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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.
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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.
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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
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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.
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
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THE FUND FOR AMERICAN STUDIES • WWW.TFAS.ORG • 800-741-6964
“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
1706 NEW HAMPSHIRE AVE. NW, WASHINGTON, D.C. 20009
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.
1706 NEW HAMPSHIRE AVE. NW, WASHINGTON, D.C. 20009
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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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
“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.