You Get What You Pay For

Fred Hapgood

The character of our politics over the last ten years has been dominated, even overwhelmed, by the struggle to come to terms with the loss of American prosperity. The stages described by Elizabeth Kubler-Ross fit nicely: we passed through denial under Reagan and rage and anger under Bush (as documented by Kevin Phillips). The Uruguay round obviously represents our bargaining period. Next on the schedule is the depression phase and few would offer long odds we will avoid that. 

An American feels this bite in more than one place, since for us prosperity measures our success collectively as well as individually. The contribution of this country to the science of human nature is the proposition that personal and communal felicity rest not on religion or class membership or level of education or even being French but on having a little more each year with which to advance one's dreams and fancies; a little more to save, spend, donate, or contribute. A future running downhill, in which most people get a little less each year, threatens more than income; it risks turning us back into the kind of society most of us came here to escape.

The most painful region in this injury is not the simple decline in the average wage (according to Robert Heilbroner, 20% over the last twenty years) than in the steady ebb of our confidence that the country will ever get back on the old track. Despite the happy rhetoric of our politicians, we know that the floodgates of the world labor market have been opened to an immense population of workers, in China, India, Latin America, Central Europe, and Russia, who are eager, disciplined, quick to learn, and paid like coolies. We know that every phase of the productive cycle (design, manufacturing, marketing) is becoming more portable, mixing the world labor market to deeper and deeper levels.

It is hard, bringing these points together, to see why world wages should not converge and why our end of that convergence should not be a long, continuous drop in wages. No politician dares to discuss this in public, partly, I think, because we all worry too much about it in private.

The paradox is that in theory this cloud should be mostly silver lining. The same processes causing us such anxiety are also lifting the global economy to historically unprecedented levels of efficiency and productivity, with the consequence that the prices of a very wide range of goods, including food, consumer electronics, textiles, chemicals, communications, transportation, energy, industrial goods, agricultural and extractive commodities, and manufacturing equipment, from machine tools to steel plants, have been falling steadily, especially over the past decade.

Today an hour of labor at the average American wage ($10), as shrunken as it is, can still buy ten pounds of chicken, a watch, a fully loaded camera, ten dozen eggs, a new paperback, two calculators, half a pair of pants, ten megabytes of data storage, eight gallons of gas, a hundred kilowatt-hours, a dozen pens, fifteen hamburgers, twenty pounds of flour, the rental of four movies, a forty minute phone call between NYC and LA (peak rate) or a half ton of coal. Historically speaking, these are startling prices.

These declines are of course not universal -- real estate, education, health care, local taxes, automobiles, and legal services are obvious exceptions -- but they make the point that in theory prosperity can be reached by more than one road. Americans think of higher standards of living as fueled by increases in wages, in income, but prosperity can be enjoyed even in the context of falling wages, provided the price of the standard basket of goods and services falls even faster. (While there is presumably some risk of runaway deflation, no prosperity policy is risk-free -- the high wage road runs the risk of runaway inflation, and recent history suggests that that pit is a lot easier to fall into.)

The archstone of the highwage worldview is that it is normal and proper for wages to go up, hopefully year by year and certainly generation by generation and that this is the key thing for a society to get right. Stagnant or declining wages are symptoms of something wrong, that some element in the social mechanism needs fixing or treatment. The corresponding position of those looking out from the lowprice paradigm is that it is normal and proper for the price of items in the standard basket (the prices of Rembrants are another question) to go down, and that prices that refuse to behave this way are disordered, calling out for remedial attention from one or another organ of the society.

An observer sitting inside the first of these theories sees a very different world from another, in the second. For instance, a highwager looking at the fraction of the population that can't buy the basics sees a population that is poor, needy, disadvantaged, unfortunate, and underprivileged (because it lacks high wages). A lowpricer observing the same population sees only a pocket of demand that for some obscure reason is not being served. The natural response of the highwager is to simulate the effect of high wages with a subsidy of some sort, direct or indirect (a subsidy is a virtual wage); that of the lowpricer, to poke around the productive process, find what is preventing prices from following their natural trajectory downwards, and fix the plumbing.

A culture oriented to low prices would deal with malnutrition not with food stamps or surplus food programs but with a concerted effort to lower the cost of producing food; to homelessness not with rent subsidies but by making sure that the general market price of basic housing went down and kept going down; to the double issues of health care access and cost containment not by freezing in obscenely high prices with subsidies but by trying to bring the price of an average hour of care to the point that most people could pay for most procedures out of their pocket (as they have done all through history). Of course this goal might not be reached, but that is how the problem would be framed. Subsidy-based policies don't work every time either.

Each perspective highlights the limitations of the other. To a highwager the new model looks immoral, as just a way of making it possible for more people to be poor; to a lowpricer, subsidies look unnatural, kinks in the process. Subsidies are rarely adequate to the problem they purport to address, freeze prices, come with high administrative costs, and relate to their "clients" with procedures that are controlling, demeaning, rigid, and mindless. They divide -- polarize might be better -- the citizenry into the qualified and not qualified, the deserving and the undeserving, the poor souls in genuine "need" and those self-indulgent parasites who merely (sneer) "want".

Since the authentically needy win a piece of the income of the merely wanting (through taxes), all this sorting and shuffling exacts a terrible price on the political life of the community. (The talk shows of New York City were buzzing recently over the shocking news that a food stamp recipient had used vouchers to victual her bridal shower.)

Perhaps the most insidious, because least salient, of these discriminations is national: subsidies only operate inside borders, yet the circumstances and issues they are trying to ameliorate are usually international. The message of a national program is that problems only matter, only exist, when they afflict 'us', 'our people'. At one point in our history such a position was ethically unquestionable, but today the point seems less and less clear. Falling prices do not discriminate on the basis of national borders, assuming free trade or at least communication of the technique. A person lowering the cost of producing food or housing or health care eases the lives of everyone, no matter what their address or moral station.

The simplest and strongest argument for a lowprice prosperity strategy is that it sails with the winds now blowing through the global economy instead of against them. The world is standardizing on a single basket of goods and services; the number of people looking for ways to sell into this basket is growing very rapidly; the pace of technological innovation is probably accelerating almost as fast as everyone says it is; and barriers to trade are falling everywhere.

Clearly most prices are headed down anyway; what is necessary is to concentrate on the exceptions, those sectors whose behavior is from this point of view the most perverse: real estate, education, day care, elderly services, taxes, and health care.

Most cultures have practices that look to members of other cultures like a tremendous waste of money and resources: Apartheid in South Africa, Indian socialism, French agriculture, and Japanese distribution are classic examples of the motes Americans can see in the eyes of others. The equivalent for foreign nationals visiting this country is our professional apparat, our armies of doctors, accountants, lawyers, teachers, college professors, and MBAs, all of which we have in numbers far larger per capita than any other country (we have most of the professionals in the world, including 3/4s of all the lawyers.)

As a member of this culture the professional apparat usually seems as natural to me as the two dollar apple or twenty dollar movie ticket to a Japanese shopper, but occasionally the scales fall from my eyes. Recently I attended a meeting of the board empowered by my state to approve the designs of anyone wishing to do anything more ambitious in the coastal waters than fish, like salvage or construction. In case after case, the petitioners were advised that their applications would be enormously improved by evidence of serious consultation with a professional archeologist. In one case a contractor needing the services of a diver was instructed to find a professional diver with a PhD in Marine Archaeology.

Gradually it dawned on me that several members of the board were themselves archeologists, and with this insight came the consideration that there were perhaps some conflict of interest questions here. The essence of professional self-regulation is the power to control demand for the professional service, control definition of that service (of what is "professionally appropriate"); and, through licensing and certification, control the number competing to respond to that demand. Teachers are allowed to declare the need for more education (adult education, driver's education, sex education), define the form that education takes, and keep their foot on the flow of recruits.

The culture trusts lawyers to declare certain services (wills, title searches, divorces) offlimits to everyone else, lets them decide how many billable hours is appropriate for each service, and to put access to that business at the far end of three years of law school. College educators are delegated to define the nature of a college education, to manufacture it, and to price it. They tell us that four years is the right length, that $25,000 a year is what it costs, like it or not, and that a college-level GED exam, a test that would confer a degree on anyone passing it, is professionally inappropriate, regardless of the nature of the test or the level of performance required to pass.

In return we accept all these assertions, we pay the bills, without a moment's examination of the question of motive. Naturally professionals keep raising the cost of their product; the culture not only invites, it almost forces them to. The most famous example is the costs of American health care, which have increased dramatically twice -- the first time at around the turn of the century, when allopathic licensing appeared and all the other schools of health care were made illegal; the second, in our generation, when board specializations gave the profession an even finer degree of control over manpower and product definition. (The argument is sometimes made that these increases in cost are due to 'technology', but I am not sure how to take this point. Technology makes prices go down far more often than it makes them go up. How is technology responsible for the gap between the 'usual and customary' fee for a cortisone shot for humans ($150, and sometimes even $300) and dogs ($2)? Besides, are we to blame the rise in college tuitions on technology, too?)

The professions raise prices directly, by controlling product definition, price, market demand, and competition, and indirectly, by encouraging even non-professional hierarchies (like bureaucracies) to imitate their example. While they might not be responsible for every stuck or rising price in the society, their influence is such that any low-price prosperity strategy will have to confront them, perhaps by withdrawing state enforcement from professional licenses, or by making freedom from job discrimination on the basis of academic degree a civil right.

In truth at this moment we are more likely to read of efforts to extend the structure, to professionalize valet services and dating bureaus and computer programming. The professions seem as comfortably in the saddle of this culture as the Communist Party was in the Soviet Union in the 50's or apartheid in South Africa in the 70's. Nonetheless there are at least theoretical reasons to think the foundation might be weakening, grain by grain.

Professions are information guilds; they arose at a time when information was expensive to acquire, produce, store, and communicate, and therefore when mastery over information created real value and could demand significant prerogatives in return. This era is clearly coming to an end. Data services have made it possible to research almost any subject to almost any level of detail from anywhere on the globe; the internet has made it possible to discuss almost any subject or ask any question, again to any level of detail; hypertext, expert systems, nested hierarchies of point-and-shoot menus, and simulation software (software that throws you through a series of quasi-real situations and sometimes even evaluates and critiques your reactions) among other interface devices, are all making it easier for laymen to navigate around the ideas and facts of a field.

Innovation by innovation the difference between the laity and the information guilds is draining away, and with that difference is going the justification for their special position. A patient who has found herself, to her surprise, correcting her doctor's information authoritatively assumes a different relationship to the medical profession than her parents did. As we learn to see the professions as just people who look stuff up in books (or don't!) like anybody else, their customs will turn into hollow rituals; their claims to deference into pretentious arrogance; and their self-governing status into a simple hustle. When the professions pass from being the glory of our culture to a good way to make sure of dental benefits, as happened with membership in the Communist Party of the USSR, surely some great change will be in prospect.

From the highwage point of view perhaps the most troubling angle of the lowprice strategy is that it definitely abandons the dream of equality, defined as a world in which everybody has about the same level of income. This is certainly true: the lowprice strategy is intended to make it possible for the world to support with decency a steadily wider range of incomes; of less equality, in the sense just given, rather than more.

From a lowprice perspective the evil to be avoided is not inequality of incomes but inequality of income differences. A society where the profile of incomes is organized into terraces -- here the poor, then a big jump, there the middle class, then another big jump, there the rich -- makes a poor democracy, because such terraces support classes, distinct cultures that organize and make war over those borders. To a lowpricer a society whose income profile ramps up smoothly is a sounder democracy, a healthier country, even if the multiplier between the richest and poorest 1% is a hundred times that of the society with the terraced income profile.

The equality-vision of the highwage world represents a kind of middle-class ethnic cleansing: The mountain of the rich is used to fill in the valley of the poor, and everyone lives thereafter on a flat plain with two or three kids, one or two cars, the full menu of cable options, and either a boat or a pool in back of the garage.

This dream has its pull, but even at the most utopian end of the possibilities it is still a delusion, since it overlooks the problem of the worker who prefers to work part-time. Even if everyone who wanted a good job had one, there would still be people without good wages, because there will always be people unwilling to carry a full workweek even of a good job. There are lots of youth who want to spend more time on their music or art, parents who would like to spend more time with their children, and people in late middle age, even quite elderly people, who want to work but at not so many hours. Some make that step and have a terrible struggle; many others would like to but do not dare.

These people are not necessarily needy by the standards of most subsidy programs, but a decent society would accommodate their aspirations even so. The single product for which this country's needs come closest to desperate is not health care reform or national service or clean water; even more than prosperity, what this country needs is slack, a moment to turn around, to take twenty hours a week off for a month or two and paint the house, or teach the kids math, or write a novel. And for that we need low prices.