Sunday, August 3, 2008

The myth of working harder

At work last week, I was in a wonderful team meeting where we discussed promotion and raises. As expected, the myth of working harder quickly arose. My boss mentioned one of the Principle Engineers (PE) at the company and said (paraphrase), "Chuck works hard. You will see him filing issues in the database all hours of the night. He has to make a sacrifice of his family time to do what he does. That's why he makes more and has a high grade."

This is just a bunch of pig slop. Chuck makes what he makes because if my employer paid him any less, he would get a job somewhere else. That's all there is to it. Chuck may very well work a lot of hours and that may contribute to why his economically ignorant peers believe he is entitled to his rate of pay (perhaps even he himself believes that it is because he works so much that he is entitled to his pay).

This is all rooted in the myth of labor. The myth of labor is this idea that economic progress is had by working harder. Economic progress is had by dint of staying up later at night, taking no weekends or vacations and walking faster than anyone else down hallways. The reality is that this is childish nonsense. Economic progress occurs by virtue of the increasing division of labor and technological progress (in social as well as physical technologies.) To maintain the same standard of living in a growing economy, a person needs to work less and less.

We enjoy the benefits of economic progress even if we work very little. Progress is not driven by grit and labor, it is driven by increasing population, new ideas, new innovations, new technologies and discoveries - in short, anything that makes doing things people want done or making things people want made with less effort. Laziness is truly the mother of invention. Labor is whatever progress has not made unnecessary. That is, a car assembly robot eliminates the need for some human to run a welder and impact gun on an assembly line. But there is still required labor to push the buttons on the robot controller and monitor the machine for unforeseeable failures.

So, we shouldn't be praising Chuck for sacrificing his family to his job. We should be wondering why Chuck doesn't get a job where his peers are more enlightened and understand that economic progress does not occur by virtue of pointless demonstrations of company loyalty in the form of working ridiculous hours. Economic progress occurs no matter what Chuck does, but the value of Chuck's own labor increases as a result of an increase in its marketability. The more people willing to pay Chuck to work for them, the more Chuck can charge for his labor.

Let me quote an excerpt from the very excellent book called More Sex is Safer Sex by Steven Landsburg. I doubt he'll mind me quoting this large excerpt so long as you are inspired to go buy his book as a result! This excerpt is from chapter two, "Be Fruitful and Multiply", where Landsburg makes the case that we are wealthier because of population growth, not in spite of it. It is not the Chucks of the world who make us richer.

"...

Modern humans first appeared about one hundred thousand years ago. For the next 99,800 years or so, pretty much everyone lived just above the subsistence level - on the modern U.S. equivalent of $400 to $600 a year. In a few fortunate times and places, it was a bit more than that, but almost never more than about twice as much. There were usually tiny nobilities who lived far better indeed, but numerically those nobilities were quite insignificant. If you'd been born any time before the late eighteenth century, it's astronomically probable that you'd have lived on the equivalent of under $1000 a year - just like your parents and grandparents, and just like your children and grandchildren.

Then, in the late eighteenth century - just a couple of hundred years ago, maybe ten generations - something happened. People started getting richer. And richer and richer still. Per capita income, at least in the West, began to grow at the unprecedented rate of about three-quarters of a percent per year. A couple of decades later, the same thing was happening around the world. After thousands of years of stagnation, life started improving from one year to the next, and before long people started taking improvements for granted. Today, we expect our cars, our computers, our medicines, and our entertainment systems to keep dazzling us with something new. But that's not how it was before the Industrial Revolution. That three-quarters of a percent annual growth rate, once it got under way, must have seemed miraculous.

But then it got better. By the twentieth century, per capita real incomes - that is, incomes adjusted for inflation - were growing by 1.5 percent per year, on average, and since 1960 - for almost fifty years now - they've been growing by about 2.3 percent. Let me give you an idea of what those growth rates mean to the average American.

If you're a middle-class American earning $50,000 a year, and you expect your children, twenty-five years from now, to occupy that same modest rung on the economic ladder, then with a 2.3 percent growth rate, they'll be earning the inflation-adjusted equivalent of $89,000 per year. Their children, another twenty-five years down the line, will earn $158,000 a year. And if that 2.3 percent growth rate continues, then in fewer than four hundred years, your descendants will earn about $1 million per day - a little less than Bill Gates's current income, but at least in the ballpark. I want to make clear that these are not some future inflation-ravaged dollars we're talking about; they're the equivalent of a million of today's dollars.

If it strikes you as implausible that we could ever generate that kind of wealth, keep in mind that this is a conservative extrapolation of a centuries-old trend. It assumes today's 2.3 percent growth rate will continue unchnaged, whereas in fact, growth has been accelerating since it first got underway two hundred years ago. Keep in mind too that every historical advance has seemed wildly implausible until it happened. In the first century AD, Sextus Julius Frontinus wrote that "inventions reached their limit long ago, and I see no hope for further development."

Against a backdrop like that, the temporary ups and downs of the business cycle seem like a fantastically minor phenomenon. In the 1930's, we had a Great Depression, when income levels fell back to where they'd been about twenty years earlier. For a few years, people had to live the way their parents had always lived - and they considered it almost intolerable. The underlying expectation - that the present is supposed to be better than the past - is a new phenomenon in history. No eighteenth-century politician would have dreamed of asking "Are you better off than you were four years ago?" because it never would have occurred to anyone that they ought to be better off than they were four years ago.

Rising income is only part of the story. Not only are we richer than ever before, we also work less and have better-quality products. One hundred years ago, the average American workweek was over sixty hours; today it's under thirty-five. One hundred years ago, only 6 percent of manufacturing workers took vacations; today it's 90 percent. One hundred years ago, men entered the full-time labor force in their early teens; today labor-force participation by young teenagers is essentially zero. One hundred years ago, only 26 percent of male workers retired by age 65; today over 80 percent of 65-year-old males have retired. One hundred years ago, the average housekeeper spent twelve hours a day on laundry, cooking, cleaning, and sewing; today it's about three hours.

Here's a typical laundry day for a housewife in 1900: First, she ports water to the stove, and heats it by burning wood or coal. Then she cleans the clothes by hand, rinses them, wrings them out (either by hand or with a mechanical wringer), then hangs them to dry and moves on to the oppressive task of ironing, using heavy flatirons that are heated continuously on the stove. The whole process takes about eight-and-a half-hours and she walks over a mile in the process. We know this because the United States government used to hire researchers to follow housewives around and record every step they took.

It wasn't just laundry: At the beginning of the twentieth century, most households had no running water and few had central heating. So routine housework included lugging seven tons of coal and 9,000 gallons of water around the house every year.

By 1945, our heroine probably had a washing machine. Now, her laundry chores took just two-and-a-half hours instead of eight-and-a-half and instead of walking a mile, she walked just 665 feet. Today, so that you don't have to waste a single moment keeping an eye on your laundry, you can get a washing machine that emails you when it's done.

Today in the United States of America among the very poorest of the poor - those with household incomes under $15,000 a year - 99 percent have refrigerators (83 percent of them frost-free); 64 percent have air-conditioning; 97 percent have color TVs and over two-thirds have cable; 60 percent have washers and dryers. Almost half have personal computers and most of those have Internet access.

As far as the quality of the goods we buy, try picking up an electronics catalogue from oh, say, 2001 and ask yourself whether there's anything there you'd consider owning. That was the year my friend Ben spent $600 for a 1.3 megapixel digital camera. It weighed a pound and a half and wrote to a floppy disk! Go ahead and pick up that catalogue, and I guarantee you'll be astonished by how much better products have gotten in just the past few years.

Or, if you prefer, take a product like health care. Would you rather purchase today's health care at today's prices, or the health care of say, 1970 at 1970 prices? I don't know any informed person who would choose 1970, which means that despite all the hype, health care now is a better bargain than it's ever been. Our lives are better and our lives are longer. The probability that a 20-year-old has a living grandmother today is higher than the probability that a 20-year-old had a living mother a hundred years ago.

The moral is that increases in measured income - even the phenomenal increases of the past two centuries - don't accurately reflect improvements in our economic condition. The average middle-class American might have a smaller measured income than the European monarchs of the Middle Ages, but that does not prevent the American from leading a more luxurious life. I suspect that Henry VIII would have traded half his kingdom for modern plumbing, a lifetime supply of penicillin, and access to the Internet.

Will these trends continue? Of course, nobody knows - just as nobody knows whether the earth will be destroyed by an asteroid in ten years. But we can make educated guesses about probabilities. What we do know is that economic growth, despite some minor ups and downs, has continued - and accelerated - pretty much unabated for the past two hundred years. We also know that all that growth was fueled by technological progress. And we can reasonably conjecture that the reason we're not running out of fuel is that technological progress replenishes itself: each new idea makes the next new idea easier to come by. Add to that Professor Kremer's argument that increasing wealth allows us to support a larger population, which in turn figures out new ways to create wealth, and there is excellent reason for optimism.

A skeptic could easily point to countries where large populations coexist with abysmal economic conditions. But without exception, those are countries where the natural advantages of population size - a larger pool of geniuses and an abundance of trading partners - are undercut by government policies that limit both the rewards for ingenuity and the opportunities for trade. When the advantages of population growth are eliminiated, only the disadvantages remain.

..."

No comments: