Before we begin, however, let’s take care of a couple of admin details. First, in my ‘part one’, I mentioned how much information was packed into this book. I was not the only one who felt this way. In a recent episode of EconTalk, host Russ Roberts brought Tim Harford onto his show and mentioned the same thing. The hour-long conversation was almost as enjoyable as the book. For those interested, the link is here.
I also mentioned the BBC podcast series which accompanied the release of this book. The link to those episodes is here.
Thanks for reading,
Tim
*********
Most humans perform at their peak productivity when the temperature is between sixty-five and seventy-two degrees Fahrenheit.Back in high school, our basketball coach thought turning up the heat in the gym was a major tactical innovation. We would therefore practice in the hot gym so we could handle the conditions better than our opponents (and their sane coaches). I’m not sure about his ingenuity but I couldn’t disagree with the results: we only lost one home game during my junior season. What this suggests to me is that, although the peak performance range is likely room temperature, anyone can overcome this basic limitation through training.
I wonder if my former coach would be surprised to learn ‘turning up the heat’ did not make Harford’s list of fifty important inventions.
*********
Some speculate that without air conditioning, Ronald Reagan could not have won the presidency.TOA: This ‘fact’ takes into account how US migration patterns changed as innovations like the air conditioner made living in warmer climates a more reasonable option. When people moved, they took their political preferences with them. The resulting changes to the electoral college gave Reagan the support required for his victory.
This, to me, is the worst way to use statistics. It demands we accept anything not obviously false as true. It is a classic case of correlation, not causation (unless Reagan’s opponent was promising to ban air conditioning, which I find so unlikely I’m not going to bother fact-checking).
*********
The expansion of search capabilities is likely driving down costs. Any customer can now stand in a store, find a cheaper product elsewhere, and use the information to haggle under the threat of leaving.
Shipping containers have made international transport so cheap that economists often assume transport costs to be zero when they make their calculations.
The cold chain introduced global specialization to perishable food. It is cheaper to raise certain animals or crops in one area of the world and ship than it is to raise these same goods locally.
Product design often creates significant opportunities for cost saving through increased transportation efficiency.
Shipping products as parts to assemble rather than entirely finished goods saves on transportation costs. If the change is significant, the customer can decide to spend the difference on hiring additional help for the assembly step.TOA: Cost reduction was an unsurprising theme throughout this book – Harford is an economist by training, after all. In the context of cost reduction, it seemed like for most producers getting a product into a shipping box was the critical step. Anything in a box can be easily stacked on a container ship and floated across the ocean – an almost zero-cost method of transport I suspect the economy will not improve on for a long, long time.
The way shipping costs have changed over the years has set the stage for today’s economy. The classic mom-and-pop or brick-and-mortar local shop struggles whenever a big-box retailer moves in down the street; the rise of the online retailer is like having every big-box retailer moving in, all at once, next to every local establishment in the country.
The final quote reminded me of Lego. I’m not sure how much benefit the toy company has gained from leaving the assembly step to its customers. I do know that (a) selling the unassembled product makes it easier to ship in a box and (b) having kids put the toy together at home - for fun - is a clever way to get around child labor laws.
*********
An IOU from a reliable source is basically the same thing as having cash. A system of such IOUs is the start of a cash-like system where debt is freely traded.
Paper money grew out of IOUs being used as tradable debt. For people with sterling reputations, it became possible to write endless IOUs without ever being asked to pay up. Governments, naturally, thought perhaps they should be taking advantage of this phenomenon and established today’s system of fiat money.
Low and predictable inflation is a good safeguard against the possibility of deflation. And relying on central bankers to print the right amount of new money is probably safer than relying on miners to dig up just the right amount of new gold.
Though inflation statistics suggest a unit of money is worth less today than ever before, the variety of products available for purchase imply it is much more valuable.TOA: Like the passport, the unit of currency was established as a threat: if you ask us to repay you, we will. I guess as far as threats go, it’s a friendly one (though perhaps only among individuals, since nations use the threat of war as a way to get out of bad debt).
The tricky bit these days is that the fiat money system looks a lot like the gold-backed system of yesteryear yet is no longer based on a pile of reserves earmarked for repayments. Someone could – and does, almost everyday, in places like Econ 101, the local bar, or Congress – point out that since money is no longer based on anything, it is doomed to crash spectacularly someday in the not too distant future.
Based on my understanding, this is a technically accurate but entirely incorrect conclusion. Again, the similarity in appearance to gold-backed currency is confusing. But if the analogy must be maintained, I would suggest today’s money system is backed by a belief in our fellow humans to create value rather than our belief in our fellow humans to dig up more gold.
In the hands of the right human, an empty field can be cultivated to feed generations, words can be rearranged to lift the sunken spirit, and chemicals can be mixed to create cures for the dreaded disease. The work of rearranging trees into a house, ingredients into a meal, or sounds into a song is the very essence of human creation. The modern money system incorporates all of this. Societies no longer enrich themselves solely through what comes out of the gold mine; they invent, create, and cooperate to create value. It is the trust required of each other to keep this value-creating cycle going that has replaced gold as the backbone of the paper money system.
