Econ 101: Our standard of living

In 1900, US income (GDP) was $4,096 per capita in 2023 dollars, while in 2023 it was $81,695. The US poverty rate fell from 56% to 11.1% over the same period. How was such a dramatic increase in our widely shared standard of living possible? The answer (without explaining how it came about) is increased labor productivity. Each worker has been able to produce more and more and hence earned a higher income.

Putting this differently, more and more people were automated out of their old jobs allowing them to find new ones and produce new things increasing overall output/incomes. Such dynamism does carry the temporary cost of finding new jobs and developing new skills. At any point over the last century that cost could have been prevented by freezing productivity improvements, but that would also have ended the growth in our incomes. Thank heavens such crazies did not win out. But it seems they never stop trying.

The International Longshoremen’s Association (ILA), the union that represents some 47,000 dockworkers, is threatening to strike if the United States Maritime Alliance (USMX), which oversees port operations, goes forward with plans to automate more of these port activities.

“’There has been a lot of discussion having to do with ‘automation’ on United States docks,’ Trump wrote in his post Thursday. ‘I’ve studied automation, and know just about everything there is to know about it. The amount of money saved is nowhere near the distress, hurt, and harm it causes for American Workers, in this case, our Longshoremen. Foreign companies have made a fortune in the U.S. by giving them access to our markets.’

“’For the great privilege of accessing our markets, these foreign companies should hire our incredible American Workers, instead of laying them off, and sending those profits back to foreign countries,” Trump wrote.” “WP: Trump – port-strike-automation”

Whether out of ignorance or deliberate obfuscation, Trump again misstates who gains and who pays. When foreign ships are unloaded in American ports it is the American consumers who benefit from any cost savings at the ports.  Trump also claims (though he surely knows better) that China would pay for his high tariffs on imports from China.

A tariff, of course, is a tax the US levies at our borders on goods we import from abroad. It’s paid in the first instance by the American importers. Like any other tax, it is added to the price of selling these imports to the American public. It’s very purpose is to reduce domestic demand for such imports in order to encourage (more expensive and less efficient) domestic production of such goods. Please, let’s not stop technical progress and the higher income it enables.