Many Americans are in a sour mood when it comes to the economy, yet the Biden administration argues that things have never been better — with something close to full employment and the rate of inflation coming down. Why the disconnect? Are we returning to a world of economic stagnation?
The citizens of Rome 2,000 years ago lived as well as or better than the typical European in 1800. The industrial revolution — and notably the invention of the steam engine — for the first time freed mankind from animal and human power, enabling a sustained rise in the standard of living — first in England and then in America. Soon, people started seeing a more prosperous future as the norm rather than the exception.
From the second year of the Reagan administration until 2020, each year was better than the previous for most people. Yes, there were a few short-lived downturns, but not a pervasive sense that the best years were behind us.
What has changed is the realization that it takes more work hours to maintain the same standard of living, which is causing much of the political discontent. Most people understand that the sluggish economy is not due to some unseen force, but from inept and incompetent policymaking in Washington.
The enclosed table shows the real price of most commodities measured by the number of minutes a person making the average hourly wage would need to work to buy the specified commodity. The table lists several agricultural and metal commodities and oil picked because they are widely traded with good price information. Almost all major commodities have fallen in price, determined by the number of minutes needed to purchase them.
(Correction: The table in this commentary dealing with the number of labor minutes needed to buy various commodities – the work time to buy a barrel of oil should have been listed as hours rather than minutes).
The price of corn — in terms of minutes worked to produce a bushel — has been declining for a couple of centuries as agricultural productivity has improved. Chickens (and pigs and other animals) eat corn, so the price of chickens has also fallen in real terms. In 1995, the average price of a pound of chicken was $1.44, and it took the average worker, who was making $11.43 per hour at the time, 12.6 minutes to pay for a pound of chicken. By 2020, that same pound of chicken required only 6.4 minutes of labor for the average worker. But rather than continuing to decline, the price of chicken in required work minutes increased over the last three years.
Most people think that the price of oil (and gasoline) has been rising for a long time. But in terms of minutes of work required to buy a barrel of oil (on a commodity exchange) or a gallon of gasoline (minus taxes), oil was much more expensive in the 1920s than it is now. As recently as 1995, it took the average worker about three minutes to buy a barrel of oil (on a petroleum exchange), yet only 25 years later, in 2020, the time price was down to only about a minute and a half per barrel. It is now back up to about 2½ work minutes to buy a barrel of oil. Most of this price increase is due to President Biden’s foolish war on fossil fuels.
In 1995, it took the average worker about 2½ hours to earn enough to buy a ton of aluminum, but by 2020, it took the average worker only about an hour to buy a ton of aluminum. One hundred and fifty years ago, aluminum was more expensive than gold. The price of aluminum has been falling faster than other metals in real terms (minutes worked per ton) for well over a century due to technological advances and declines in the real cost of energy. The raw material for aluminum (bauxite) is widespread and plentiful, but it requires considerable electricity to produce pure aluminum. Aluminum is the most versatile of all metals and can often be substituted for plastics, wood, and many other metals, notably copper.
If you look carefully at the table, you will notice that for each commodity, the long-term price — again, in minutes worked — declines up to the year 2020, and then there is an increase in the labor minutes price. In case you think I selected years and commodities to fit my argument for a long-term decline in the real price of most items followed by a bump up in the last three years, select other commodities (that are widely traded with transparent prices), pick any starting year and do your own calculations. The same pattern will be apparent.
The good news is that despite the economic policy foolishness that has increased the stock of misery for so many, the counterproductive and costly regulations and taxes can be quickly reversed, causing an almost immediate rise in living standards — as British Prime Minister Margaret Thatcher and President Ronald Reagan showed. Perhaps the new president of Argentina, Javier Milei, can perform a similar miracle and serve as a 21st-century role model.
• Richard W. Rahn is chairman of the Institute for Global Economic Growth and MCon LLC.
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