Off the Books

The benefits of free enterprise that economic statistics miss

W. Michael Cox & Richard Alm from the August/September 2002 issue

(Page 3 of 4)

Making America a safer place owes much to advances in engineering and technology. Divided highways, better roads, anti-lock brakes, radial tires, and air bags are reducing the highway death toll. More-sophisticated weather forecasting gear provides warnings of severe weather, so we can take refuge in time.

New medicines and treatments have reduced the incidence of fatal diseases. More are probably on the way. The stock market values the nation's 10 largest pharmaceutical companies at more than $1 trillion, an indication that we expect their sales to grow from future advances in health.

Greater safety and security didn't come about by accident. It's what we, as a people, wanted. We put a high value on our lives and physical well-being, and we're willing to pay the costs of protecting ourselves against the sometimes unpleasant facts of life.

Life is inherently risky, and protecting ourselves must be weighed against the considerations of cost and convenience. We'll never achieve a perfect safety record. In an uncertain world, we possess the wealth to afford more safety and security and the know-how to provide it, if that's what we decide we want.

Convenience and Variety

By introducing industrial efficiency to his factories, Henry Ford brought the automobile within the reach of an emerging middle class. The miracle of mass production delivered the goods but didn't adapt easily, so all Model T's looked alike. Ford's attitude can be summed up in what he reputedly said about the car's paint: "The consumer can have any color he wants, as long as it's black." Ford's company still makes black cars for drivers who want them, but it now offers a rainbow of colors: red, green, aquamarine, white, silver, purple.

The U.S. marketplace teems with variety. Just since the early 1970s, there's been an explosion of choice: The number of car models is up from 140 to 239, soft drinks from 50 to more than 450, toothpaste brands from four to 35, over-the-counter pain relievers from two to 41.

The market offers 7,563 prescription drugs, 3,000 beers, 340 kinds of breakfast cereal, 50 brands of bottled water. Plain milk sits on the supermarket shelf beside skim milk, 0.5-percent-fat milk, 1-percent-fat milk, 2-percent-fat milk, lactose-reduced milk, hormone-free milk, chocolate milk, buttermilk, and milk with a shelf life of six months. Not long ago, the typical TV viewer had access to little more than NBC, CBS, ABC, and PBS. Today, more than 400 channels target virtually every consumer interest -- science, history, women's issues, Congress, travel, animals, foreign news, and more.

Like variety, convenience has emerged as a hallmark of our times. Companies compete for business by putting their products and services within easy reach of their customers.

In 1970 the nation's lone automated teller machine was at the main office of the Chemical Bank in New York. Now ATMs are ubiquitous -- not just at banks but at supermarkets, service stations, workplaces, sports facilities, and airports. All told, 273,000 machines offer access to cash 24 hours a day.

Remote controls are proliferating, the newest models incorporating voice-activated technology. Computers and digital devices go with us everywhere. A cell phone is no longer a pricey luxury: The average bill fell from $150 a month in 1988 to $45 in 2001 in constant dollars. No wonder 135 million Americans now own mobile telephones. The number will continue to rise as prices continue to decline and more of us seek the peace of mind and convenience that come with communications in the pocket or purse.

Convenience stores are in nearly every neighborhood. Just one firm, industry leader 7-Eleven, has increased its locations from 3,734 in 1970 to 21,142 today. The Internet may be the ultimate convenience store, bringing shopping into the home. We're buying music, clothing, software, shoes, toys, flowers, and other products with a click of the mouse. Last year, a third of all computers and a fifth of all peripherals were sold online. Thirty-three million buyers ordered books on the Internet, accounting for $1 of every $8 spent in that category.

Convenience and variety aren't trivial extravagances. They're a wealthy, sophisticated society's way of improving consumers' lot. The more choices, the easier access to goods and services, the better. A wide selection of goods and services increases the chance that each of us will find, somewhere among all the shelves, showrooms, and Web sites, products that meet our requirements. Convenience allows us to economize on the valuable commodity of time, getting what we want more quickly and easily.

A Cleaner Environment

The environment presents a textbook case for tradeoffs between consumption and other aspects of life. Traditionally, economists teach that markets undervalue clean air, fresh water, pristine vistas, and endangered species because they aren't owned, like factories, houses, or other private property. Without clear title and market prices, there's little economic incentive to reduce pollution or husband resources. The nation's natural assets end up underpriced and overexploited.