Time-Price Theory Trumps Economists Beliefs
My readers may be familiar with the concept of time-prices by now. But perhaps you do not recognize how radically this new paradigm challenges the prevailing views of economists.
Overthrown is what John Kenneth Galbraith used to call the conventional wisdom (though he faithfully upheld the conventional views of the academic left).
Time-prices gauge the value of goods and services by the amount of time a typical worker has to spend to earn the money to buy them.
Measured in hours and minutes, and roughly calculated as GDP over hours worked, time-prices reflect the reality of money as time. Money translates the universal economic scarcity of time into a fungible form that can be used in commercial transactions. Time-prices are the true prices.
In my “Information Theory of Economics” — wealth is knowledge, growth is learning, and money is time.
So to convey the import of the time-price paradigm, I provide a list of “Ten Things Nearly All Economists Believe — and The Economist Magazine Asserts — that are Disproven by Gale Pooley and Marian Tupy’s Time-Prices.”
- It is impossible to measure accurately the true level of prices over time and across national borders without an array of subjective and often inconsistent tools such as deflators and consumer price indices (CPI).
Pooley and Tupy demonstrate that dividing Gross Domestic Product (GDP) by the widely collected data of hours of paid labor yields a simple definitive number that gauges the amount of GDP per hour and minutes of work. This figure captures in one number both the rise in incomes and the drop in costs resulting from innovation, which is the source of all per-capita economic growth.
- Consumer price indices, producer price indices, GDP deflators, purchasing power parity estimates, and floating currency values can measure the true impact of inflation or deflation in national or world economies.
Pooley and Tupy’s time-prices show that all these estimates have drastically understated the rate of economic growth, innovation, and increasing abundance in the world economy over the last forty years.
- The world is currently undergoing “secular stagnation,” marked by a slowdown of technological innovation.
Pooley and Tupy’s time-prices reveal no slowdown at all in the rates of technological innovation and true economic growth.
- In what the Economist calls “The World Economy’s Strange New Rules,” interest rates are now widely fixed at zero or negative in real terms.
Measured by time-prices, innovation has been increasing real incomes at a rate of 3.6% per year since 1980. Real interest rates are nominal interest rates plus expected inflation or deflation (minus). Thus, on bonds with zero nominal rates, today’s true interest rates, corrected for expected innovation (benign deflation), are an entirely normal 3.6%.
- The rise of human populations has inflicted stress on the environment marked by rising commodity prices.
Since 1980, when Pooley and Tupy begin their time-price series, world population has risen by 71.2%, from roughly 4.5 billion to 7.6 billion, while time-prices of the 55 leading commodities have dropped by 72.3%. During those four decades, GDP per capita per hour has risen by 404.1%.
- Population growth has inflicted particular damage on seas and fisheries.
Measured by the hours and minutes to buy them, salmon, shrimp, and fishmeal have dropped in price by 81%, 76%, and 40% respectively, as aquaculture has flourished.
- The 22% increase in the level of CO2 in the atmosphere since 1980 — from .03% to .04% — has resulted in “extreme weather” that has retarded agricultural productivity around the world.
Since 1980, economic abundance, measured by the time-prices of the leading 55 commodities, more than half of the agricultural products, has increased 518%.
- Middle-class incomes in the US have suffered as a result of the rise of Chinese manufacturing.
Measured by time-prices, the cost of a basket of leading commodities (the Farm Bureau’s Thanksgiving Dinner index) for a US blue-collar worker has declined from 32 minutes in 1986 to under nine minutes in 2019. Time-prices show widespread improvements in the standard of living of middle-class Americans since the rise of China.
- The Chinese government has been persistently exaggerating the growth rates of China’s economy.
Time-prices show that the Chinese economy has been growing at a world record-breaking rate of 11.1% per year since 1980, far above the estimates of the Chinese government.
- The rise in the costs of healthcare, education, housing, and other government-dominated industries has overwhelmed the drop in prices of technological goods and services.
National time-price trends are measured by the growth in GDP over the growth in hours worked. GDP includes the impact of wasteful government spending and regulations.
In my information theory, economic growth is learning. Perhaps the best-documented phenomenon in business is the learning curve: The Boston Consulting Group (BCG) estimates that costs decline by 20-30% with every doubling of total units sold.
With its spinout, Bain and Company, the BCG has calculated learning curves in every industry, from poultry eggs and trucking miles to transistors on chips and lines of software code. With the spread of computer technology around the globe, through every industry and every good and service, learning curves are compounding everywhere.
The result is a global boom in real productivity and growth measured by the only universal measuring stick, time and time-prices.
Time-Price Meets Zero-to-One
Peter Thiel is about to give a Wriston Lecture to the Manhattan Institute on the subject, “The End of the Computer Age.” Does this mean that our current golden age is coming to a close?
Pooley reconciled the apparent conflict between his views and Thiel’s by commenting on a similar Thiel address to my COSM conference last month. Thiel is referring to great breakthroughs registered in his concept of Zero-to-Oneinnovations in his book by that name.
In his book, Thiel also explains what he calls “one-to-n” growth, the spread of existing technologies around the globe. The plummeting time-prices wrought by the computer age continue to revolutionize the third world and overcome poverty in the first world.
As Pooley shows, measured by time-prices, the computer age since 1980 has drastically increased equality.
According to the World Bank, from 1960 to 2018 abundance as measured in time-prices for rice increased by 7.32 and 8.06 for wheat. What does this mean for inequality?
Let’s consider Raj in India and Ray in Indiana.
In 1960 Raj in India spent seven hours a day earning the money to buy rice for his meals. By 2018, the time-price of rice had fallen 86.2%. Now Raj’s grandson only spends 58 minutes working to buy his rice. Raj’s grandson has six hours and two minutes now to do something else.
In 1960 Ray in Indiana only spent one hour a day earning the money to buy wheat for his meals. Now he spends eight minutes. Ray’s grandson has 52 minutes now to do something else.
Has inequality increased? From 1960 to 2018 Ray’s family gained 52 minutes but Raj’s family gained 362 minutes. The Raj family has gained 6.9 times more time than Ray’s family. Time inequality has been reduced dramatically.
When basic things get more abundant, it’s the poor who benefit the most. This is not captured in Gini coefficients [the usual statistical measure of inequality]. Comparing the impact of changes in time-prices over time to different groups may be much more informative.
“Another Thing that Economists Think They Know” is disproven by the theory of money as time.
Editor, Gilder’s Daily Prophecy