I Heart Capitalism

by Jared Dillon,

So I saw an interesting table on Twitter—someone had taken a photo of a table out of the print version of Barron’s magazine and tweeted it to their followers. I am reproducing it here:

The first thing you notice is that there’s been a huge turnover. Sun Microsystems disappeared, the box business was so bad Dell took itself private, and WorldCom… well, we all know what happened to it.

But the even more obvious thing is the valuations. If I’d told you 15 years ago that big tech companies like Cisco and Intel would end up with valuations in the teens, you would have called me crazy. And even if you had believed me, you probably would have thought that the P would go down, instead of the E going up.

I mean, think about this. The biggest company in the world—Apple—makes so much money that the stock is almost cheap. Some very smart people think it’s really cheap.

Everything Is Amazing, and Nobody Is Happy

I bought a house recently, and we’re in the process of moving. My friend Adam flew up from Florida to help out. We were taking a break from lugging furniture around, and my wife was putting away some stuff in the kitchen. She took a waffle iron and put it in the cabinet.

“See that waffle iron?” I said to Adam. “We just got that from Walmart. $15. It makes amazing waffles.

“The old waffle iron we got 18 years ago, it made crappy waffles and eventually broke. It cost $80 in 1996.”

Adjusted for the increase in quality, the price of that waffle iron dropped about 90% in 20 years.

Then we started looking around the house at other things that are cheaper today. Ceiling fans. Adam told us that a good, quiet ceiling fan costs about $200 today. 20 years ago, it would have been much more.

Same with apparel, which once took up 11-12% of the average household budget but is now only 3-4%. Why? Clothes can be produced overseas for less. We don’t even have a textiles industry anymore.

Improvements in global trade, better technology, better manufacturing techniques, and better logistics are responsible for cheaper clothes, cheaper ceiling fans, and cheaper waffle irons. Not to mention TVs, which are almost 99% cheaper in real terms.

So of all the pet peeves in the world, probably my biggest is when people (usually on the left) gripe about stagnant incomes over the last 15-20 years without taking into account the truly gargantuan increase in standard of living that we all enjoy, and how much purchasing power we’ve received from the deflationary effects of free-market capitalism.

If median incomes were about $30,000 for individuals in 2000 and are still about $30,000 today, that $30,000 goes much, much further today than it did back then.

So then I start to think: Are human beings really that dumb? Do we need to get paid more every year to think we are getting richer? Answer: Unfortunately, yes. Hence the push for inflation.

You might have heard that Walmart is raising its minimum wage. The company’s management aren’t dummies. They’re well aware that gasoline prices have plummeted and that the freed-up money in the consumers’ wallets is plowing back into its checkout lines—just in time for a price increase. As a client of mine eloquently stated, “Mrs. Walton raised no dumb children.”

The Pessimism Bias

People generally think things are getting worse. No doubt about it: the world is going to hell one way or another—just turn on the news. I actually stopped using the Drudge Report as a news source about a year ago. It’s so relentlessly bearish, it was screwing up my decision-making.

However, things are awesome right now.

I’m not even saying the stock market will go up (though it probably will). I’m saying don’t be so freaking grumpy all the time. It makes people make really bad decisions.

Skepticism is different from pessimism. Pessimism as a strategy generally doesn’t work. Optimism generally does. But the pessimistic argument is so compelling because it seems smart.

If you time-stamped every doomsday prediction you saw in the news and put them all in a spreadsheet and monitored them over time, you would find that virtually none of them came to pass. Pessimism sells newspapers.

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