So this morning, I picked up a copy of the newly released second edition of The Moral Imagination by Gertrude Himmelfarb. The second edition of this book includes new chapters on Adam Smith, Lord Acton, and Alfred Marshall. I just want to take a moment, dear reader, to assure you that just because I have this book, that does not necessarily prove that I am cooler than you. Although it is pretty suggestive.
Anyway, something I read in his opening chapter on Adam Smith made me do a double take. Consider this statement.
His opposition to mercantilism is generally read as a criticism of government regulation and a defense of laissez faire. It is that, and much more, for his objection to mercantilism is not only that it inhibits a progressive economy by interfering with the natural process of the market; it is also unjustly biased against workers.
Now, wait just a minute. Why is thinking mercantilism is bad for workers taken to be separate from a defense of lassiez faire? Why isn't it part of a defense of laissez faire?
Sometimes looking at the numbers makes things more clear - other times, taking the numbers too literally leads to odd conclusions. I think a lot of recent discussion about inequality and the standard of living falls into the latter category.
To give you an idea of what I mean, consider something Paul Krugman says in The Accidental Theorist, p 58: "At the end of the 1983 to 1989 recovery, the bottom quintile was still worse off than it was in 1979." Or, for a more recent and broader example, in the introduction to The New Geography of Jobs, Enrico Moretti says "for the first time in American history, the average worker has not experienced an improvement in the standard of living compared to the previous generation. In fact he is worse off by almost every measure." (I still recommend both books, by the way.)
It's true that if you use particular measures, compute the numbers in certain ways, and kind of squint while looking at them, in low light, you can indeed get these readings.
I look at things differently.
The view Moretti and Krugman offer has a pretty clear implication: if I was offered the opportunity to go back in time to when my father was growing up, I should eagerly take it. (I'm assuming away issues such as taking those who are close to me back in time with me, for simplicity.) I am not now, nor have I ever been, a high income earner. So maybe to sweeten the deal, I could be offered a place back in time at a full quintile higher than the one my father occupied then, or I occupy now. If my standard of living is worse off by every measure now than a generation ago, I'd be a fool to not take that chance.
And I'd find myself living in a world where cars are heavy and slow and far less safe than they are today, and get terrible gas mileage and have no air conditioning. There would be about three television channels, and TVs would have tiny screens but still manage to be bulky and heavy. If I wanted to listen to music, forget about any kind of portable music player, and there certainly would not be one integrated into my cell phone. For that matter, forget about cell phones altogether. All my bills would be done through the mail - no home computers or internet. I could go on and on with such comparisons, but I'll outsource the rest of this to Louis CK:
So yeah...all this talk about how people like me have a "lower standard of living" than a generation ago...that doesn't pass the giggle test. The idea is so patently absurd that I'm more inclined to say that the numbers and measures people use to reach that conclusion have little practical relevance in the real world.
Okay, Delong's post is a few weeks old, but give me a break - I'm just getting in to this blogging thing. Also, work and a full time school schedule. Also, shiny objects.
Where was I? Right, Delong. I'll get to him. First, some background.
So a while back, Mario Rizzo explains why he doesn't always tip New York City cab drivers. Brad Delong responds, if you can call it a response. And the issue came up with Delong again. Go ahead and read the posts - they're not too long. I'll wait here.
Back? Okay, good. When Delong says "I will never understand these people," I find myself saying much the same thing about him.
Note that Delong doesn't dispute that the taxi medallion system in New York City has the effect of limiting competition, thereby allowing taxis to charge artificially high prices to people who need a ride. When the cab driver is also the owner of the medallion, he pockets all the extra money. But even when the cab driver is leasing the medallion, Rizzo points out that higher tips to cab drivers results in medallion owners charging higher prices to drivers for the use of the medallion, so even in this case, the medallion owner will pocket the extra money, leaving the amount of money the driver keeps unchanged in the aggregate. All of this is ignored by Delong.
