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Economic Liberty: Music to Our Ears
June 17, 2008
For all of the concern that I have over the power of the Federal Reserve System to botch up the economy, we need to understand that the Federal Reserve System has very little influence over the long-term trend of the economy. Neither does the federal government.
The free market social order rests on the right of private ownership, a legal system that enforces voluntary contracts, and the right of exchange. The power of the free market economy to implement new technologies and new ways of serving consumers is overwhelmingly powerful. To demonstrate this, I will compare my high school days with today. I will focus on one area of the economy: music.
In 2006, I bought a table-top stereo music system with detachable speakers: each with a tweeter for high frequencies. It has a CD-ROM player, an AM/FM radio, a cassette deck, and a button which lets you activate a built-in subwoofer. It was made in China. I paid $30 at Wal-Mart. I use this as my reference point.
Fifty Years of Creativity, Plus Capital
Fifty years ago, I spent most of my money on music. I worked in a record store. I was able to buy records at a wholesale price. I took advantage of that offer. I could buy a $4 long-playing album for $2.50. Using the inflation calculator of the Bureau of Labor Statistics, we learn that prices in 2008 are approximately 7 1/2 times as high as they were in 1958. This means that an album cost $30. Compare this with a CD-ROM today, which costs about $15.
I probably brought about two hundred albums in high school. Let's use today's money. Because I got a discount, I probably spent about $3500 on my collection. These albums were all monaural. They clicked and popped. I hated that. People talk today about the supposedly warm sound of vinyl albums. What I remember is the clicking and the popping. For a teenager, I had an impressive stereo system. In today's money, my Rek-o-Kut turntable cost $900. The cartridge cost $225. As I recall, the tone arm cost $250.
I had a lousy 1957 VM tape recorder. I must have paid $800.
The Fisher FM receiver cost about $1100.
I wanted good sound.
I paid for the system with my own money. In retrospect, I spent way too much money on the system. I should have saved it for college or something else, such as buying my parents little rent house, located two blocks from the Pacific in Manhattan Beach. They paid $8,000 in 1951. Today, that tiny property, stripped of that old house (done long ago, but not by my parents, who sold it four decades ago), would sell for about $1 million.
Today, I have a speaker system hooked up to my computer. It has a subwoofer. The low end is powerful. The mid-range and high end are as good as anything I remember from my youth. In those days, I wanted a speaker system that was flat, 50 cps (cycles per second) to 15,000 cps -- today, 15 kHz -- with fall-off to 18,000 cps. I can buy such a system today for a few hundred dollars. Too late! Take a look at the chart for male hearing loss. I've got an FM-radio budget and AM-radio ears.
Think about this. It's really unbelievable. I am hooked up to a used computer that might sell today for $100. Maybe less. I am on-line at $40 a month, or about $5 in 1958 -- the cost of an album and one 45 rpm record. I can access enormous quantities of free music on the Web. I can access 10,000 thousand FM radio stations, plus a thousand digital audio broadcasts if I want to. I don't have to worry about weak signals. There are an unknown number of podcasts. So, there is simply no comparison in terms of quantity of music with what was available in 1958.
For $10 a month, I can get a satellite service with over a hundred stations of free music with no ads. That is under $1.40 in 1958 dollars.
You could buy a high-end two-speaker system in 1958 for $2000. In today's money, that was $15,000. That speaker system was every bit as good as the best speaker system available today. Klipsch, Altec, and Electro-Voice made fine speakers. But there were no stereo records available in 1958. Anyway, if there were, this was limited to very small record companies with performers no one had heard of. A few years later, stereo records were introduced. This was a major breakthrough. It meant that you had to go out and buy a completely new amplifier system, a stereo cartridge, and a new FM tuner. You had to buy a second speaker, or a new system with two identical speakers. Your monaural records were OK, but clearly inferior to stereo albums. In other words, you had to start over. It wasn't cheap.
Today's amplifier sounds no better than an amplifier in 1958. Some people think that the old tube amplifiers sound better. I have no opinion. With my ears, my opinion wouldn't be worth much anyway. But an amplifier that cost $700 in today's money in 1958 costs $100 today. There are no tubes to burn out. Today's amplifier will last for a decade or more without deterioration. It is much smaller. It throws off less heat. Today, you can buy an amplifier with seven channels. Nothing like that was available in 1958. You can buy it for about $350 today. In 1958 dollars, that's $47. You get the idea.
You can buy one song on iTunes for 98 cents. In 1958, you had to buy a second song. Together they were 89 cents plus tax. With no tax, that was $6.68 for two, or $3.34 per song.
You do not have to buy every song on an album. You buy the songs you like.
There is one major defect. The MP3 format is compact. Sound engineers do not allow as much range from soft to loud. Maybe this will be overcome some day. Or maybe not. It may be due to consumer preference. Sad, but true.
Bottom line: the $30 desktop music system that I bought for $30 in 2006, had it been available in 1958, would have sold for $4 -- half of what I earned, after taxes, for working five of eight hours at the record store on one Saturday. It would have been all I needed, had there also been CD's and cassette tapes. It is close to all I need today. This is the most persuasive story of economic progress that I can personally verify.
Liberty Overcomes Bureaucracy
In between 1958 and today, there was a war in Vietnam, very high inflation by the Federal Reserve System in the 1970's, the invasion of Grenada, the Gulf War, the invasion of Panama, and the wars in Iraq and Afghanistan. In terms of economic growth and development, these wars seem to have had few negative effects. They left few signs. The tremendous increase in productivity that is the result of the free market has overwhelmed the negative effects of wars, Federal Reserve policy, government regulation, and everything else that the bureaucrats have thrown at us.
Unless there is a catastrophic breakdown of the banking system, against which there is no known defense, economic growth will continue. We will be richer in 20 years than we are today. So will China. So will Asia generally. Even Europe will be richer. We would be richer still if the government would get out of the money business. If the government would reduce marginal tax rates to 10% or less, and if it would reduce the capital gains tax rate to zero for reinvestment purposes (payment due only when taken as income), and if it would cut spending in order to balance the budget, the American economy would grow much faster.
So, as long as you stay in the workforce, and as long as you improve your skills, you're going to get richer. The losers will be people who drop out of the workforce and expect the government to take care of them. They are going to be disappointed. Yet even here, they will probably muddle through with help from relatives and maybe a reverse mortgage.
There is good news and bad news. The good news is that productivity will continue to make us richer. The bad news is that certain groups in the economy are going to fall behind other groups. The grave threat is the politics of envy. If groups that fall behind persuade the politicians to pass laws unfavorable to the groups that get ahead, this will reduce the rate of economic growth. Everyone will be poorer than they would have been. The politics of envy is much worse in Europe than it is in the United States. But it is much worse in the United States than it is in Asia. This is another reason why Asia is going to continue to grow at a faster rate than United States is.