Naked Economics: Undressing the Dismal Science pdfdrive com

are poor despite the fact that Bill Gates lives in a big house. For a complex array
of reasons, America’s poor have not shared in the productivity gains spawned by
Microsoft Windows. Bill Gates did not take their pie away; he did not stand in
the way of their success or benefit from their misfortunes. Rather, his vision and
talent created an enormous amount of wealth that not everybody got to share.
There is a crucial distinction between a world in which Bill Gates gets rich by
stealing other people’s crops and a world in which he gets rich by growing his
own enormous food supply that he shares with some people and not others. The
latter is a better representation of how a modern economy works.
In theory, a world in which every individual was educated, healthy, and
productive would be a world in which every person lived comfortably. Perhaps
we will never cure the world of the assorted physical and mental illnesses that

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we will never cure the world of the assorted physical and mental illnesses that
prevent some individuals from reaching their full potential. But that is biology,
not economics. Economics tells us that there is no theoretical limit to how well
we can live or how widely our wealth can be spread.
Can that really be true? If we all had Ph.D.s, who would pass out the towels
at the Four Seasons? Probably no one. As a population becomes more
productive, we begin to substitute technology for labor. We use voice mail
instead of secretaries, washing machines instead of maids, databases instead of
file clerks, vending machines instead of shopkeepers, backhoes instead of ditch
diggers. The motivation for this development harks back to a concept from
Chapter 1
: opportunity cost. Highly skilled individuals can do all kinds of
productive things with their time. Thus, it is fabulously expensive to hire an
engineer to bag groceries. (How much would you have to be paid to pass out
towels at the Four Seasons?) There are far fewer domestic servants in the United
States than in India, even though the United States is a richer country. India is
awash with low-skilled workers who have few other employment options;
America is not, making domestic labor relatively expensive (as anyone with a
nanny can attest). Who can afford a butler who would otherwise earn $50 an
hour writing computer code?
When we cannot automate menial tasks, we may relegate them to students
and young people as a means for them to acquire human capital. I caddied for
more than a decade (most famously for George W. Bush, long before he
ascended to the presidency); my wife waited tables. These jobs provide work
experience, which is an important component of human capital. But suppose
there was some unpleasant task that could not be automated away, nor could it
be done safely by young people at the beginning of their careers. Imagine, for
example, a highly educated community that produces all kinds of valuable goods
and services but generates a disgusting sludge as a by-product. Further imagine
that collecting the sludge is horrible, mind-numbing work. Yet if the sludge is
not collected, then the whole economy will grind to a halt. If everyone has a
Harvard degree, who hauls away the sludge?
The sludge hauler does. And he or she, incidentally, would be one of the
best-paid workers in town. If the economy depends on hauling this stuff away,
and no machine can do the task, then the community would have to induce
someone to do the work. The way to induce people to do anything is to pay them
a lot. The wage for hauling sludge would get bid up to the point that some
individual—a doctor, or an engineer, or a writer—would be willing to leave a
more pleasant job to haul sludge. Thus, a world rich in human capital may still
have unpleasant tasks—proctologist springs to mind—but no one has to be poor.
Conversely, many people may accept less money to do particularly enjoyable

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Conversely, many people may accept less money to do particularly enjoyable
work—teaching college students comes to mind (especially with the summer
off).
Human capital creates opportunities. It makes us richer and healthier; it makes
us more complete human beings; it enables us to live better while working less.
Most important from a public policy perspective, human capital separates the
haves from the have-nots. Marvin Zonis, a professor at the University of
Chicago Graduate School of Business and a consultant to businesses and
governments around the world, made this point wonderfully in a speech to the
Chicago business community. “Complexity will be the hallmark of our age,” he
noted. “The demand everywhere will be for ever higher levels of human capital.
The countries that get that right, the companies that understand how to mobilize
and apply that human capital, and the schools that produce it . . . will be the big
winners of our age. For the rest, more backwardness and more misery for their
own citizens and more problems for the rest of us.”
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CHAPTER 7
Financial Markets: