our future, the future brought to you by a market-based economy, and the solution to which is bigger government, of course.

miracle of markets is to understand what people care about in their lives – the types of gains that we seek in our living standards. This term living standards is thrown around a lot by people, yet it is very loosely defined, if defined at all. So I’ve spent my career trying to make sense of what that term means – standard of living, living standards – to figure out what people count in their standard of living and to show you we’ve made solid, amazing progress in every dimension of our standard of living.

Man does not live by GDP alone. We hear GDP being touted all the time as GDP growth of 2%, 4%, 3% and so on. We stopped living by GDP alone a long time ago. There’s an evolution of progress that goes on in society. It has to do with making our lives better in all the ways that we care. So, let’s look at the components of living standards such as consumption and wealth.

Economists typically focus only on wealth and leisure times: we say utility is a function of consumption and leisure. Well, there are other things that matter as well: health, longevity, safety and security.

Am I safe on the roads? Am I free of disease? Then, there is variety and choice. Variety is the spice of life. I don’t want to eat the same thing every day. I want a different car perhaps than you and a different cell phone. I want new goods to come into my life. Do we get to enjoy those things?

Then there is what I have to do at work.

What are my conditions there? Am I working at a sausage packing mill that’s dark, dank and dangerous, or am I in an ergonomically designed office? Working conditions matter.

And finally, there are other things I value; I want to have a beautiful planet with forests and wildlife.

America has made enormous progress in each one of these categories. What is happening is that we’re enjoying higher living standards and our progress in

There is an eight letter word for it, but also a four letter word, and it’s “bunk.”

The first step to seeing our remarkable progress as brought to you by the

The first one I’ve listed here is an important one. I care about whether I have food, clothing, shelter – the needs in life, but I also care about the wants. I care about my wealth because wealth, in

different ways today than we did in the past. We’ve become much richer in terms of consumption and wealth. Let me prove it to you.

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3 I’m going to document the progress.

“A chicken in every pot,” is a constant promise of government. They’re going to make our lives better, and they’re going to bring you prosperity.

In fact, if you go back and look – it’s a fun thing to do online – you’ll find a lot of campaign slogans that have to do with how the government is going to deliver you the goods. But do they or do markets?

It was not government that brought us the automobile, the telephone,

day, but the truth is, you wouldn’t be as well off as even the middle class or even the lower middle class in America today. You couldn’t escape from the heat into air conditioning. You couldn’t take an aspirin. You couldn’t take any antibiotics. You couldn’t bop down to Cancun in tennis shoes and t-shirts. You couldn’t watch a blockbuster motion picture or an NFL football game or make a long distance phone call or do some of the regular things that we take for granted today. They were not available, not even to the richest people in 1900.

But the process of handing these things off from the richest to the poorest members of society is today happening

the refrigerator, electricity or air conditioning. And all these products have spread from the richest members of society to the poorest members of society.

Admittedly, the first 10% of the population to get new products is going to be the richest generally, and the last 10% to get them is going to be the poorest. But there are two important things to notice. First, at one time nobody had anything. But today, increasingly, the majority and even the poorest members of all households have things which even yesterday the richest couldn’t afford.

In fact, one thing I like to ask my students is would you trade places with the richest person in America in 1900?

Would you be willing to go back and live like Cornelius Vanderbilt, in his Biltmore mansion with 14 foot ceilings?

You could have the finest food and the highest ceilings (to escape from the heat). You could have a palace, the fastest horses and carriages. You could live like a king or queen for the

at much faster pace than it was in the past. In fact, it took 46 years from the time that the first American got electricity to the time that it spread to a quarter of the population. But today I can get a computer within a few years of its delivery to the richest person. Even less time for a cell phone. Even less time for the Internet.

Look at what I can get today compared to 1970. More Americans own their own home today than almost anytime in history except the early 2000s, but that’s because we’re in recession. But even in recession, the average size of a new home being built is getting larger.

Fewer homes don’t have a telephone.

The reason we don’t have land lines is because we’re moving to cell phones where the cost of making a long distance

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phone call is almost free. More homes have central heat and air.

More people have color TVs, cable TV, clothes washers, dryers, refrigerators and automobiles. We travel more, and we fly more. And this is happening even in these tough times. We’re still making progress. So much new stuff that you like to use: your lap top, cell phone, ipod, GPS device, fax machine, microwave oven and so many other gadgets. Who brought us all this great stuff? I could name the person for each product. It’s a fun thing to figure out who invented these things. The cell phone was developed by a guy at Motorola who doesn’t get much credit.

We all know some of the names attached to some of these products, but the cell phone is one of the gadgets we use the most, and the inventor gets almost no credit. It wasn’t a government employee, but a Motorola employee.

The 1930s proved that capitalism never sleeps. It never stops to bring you goods.

During the Great Depression we got Teflon, color film, flash bulbs, scotch tape, teletype and ball point pens. The airline industry boomed during the Great Depression. Electricity went into more and more homes. Refrigerators spread throughout households, even during tough times.

People are waking up every day trying to figure out how they can make a better life for themselves and their family.

The first step to seeing our remarkable progress as brought to you by the miracle of markets is to understand what people care about in their lives.

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4 And then, just look at the grand sweep

a grocery basket of milk and bread and

of times. In 1901, more than three-

eggs and so on. That basket of goods

fourths of the American budget was used

cost 9.5 hours in 1919, and I stopped

for food, clothing and shelter, leaving

counting in the year 2000 when it was

us less than a fourth for all the other

down to 1.4 hours.

things that we’d like to have. Today we have almost two-thirds left over after

The cost of the average new home was

food, clothing and shelter to buy all the

6.5 hours per square foot in 1919 and

gadgets or do whatever we like to do

today I can get a much nicer one for

with our money.

5.9 hours, and that home comes with a lot of amenities that yesterday’s homes

So, the market has squeezed down

didn’t have such as storm windows,

the cost of these things to you

central heat and air, a dishwasher,

tremendously. Consider the bundle of

microwave, garbage disposal, etc. So,

goods you can get by working five weeks

we’re throwing that in for free, so to

in the summertime at $10 an hour. That

speak, at a reduced price.

would be enough to pay for about $2,000 worth of goods.

Electricity to drive those appliances is a mere fraction of what it used to cost.

They’re working to invent things or innovate to bring us better goods or cheaper goods. So it’s working – still working all the time, powered by the 155 million people who get up and go to work everyday.

Here’s one of the most recent fantastic inventions: the iPhone and the apps that go with it – 185,000 apps as of last count, including one which will help me tune my guitar and one which will help me keep my thermostat regulated. I can change the temperature in my house back in Dallas right now.

Here’s what I could get in 1970 for five

I can remember as a child growing up

weeks of work. I could get a black and

in the 50s and 60s that my father used

white TV, a used typewriter, a clock radio

to just fret over the electric bill. It was a

with stereo system and an electronic

large share of his monthly income. But

adding machine for the same amount of

electricity has declined from 100 hours

time worked.

and 36 minutes in order to burn 10 light bulbs for four days to just 32 minutes

My parents in 1950 could have gotten

of work. Long-distance phone calls have

less than that. So, if you think you are

almost gone off the map in terms of how

the first generation in history not to live

little they cost. We used to rally around

as well as your parents, you’re already

the telephone on Sunday night at 8

living better than them, especially on

p.m. to call my grandmother because

an age adjusted basis. And many more

we would make a station-to-station

things are coming down the pike in the

call, which was cheaper than person-

future.

to-person. When we called her she had to be there, and I got 30 seconds on the

You’re the luckiest generation in

phone with her. Today we can pick up

American history, except for the next

a cell phone and reach people even in

one, which will be even better off. Nearly

foreign locations. We don’t even think

One sign of a wealthy nation is how much bottled water it drinks. Well, bottled water consumption has been going up, up, up every year. Last year

all products continue to get cheaper and

about how much it costs because it’s not

cheaper, in terms of what really matters,

much.

was the first year it turned down just a

The currency of life is time. The time it

little, but you can bet it’ll recover. We

takes to get together the money to buy

don’t have to drink from taps.

a basket of goods and services such as

This is the wonder of markets. These are miracles.

and that’s the time cost of a product.

You think a gallon of gasoline is expensive. Well, people paid almost 45 minutes for a gallon in 1920. Today they pay 8.2 minutes of work for a gallon of

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gasoline. It’s not at an all time low of less than 5, but it’s still not expensive.

Also we start work later in life. In my day we started at age 12. We retire earlier. We have more vacations. More holidays. Add it all up, and today the typical American spends 28% of the time that they’re awake during their lifetime working on a job or working around the house doing chores. A few generations ago that number was not 28% but 61% of your time that you’re awake, working.

And there’s lots of evidence that when we’re at work, we’re not always working.

We’re goofing off. We’re doing things like calling talk radio programs, selling Girl Scout Cookies, giving parties and attending showers. You couldn’t do this in the manufacturing age. We perform club duties. Take long breaks, talk on the phone to friends. We visit eBay. The peak time that people are on eBay is right smack dab in the middle of the work day.

There have been surveys of Americans at work, done by, among other places, www.salary.com. They have done anonymous survey sampling. They say hey, don’t tell me your name, just tell me how much you are goofing off during the day. People admit to about 2.1 hours a day of goofing off. Multiply that by four or five days of work and you got about 10 more hours of not working at work. Subtract that from the hours we work per week and what we conclude is that we’re actually very productive people in the 25 or so hours we work.

Again if you look at the data on this, you see that if America was working as hard as we think, the leisure and recreation industry would not be booming, but it is. Those are great jobs to get because Americans keep spending more and

more money and time in that industry.

We buy eight times the RVs to go travel around the country than in 1970. There are 3.5 times as many amusement parks. More people are retired from work, traveling around the country and spending their inheritance, your inheritance. Adult softball teams – even those are up. Americans are taking cruises, 10 million today up from a half a million in 1970.

We play 107 sports that I can count.

We keep adding sports – sky boarding, new kinds of martial arts. Things that weren’t around yesterday. It’s not all just basketball, baseball, football, hockey and so on. We have time for these sports, or they wouldn’t be in our lives.

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Back in 1919 we were hit with the Spanish flu. Wagons used to roll around the city, and people would cry “bring out your dead.” But the life expectancy keeps rising today. A woman born in 2010 has life expectancy of 79. It is about 77 for a man. Life expectancy keeps going up. When I was born in 1950 my life expectancy was 68, so I’ve got eight more years of life. Wow, how about that.

I’m counting on living to 90. My dad did. When he was born in 1916 his life expectancy was in the 50s, but he lived to 89.

What am I telling you? You better plan on living to 100, because many of you will, so take care of yourself, save your money, and try to avoid being taxed.

Get prepared to live a long time because through the miracle of modern science and medicine you will live longer and better. Deaths due to natural causes are down and death due to diseases are down. We used to die from such things as tuberculosis, gastritis or things that

It was not government that brought us the automobile, the telephone, the refrigerator, electricity or air conditioning.

And all these products have spread from the richest members of society to the poorest members of society.

are almost off the chart today, whooping cough, diphtheria, typhoid fever.

I remember in the 80s being warned that AIDS was going to overtake the nation. They always like to make things seem so bad. But the AIDS death rate declined by five-sixths between 1992 and 1996 and today somebody in America with AIDS has about the same life expectancy as someone who doesn’t have it. They don’t have the same life quality because of all the drugs they have to take, but the point is, we have made tremendous progress against this and other diseases.

We don’t even allow as many people to die in war any more. Let’s put this into prospective. About 405,000 Americans died in World War II, a conflict that

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You’re the luckiest generation in American history, except for the next one, which will be even better off. Nearly all products continue to get cheaper and cheaper, in terms of what really

needed something else so we invented Saccharin and then Equal and then Splenda and now Stevia.

Here’s another new good some people enjoy, eHarmony. There’s also match.com and chemistry.com where you can find your mate for life, should you wish to do that rather than going to a bar or whatever.

There were nine sport utility vehicle models in 1980, but people wanted more. So we have about 90 sport utility vehicle models bought in 2004.

Working conditions is the final topic I’m going to discuss in some detail. A substantial portion of Americans used to work in coal mines or, if they were lucky,

matters, and that’s the time cost.

lasted about four years. In Iraq, a longer conflict, only about 4,000 died. Now that’s too many – one is too many – but the point is, before we’ll put somebody in harms way, we will come up with some million dollar missile and clear the way. So again, we owe technology.

Crime is down. Almost all types of crime are down since 1988. Last year was the safest year on record across all of America in terms of major kinds of crime: robbery, murder, burglary, motor vehicle theft and larceny.

We have more choices than ever of such things as vehicles, personal computers, Web sites to visit, airports to travel to, magazines to read, etc.

What about security from economic downturn? We had a relatively uninterrupted period of growth between November 1982 and November 2007, during which there were only 16 months of economic downturn. How does that compare to the past? Over the 100 years from 1854 to 1953, we have 490 months of recession. That’s 40% of the time.

So, you’re less likely to be caught up in the Grapes of Wrath driving across the country trying to find a job than most previous generations. If you think unemployment is bad, you’re right.

But it was much worse for previous generations.

Variety, choice and new goods – that’s the story of capitalism. Growing up we had sugar, but folks with diabetes

of new cars include such things as sunroofs, keyless remotes, heated seats and much more, all making our lives a little happier, for a while at least, until we get tired of them, and then want something else new.

In Dallas, we have 185 TV channels. I can remember growing up when there was ABC, NBC, CBS, PBS and probably the test pattern. I don’t remember what the fifth one was. You guys don’t even know what that means. Today we have a cornucopia of TV channels, which satisfies the niche interests for everyone.

Dental flosses are a major expedition.

You have to decide whether you want pink, green, white, tape, ribbon, floss, blue and white wrapped with tooth paste around it, minted, unwaxed, waxed.

Sixty-four different kinds of dental floss, because the market is trying to please you and make you happy. If these things weren’t important, they wouldn’t last in the market.

All these things are coming into our cars, filling it up with gadgets. Features

an assembly line. They would reach over here in this bucket of nuts and bolts with one hand and with their left hand screwing them in, day after day, in repetitive-motion jobs. Or they worked in a typist pool, sitting stiff as a board.

They would probably have a crook in their neck when they went home. These are yesterday’s working conditions.

I asked my dad, “Dad did you expect work to be a place that you enjoyed?”

He said, “Heck no. Work was a place you went to make money.” And so I looked up work in the dictionary. Just to remind everybody, work is supposed to be a strenuous activity, marked by the presence of difficulty and the absence of pleasure. Your generation doesn’t expect to have a job like that. You expect to enjoy work. Shouldn’t that to be an oxymoron? Well, it’s not. I enjoy my work, and that shows you the progress we’ve made.

We can work in an environment with fewer injuries and deaths at work. The work related death rates have declined

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7 by over 90%. You’re more likely to hurt yourself around your house than you are likely to hurt yourself at work. It didn’t used to be that way.

Across every occupational category people have more flexible work schedules. My first job was working for my dad’s Barq’s root beer plant, and I had to punch a time clock. Every minute that I worked got counted and every minute I didn’t work didn’t get counted.

Today most of us can come and go at work at different times. If you want to come in early, you can, and then you can leave early, go play golf in the afternoon.

So, people arrive at different times and they leave at different times, from 2:30 to 10:30, depending on what suits their schedule. Or we can stay home and telecommute. This is one of the best things that’s ever happened, as far as I’m concerned, to the American work day and working conditions.

I can find many other signs that we’re doing pretty well. Our dogs get Christmas presents. We dress them in Ralph Lauren clothing, and we even put braces on their teeth. Americans spend a lot of money on elective surgery, collagen injections, Botox, hair transplants, blastoplasty, nose jobs and liposuction.

So, who wants us to worry? Who benefits from you and me worrying? Where does all this negativism about business and free enterprise come from?

I’ve identified three main places. First, there’s the media. Bad news sells. Bad news makes good copy, and it turns out the good news always gets buried in the paper. The bad news gets your attention, but don’t be fooled in thinking there’s only bad news. The media doesn’t report “the news” anymore. It reports “the bad news.”

Second, politicians need to be your savior. Alexis de Tocqueville warned us about this in his book Democracy in America in chapter six, the title of which is “What Sort of Despotism Democratic Nations Have To Fear.” He told us government would cultivate us as a flock of timid but industrious animals of which the government is shepherd.

And that’s what they want to do. Every political speech has the following two parts: “Life is bad” and “vote for me and I’ll help.” So they first have to set you up to thinking you need them by telling you that something’s wrong.

And then the third group, of course, is special interest groups. Potatoes doesn’t like rice. Asphalt doesn’t like concrete.

Railroads were a threat to the canals, so competitors always warn you about the other guy’s products. Pink warns you of blue and yellow. Talking about the sweeteners now. You can get on the

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In 1953, DuPont enlisted the help of the National Association of Manufacturers to develop a nationwide program that caught on with small business and big business alike. Between 1953 and 1957 the HOBSO educational program was used at more than 70 corporations and small businesses throughout the United States, including General Electric, Frito-Lay, U.S. Steel and Sinclair Oil. It was even at the U.S. Department of Labor.

HOBSO made it into more than 500 high schools and more than 70 colleges and universities. A television program called Tax Toll On Economic Progress was aired in the 1950s, and consisted of five, 30 minute segments.

It was an extensive, successful, highly regarded program of business professionals, teaching young people and employees about our system of free enterprise.

This lecture was sponsored by Mr. Robert Hoffman of California. Mr. Hoffman was an executive at GE who taught in the HOBSO program at local high schools in the San Francisco Bay area. We’re very grateful to Mr. Hoffman for his sponsorship and for his commitment to educating young people about the American economic system.

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If you are a pessimist about a market based economy, just know that you’re helping to tear down the very system which has made America the freest and richest nation in the world, and you’re probably also making yourself needlessly sick and depressed and financially poor in the process.

Internet and find there’s something bad about every sweetener, but they all are involved in warning about the other’s product. And so, just be careful what you believe.

There’s a price to pessimism. There is a mental toil, there’s a financial toll, and in every form there’s a toll.

Here’s the financial toll. People who are pessimists about a free-market economy’s ability to deliver the goods typically invest in two things, gold or short term T-bills. People who are optimistic and don’t believe the nonsense put their money in the market. The ones who are really optimistic put it into small cap stocks.

Had you invested $10,000 in gold in

1982, until recently you would have lost money, but now your investment will be up to about 30,000. Had you invested in T-bills, your 10 would have grown to about $32,000. But had you put it in stocks, you’d have $250,000, which makes the other numbers pale in comparison. So, look at what markets bring you.

So, wake up and smell the roses, brought to you, by the way, not by government, but by one of the most sophisticated markets in the world, the global flower market.

In conclusion, if you are a pessimist about a market-based economy, just know that you’re helping to tear down the very system which has made America the freest and richest nation in the world, and you’re probably also making yourself needlessly sick, depressed and financially poor in the process.

at www.TFAS.org/videos. Two

Thank you.

A video of this presentation appears shorter videos inspired by this presentation are being produced.

To receive copies of these videos, contact Ed Turner at 202-986-0384 or eturner@TFAS.org.

Teaching Freedom is a series of remarks published by The Fund for American Studies, a nonprofit educational organization in Washington, D.C. The speakers featured in each issue of Teaching Freedom delivered their remarks at a TFAS institute or conference or serve as faculty members in an institute.

The speakers who participate in the educational programs contribute greatly to the purpose and mission of TFAS programs. The speeches are published in an effort to share the words and lessons of the speakers with friends, alumni, supporters and others throughout the country and world who are unable to attend the events.

Visit www.TFAS.org/TeachingFreedom to read past issues of Teaching Freedom.

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