Naked Economics: Undressing the Dismal Science pdfdrive com

How many minutes of work will a loaf of bread cost? It’s the productivity
question. From a material standpoint, it’s pretty much all that matters. Nearly
everything else we’ve discussed—institutions, property rights, investment,
human capital—is a means toward this end (and other ends, too). If productivity
grows at 1 percent a year over the next four decades, our standard of living will
be some 50 percent higher by 2050. If productivity grows at 2 percent a year,
then our standard of living will more than double in the same time frame—
assuming we continue to work as hard as we do now. Indeed, that leads to a
subquestion that I find more interesting: How rich is rich enough?
Americans are richer than most of the developed world; we also work harder,
take less vacation, and retire later. Will that change? There is something in labor
economics called the “backward-bending labor supply curve.” Thankfully, the
idea is simpler and more interesting than the name would suggest. Economic
theory predicts that as our wages go up, we will work longer hours—up to a

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point, and then we will begin to work less. Time becomes more important than
money. Economists just aren’t quite sure where that curve starts to bend
backward, or how sharply it bends.
Productivity growth gives us choices. We can continue to work the same
amount while producing more. Or we can produce the same amount by working
less. Or we can strike some balance. Assuming Americans continue to grow
steadily more productive, will we choose to work sixty hours a week in 2050 and
live richly (in a material sense) as a result? Or will there come a time when we
decide to work twenty-five hours a week and listen to classical music in the park
for the balance? I had dinner not long ago with a portfolio manager for a large
investment company who is convinced that Americans are going to wake up one
day and decide that they work too hard. Ironically, he was not planning to work
less hard himself; he was planning to invest in companies that make leisure
goods.