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

T

THE FUND FOR AMERICAN STUDIES • WWW.TFAS.ORG • 800-741-6964

Living Standards in the United StatesBy Michael Cox

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.

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

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

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

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… continued on page 7

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.

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

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.

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

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.

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

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.


2

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,

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

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

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

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.

1706 NEW HAMPSHIRE AVE. NW, WASHINGTON, D.C. 20009

3

“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.

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.

This is the wonder of markets. These are

miracles.

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

was the first year it turned down just a

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

don’t have to drink from taps.

And then, just look at the grand sweep

of times. In 1901, more than three-

fourths of the American budget was used

for food, clothing and shelter, leaving

us less than a fourth for all the other

things that we’d like to have. Today we

have almost two-thirds left over after

food, clothing and shelter to buy all the

gadgets or do whatever we like to do

with our money.

So, the market has squeezed down

the cost of these things to you

tremendously. Consider the bundle of

goods you can get by working five weeks

in the summertime at $10 an hour. That

would be enough to pay for about $2,000

worth of goods.

Here’s what I could get in 1970 for five

weeks of work. I could get a black and

white TV, a used typewriter, a clock radio

with stereo system and an electronic

adding machine for the same amount of

time worked.

My parents in 1950 could have gotten

less than that. So, if you think you are

the first generation in history not to live

as well as your parents, you’re already

living better than them, especially on

an age adjusted basis. And many more

things are coming down the pike in the

future.

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 matters,

and that’s the time cost of a product.

The currency of life is time. The time it

takes to get together the money to buy

a basket of goods and services such as

a grocery basket of milk and bread and

eggs and so on. That basket of goods

cost 9.5 hours in 1919, and I stopped

counting in the year 2000 when it was

down to 1.4 hours.

The cost of the average new home was

6.5 hours per square foot in 1919 and

today I can get a much nicer one for

5.9 hours, and that home comes with a

lot of amenities that yesterday’s homes

didn’t have such as storm windows,

central heat and air, a dishwasher,

microwave, garbage disposal, etc. So,

we’re throwing that in for free, so to

speak, at a reduced price.

Electricity to drive those appliances is

a mere fraction of what it used to cost.

I can remember as a child growing up

in the 50s and 60s that my father used

to just fret over the electric bill. It was a

large share of his monthly income. But

electricity has declined from 100 hours

and 36 minutes in order to burn 10 light

bulbs for four days to just 32 minutes

of work. Long-distance phone calls have

almost gone off the map in terms of how

little they cost. We used to rally around

the telephone on Sunday night at 8

p.m. to call my grandmother because

we would make a station-to-station

call, which was cheaper than person-

to-person. When we called her she had

to be there, and I got 30 seconds on the

phone with her. Today we can pick up

a cell phone and reach people even in

foreign locations. We don’t even think

about how much it costs because it’s not

much.

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

4


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.

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

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


5


“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.

6


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.

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

needed something else so we invented

Saccharin and then Equal and then

Splenda and now Stevia.

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.

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.

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

of new cars include such things as sun-

roofs, 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.

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.

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,

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

“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

matters, and that’s the time cost.


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

7

continued from page 1

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.

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.

8

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.

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.

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.

Thank you.

A video of this presentation appears

at www.TFAS.org/videos. Two

shorter videos inspired by this

presentation are being produced.

To receive copies of these videos,

contact Ed Turner at 202-986-0384 or

[email protected].

“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.

SAVE THE

DATEApril 14 &15Annual Spring Conference

Washington, D.C.

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

Documents

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