The American Economy: A Long Term View

The November issue of Wired magazine carries a brilliant article by Kevin Kelly regarding the views of Federal Reserve Banker Micheal Cox. One often hears a familiar litany of complaints: wages are falling, or at least not growing, the American underclass is huge and growing, the rich are getting richer while the poor are getting poorer, and so forth. Cox refutes all these myths, and shows how America is still the land of opportunity, and perhaps holds more opportunity for the average citizen than ever before.

Cox works as an economist at the Federal Reserve Bank of Dallas, but he knows more than most academics about the hard side of life. He began working at his father’s bottling plant in Little Rock, Arkansas at age 12. His early love was music, but he earned his doctorate in economics. Cox was denied tenure at Virginia Tech, apparently because of his failure to get his academic work published. But, after a period of dejection, he landed on his feet at the Federal Reserve Bank of Dallas.

Much like the Historical Perspectives section of the Positive Press, Cox views things differently because he looks at how society has changed over the longer term, rather than focusing exclusively on current problems. Cox agrees that technological change is causing angst and a great deal of economic restructuring and dislocation. But by focusing on education and pursuing the age-old values of hard work and perseverance, Cox believes that there are more opportunities today than ever before.

Cox believes the computer chip is the second most important technological advance in history, following only the invention of electricity. He believes in the entrepreneur as the driving force behind economic growth, and cites the fact that four out of every five millionaires today are self-made, as opposed to only two out of every five only a generation ago.

Cox also cites the benefits to the consumer of modern economic growth. In 1988 a cellular phone cost $1,500, now they are almost free. Jet travel used to be exclusively for the rich (the “jet set”), now almost everyone can afford to fly.

These are some of Cox’s findings about the American economy. Rather than a permanent underclass, Cox found that only about five percent of those who started out in the lowest income bracket in 1975 remained in that bracket 16 years later, in 1991. Eighty percent had made it into the middle class or higher, and 30 percent had made it to the top income bracket. Employee benefits and wages, rather than falling, have been rising. This is due mainly to the rise in benefits, which now account for 44 percent of income, as opposed to 25 percent in 1965, and 19 percent in 1953. The average worker has seven days more paid vacation now than forty years ago. Going back to the 1830s the average person worked about 76 hours a week. By 1890, that number was 60 hours a week.

Cox does not cite the fact, but we believe it to be true, that a major change in this century is that the work week has greatly decreased for factory workers and other wage earners, while the time at work has increased for professionals, entrepreneurs and business owners. Thus, in general, those making the most money are working the hardest.

Cox cites many other interesting facts, such as that 93 percent of Americans officially designated as living in poverty have color TVs, and 60 percent have VCRs and microwave ovens. So what is considered poor now would have seemed quite rich to someone living at the beginning of this century.

The major driving point of this article, and of Cox’s work in general, is that if you work hard, get a good education, and persevere through life’s setbacks, you are more likely than ever to prosper. So hard work does pay off after all — now isn’t that good news?

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