Tuesday, November 4, 2008

What's an income worth?

What's an income worth?

They say a dollar is worth what you can get for it. I went searching the internet this morning for a graph of median US income 1900 -- 2008 and couldn't find one, probably because that's like panning for gold without a pan -- I am sure our economics whizzes at Angry Bear or Economist's View would know right where to find this data.

But perhaps, because of changing circumstances, comparing constant dollar income from the beginning to the end of the century is a moot exercise, measuring something that doesn't translate in a meaningful way.

There was a time when dollars were much bigger in terms of what they could buy. Around the turn of the century, the blue plate special, a cheap restaurant meal, was described as "a square for two bits" -- twenty-five cents for a plate with typically one meat, two veg and a potato or other starchy serving. Today, the price for the same thing in a bare-bones diner would not be less than ten times that amount, but usually closer to twenty times the price.

Well, inflation. Yes, but tracking the proportion of this number to income, to the alternative cost of food elsewhere, comparing the luxury value of a diner meal versus a home-cooked chop, and the time available to the humble worker to get home and cook that chop -- so many factors come into judging the actual cost of the meal, that it might not be possible to say if the meal is more or less expensive in a dollar sense.

But if the value is alloted in tau (t), we arrive at a value that will be consistent over centuries. Individual human effort and attention is pretty constant, and time is fixed.

Abandoning the blue plate special to its gelid fate, let's look at what a single wage-earner's tau could support, 100 years ago.

I lifted the following comment of mine from Echidne of the Snakes, here, where another commenter begins:

Most of these houses originally had live-in servants on the 3rd floor and a relative or 3 in addition to parents and children.
And I replied:

[I found it] interesting to read a book from around the time of the US Civil War (by Scottish author George MacDonald) which remarks that the main character, a child, is "all alone in the house", and then find out a page later that there's a cook in the kitchen, a housemaid in the scullery, and a nanny upstairs. "Alone", indeed.

And a mile from my home is a run-down set of apartments (circa 1910) that were intended for young gentlemen just setting out in the world, with a bedroom, living/dining room, screened porch, bathroom and kitchen, and back beyond the kitchen, another bedroom for the young gentleman's manservant!

What this tells me is that, only 100 years ago, a single employed person, even a young man in his first job, made enough money to support one other person, or in the case of the household with the child who was "alone", six people of whom only one was a wage earner.

It's little literary details like this that show me how very far the ratio of remuneration to labour has fallen, in terms of what you can do with it. Can you imagine how much an employed husband would have to earn these days, to support a household of his wife, child, and three other adults?

Meanwhile, the people who used to be the house-servants are still at the same or a lower rate of pay, but without the room and board of the 1900s. Want fries with that?


~would quite like a housemaid or ghillie~
I will return to this double comparison -- a young unmarried worker then and now, and an older established worker (a bank manager, I think he was) with a wife and child, then and now -- to examine the movement of tau in the households. Clearly, in 1900 the available tau in a usual household was much greater for a given employment income. What this tells me is that no matter what the constant dollars might say, employment income today is less -- perhaps 1/4 to 1/8 -- of what it was at the turn of the other century.

Saturday, November 1, 2008

Story and Stuff

Like flour and leaven, the weaving together of "story" and "stuff" makes our economic world possible.

In my last essay I determined that something I am calling "story" is one of the major elements binding together all of human society. One aspect of this is what the Greeks called rhetoric, or what we might call advertising or preaching or history or even language. (Math, less so – despite its greater abstraction, it is less amenable to taffy-pulling into new shapes.)

Story is simply the human imposition of patterned abstraction on the world. You could say that “story” is everything that isn’t “stuff”.

Stuff stays what it is despite our preferences or attempts to disregard it. The ancients said the elements which underlay all creation included Air, Fire, Water and Earth, and in many ways that idea can help us to understand stuff. A radio broadcast is story – the fluctuating electromagnetic waves (Fire) that bear it through the air, is stuff. The waves are still waves if they impinge on a deer or a raindrop – the pattern of language, however effective, loses that effect if the recipient is not appropriate.

Where does economics come into this simplistic duality? Well for one thing, all economies must be built on stuff. Despite what the monetarists claimed, especially in the giddy 80s and 90s, there is not and cannot be such a thing as an “information economy”. As Dorothy L. Sayers said in 1933, "... There's yeast in bread, but you can't make bread with yeast alone. Truth in advertising," announced Lord Peter sententiously, "is like leaven, which a woman hid in three measures of meal. It provides a suitable quantity of gas, with which to blow out a mass of crude representation into a form that the public can swallow.”

Without the yeast of story, all we are left with is a “crude mass” of stuff. I have made bread without yeast by accident, and though it would sustain life if one were lost in a cave, it’s not the kind of thing you would build a culture on. Stuff is sufficient for life and for an economy of a sort, but woefully inadequate for even the most limited sort of cultural achievement. It is the two together, in correct proportions, which enable us to achieve the marvels of our species.

I knew some time along here I would need to start drawing diagrams. Here is the first, the old economic cycle model, with a few doodles.

It shows a team of producers, with some product flowing from them, passing through middlemen and shippers, and finally arriving at the customers. This is nice, but not sufficiently accurate.

The real situation is probably more like this:

The customers are mostly producers, the flow is not linear but in a network, and the potential for unintended consequences seems to approach a mathematical certainty. On the minus side, this looks ridiculously complex – on the plus side, it is the reality, not the pretty but unreal DC circuit of buyer and seller.

To pin down and quantify the bottlenecks of this webwork is not an impossibility, I am sure. I bet calculus will come in here somewhere. But after the work is done, I expect to see a model that will let us see how to bring all the interconnecting rings into relationship in order to yield a more stable, more compassionate, fairer and incidentally far richer society.