Naked Economics: Undressing the Dismal Science pdfdrive com

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
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, ATMs instead of bank tellers,
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

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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 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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