The political world remains in the thrall of economists who have barely a clue about the economy.
Fooled by finance and its smoke and mirrors, Washington bureaus and their inflation indices and statist GDP figments, masked politicians and their self-serving crises, obfuscatory central banks and their negative interest rates, and the media and its tantrums on equality and racism, the public remains deep in the dark.
For new breakthroughs in intellectual lighting, I turn to the Information Theory of Economics. Economics is driven by information, defined as unexpected events.
Entrepreneurs prevail by igniting flares in the dark of time. They probe through monetary smoke and political fog and learn what works amid the murk.
The pivotal epiphany of the Information Theory of Economics is time-prices.
Let’s dig in…
All About Time-Prices
Nobelist William Nordhaus of Yale pioneered the concept in the 1990s. He used it as a way to capture the technological progress in lighting over thousands of years of ever-changing currency values.
Now in the last five years, Gale Pooley of Discovery Institute and Brigham Young University, Hawaii, has collaborated with Marian Tupy of Cato and Saint Andrews to extend the theory across all the domains of economics. Watch for their breakthrough book, to be published this year. It is the most important text since Hayek’s essay on knowledge in the economy.
While information theory ordains that economic growth is essentially a process of learning and learning curves, time-prices define money as tokenized time. What remains scarce in economics when everything else becomes more abundant is the inexorable passage of time at a pace of 24 hours a day.
Among many illuminating refinements, the calculation of basic time-prices is simple. Take the nominal wages of workers per hour and divide them into nominal gross output. The result gives a path to the price of any good or service in the hours and minutes it takes an average worker to earn the money to buy it.
The consequences of this approach are revolutionary. They can even expand the relevant hours in a day.
For example, Nordhaus shows that while Ricardo expounded the deadly math of the “dismal science” and Blake wrote of “dark satanic mills,” the price of lighting was plummeting a thousand-fold. The night was giving way to ever less costly and more efficient forms of illumination. Measured by time-prices, real economic growth was as much as a hundred times faster than measured by economists.
Now, Pooley and Tupy have updated their findings. In a note to me last week, Pooley reveals:
Our preliminary numbers for the Simon Abundance Index covering 50 basic commodities from 1980 to 2020, indicate that abundance continued to increase in 2020.
Nominal prices actually fell by an average of around 1.8% while global wages (as measured using nominal GDP per Capita per Hour Worked) moved 4.1% higher. The yield was 5.7% lower time-prices.
The net effect was an increase in abundance of around 6% in 2020 over 2019. We will release the official numbers on April 22nd Earth Day or, as we’ll call it Julian Simon Day.
Simon was the great economist won the famous bet on commodity prices with Paul Ehrlich and debunked and disgraced his Population Bomb.
Showing that Simon would win his bet by even greater margins today, Tupy and Pooley calculate that while population increased 71% between 1980 and 2019, the time-prices of the key commodities supporting human life and prosperity dropped 72%. Contrary to Ehrlich’s Malthusian calculus of astringent scarcity and soaring prices, there was a 518% increase in abundance.
Pooley warns that “2021 may be a different story.” It really depends on how COVID effected our velocity on the planet’s learning curves.