Friday, February 6, 2009

Modern Day Okies

For many, the concept of Depression conjures up images of grinding poverty, indigent masses waiting in soup lines, or the Dustbowl Era Okies depicted in Steinbeck’s Grapes of Wrath. Certainly, when we look around today, we do not observe the degree of misery and poverty which existed in the Great Depression of the 1930's. However, the Depression of the 1930's would have seemed mild to those who experienced poverty one hundred or two hundred years earlier. In other words, as mankind progresses the relative level of what constitutes "poverty" changes.

For example, one hundred years ago, poverty might mean living in the street, begging for bread, and being likely to die from any number of contagious or incurable diseases . Today, living in poverty might mean only having a studio apartment, one car, and one television. Rarely, do even the poorest in this country starve, and life saving vaccines are relatively ubiquitous. In the future, if mankind continues to progress, it is likely that "poverty" will have a new definition that is relative to the standards of that time. For example, being poor might consist of having only one space ship, only one vacation home on Mars, and having a life expectancy of only 150.

While it is relatively easy to measure the observed level of rich, middle class, and poor at any given time, what is harder to determine is what could have been absent the economic distortions resulting from government intervention into the economy. Per the "broken window fallacy" [1] it is always easy to see what actually happened as a result of some action but much harder to consider what would have likely happened in the absence of that action.

For example, it is easy to see what resulted from a man's career devoted to deciphering the federal government's tax code and preparing tax returns for individuals and businesses. But, it is much more difficult to consider what would have happened if there were no income tax and that man had devoted his career to medicine, engineering, or banking. It is easy to see what resulted from a man's career as an IRS agent, EPA regulator, or HUD administrator but difficult to determine what would have resulted if his career had been devoted to corporate finance, aviation, or high energy physics. Similarly, it is relatively easy to see what happens to your capital as it is destroyed by inflation and taxes paid into the federal government's budget abyss but relatively difficult to see what would have happened to your capital if it had been invested in the stock or bond market of a free economy liberated from the albatross of taxes, inflation, and regulation. Likewise, it is easy to see how capital poured into government bonds is then wasted but less easy to see how the capital would have been used if it had been invested into corporate bonds or the stock market.

You often hear economists discussing whether we are in a recession or a depression. They attempt to quantitatively measure this by citing GDP statistics, unemployment, etc. and often relate these figures to past recessions or depressions. Just as I argued that unemployment should be measured relative to whether the "job" would exist in a free market [2], I claim that "recession" or "depression" should be measured relative to what our standard of living would likely be in a free market. If we lived in a concentration camp, would we consider an extra ration of bread to be economic "progress"? Would we only say that we were in a recession if the guards decreased our rations for a time? Given the current fantastic potential for technological progress, do we need to see people travelling around in horse led wagons or dying of small pox to consider ourselves in a depression? A lack of economic growth does not need to translate into the same effects as it did in the Great Depression to constitute a depression. All that has to happen for us to be in a recession is that economic growth be less than it would otherwise be in a free economy.

What makes this concept difficult to grasp is the fact that capitalism is so powerful, and despite all of the distortions and impediments erected by the state, even in this "mixed economy" our standard of living continues to go up. This means that our standard of living is an upward sloping line for the most part, however the slope of the line should be much greater - exponentially greater.

Based on this standard, there is no doubt that we are in a massive depression. When compared to what could be and the type of economic progress and standard of living we would experience in a free market we are certainly in a real depression. Right now, I believe we should be flying around in jet cars, colonizing space, and our life expectancy should be into the one hundred's if not higher based on the possibilities of genetic engineering. The fact that many intelligent, hard working people are struggling to afford a home, their utility bills, medical care, and are eating off the McDonald's value menu to save money is an absolute crime. These people are the modern day Okies, and just as the plight of so many was caused by the interventionist Federal Reserve system and the socialist New Deal policies of the 1930's, the modern Okies will continue to suffer due to the interventionist Federal Reserve system and the socialist policies of the 2000's.


Anonymous said...

I agree with your general point but I wonder about this:

"In the future, if mankind continues to progress, it is likely that "poverty" will have a new definition that is relative to the standards of that time. For example, being poor might consist of having only one space ship, only one vacation home on Mars, and having a life expectancy of only 150."

My thinking is that eventually if the government destroys enough wealth there won't be an increasing standard of living. There will be total cultural destruction as was the case with the Western Roman Empire. Yes we are in a depression and it wont look like the depression of the 30s or the 19th century, but I don't think the boom/bust can continue indefinitely. When the American (and all Western) welfare state collapses, as hard as it is to conceive, we may be looking at the temporary end of industrial civilization. At least for large sections of the earth.


Doug Reich said...

Thanks for the comment.

I totally agree with you which is why I said "If" in my post. I am not at all arguing that we will continue to progress, only that we have progressed in a mixed economy albeit less than we would have and will progress in proportion to the amount of economic freedom.

I think we are quickly reaching the point where the government will not be just a nuisance or even an albatross but an anvil (or some other clever metaphor that connotes complete destruction of civilization). As logic, the Dark Ages, and the various communist disasters show, if we continue on this road the world will go backward - not forward.

This fact is one of my motivations in proposing this concept. People need to realize how dramatically the loss of economic freedom is to our standard of living even in cases where it appears we are progressing. Many successful people just see this recession as another cycle or think they can always get around state intervention or somehow will be able to continue producing despite government controls. They need to realize that their lives have already been dramatically affected and it appears to be getting worse.

Anonymous said...

I have seen people in line at a local food pantry chatting on cell phones and smoking. Chances are they also have cable TV and go to bars with all the money they save on not paying for food.

Doug Reich said...

that's a perfect concretization of the mixed economy