Everything Economists “Know” Is Wrong
The time-price theory of economics represents a fundamental breakthrough in understanding. It’s not without controversy, of course, and it’s generating healthy debate.
Daily Reckoning readers weighed in on it yesterday, and not necessarily positively. But today I want to further argue the case for time-price theory.
In case you are new to it, time-price theory was developed by Gale Pooley from Brigham Young and Marian Tupy from St. Andrews (U.K.).
Pooley and Tupy are working to revolutionize the methods and meanings of economic statistics. You should remember the Tupy-Pooley effect — it’s going to make history.
Crucial to their breakthrough is their understanding that the real price of any good is its cost in money as time.
The Tupy-Pooley Formula
Times-prices tell you how long you have to work to earn enough money to buy something. In the Tupy-Pooley formula, the time-price of anything is the hours it takes to earn the money to buy that thing.
Money-prices are expressed in dollars and cents. Time-prices are expressed in hours and minutes. When you run out of money, it is because you ran out of time to make more.
Time-price theory clarifies the true cost of things by removing the shifting camouflage of money. Tupy and Pooley write:
Unlike money, time is independent and constant. Monetary inflation cannot distort time, nor can money create wealth. Wealth and changes in wealth must be measured in time, not money. That’s why time-prices are the real prices.
Thus, they dispense with all the hopelessly muddled, subjective and politically tendentious inflation indexes — the Consumer Price Index, the GDP deflator, the Personal Consumption Expenditures Index — that are lamely used and abused by conventional economists.
Bill Bonner and the Class Implications of Time-Price Theory
Daily Reckoning co-founder Bill Bonner explains some of the class implications of time-price theory:
If you work by the hour, the guy with money can buy your time. That’s what it really means to say someone is “rich” — he has more time because he can control not only his own, but yours, too.
Going back to 1971 when President Nixon ended the dollar’s last tie to gold, Bonner writes:
The guy who had a thousand dollars of stocks… could buy 260 of a working man’s hours. Today that thousand dollars worth of stocks is worth about $32,000… which at today’s $28 per hour average wage will buy 1,140 hours of the typical working man’s time — about four times as much as in 1971.
I could cavil about these numbers, but they capture a profound truth. Bonner concludes:
Compared to the wage earner, the capitalist is four times as rich… He has more time…
Bonner ascribes Trump’s election and the polarizing tensions in our society largely to this factor. But what is missing from Bonner’s brilliant and mostly definitive screed?
The Power of Innovation
He downplays the technological revolution of the last four decades. By focusing on the Dow and its appreciation, he misses the radical changes in the value of the companies in the index as measured by the time-prices that workers have to pay for ever more abundant goods and services.
The worker in 1971 had to spend nearly four times as many hours to buy basic goods and services, food, clothing and lodging.
Today, because of an explosion of innovations, the worker has time for vacations, entertainment and other options such as home businesses.
Bonner has criticized time-price theory, arguing that the working stiff is no better off today than he was in 1971. He uses the example of a F-150 pickup, arguing that it costs more today for the average worker than it did in 1971.
But he looks at the issue through conventional reference points. Time-price theory provides a deeper perspective…
Time-Price Theory Can Debunk Economic Propaganda
As Gale Pooley explains:
I agree with much of what Bill Bonner has to say, especially as it relates to money and gold…
[But] according to the National Auto Dealers Association’s NADA Guide, in 1970 you could buy a basic Ford F-150 for $2,599. Blue-collar compensation was $3.93 per hour, indicating a time-price of 661.3 hours.
A 2019 basic F-150 is now $28,155 and blue-collar production worker compensation is around $32.50 an hour, indicating a time-price of 866.3 hours.
This would indicate a time-price increase of around 30%.
But the 2019 model is of a completely different species than the 1970 model. Mileage is 100% better at 22 city/30 highway versus 12 city/14 highway. Other differences include power, safety and comfort factors.
If one were to conservatively estimate all of these factors at 100% better than the 1970 model, the time-price for the 2019 relative to the 1970 has actually fallen to 433 hours indicating a time-price decrease of 35%…
Time-prices are an attempt (I believe successful) to transcend tendentious economic debates and statistics (including F-150 and iPhone prices and features!)… Bill Bonner could use time-prices, as I do, to debunk the constant streams of economic propaganda issued by government statisticians around the world to show that socialism works.
Bonner’s class observations are less compelling than his devastating charges against governments and central banks that are stealing these fruits of innovation, raiding the worker’s retirement savings and depleting their investment opportunities.
Now it’s time to address another critical question. What does time-price theory have to say about natural resources?
Fears of “Peak Oil” or “Peak Food Production” or “Peak Fish Harvests” Are Radically and Fundamentally Wrong
Perhaps you believe that we are running out of resources. That oil or coal or fish or arable land is somehow growing scarcer. That’s certainly the prevailing narrative. But according to Tupy and Pooley, think again.
With time-price theory, Tupy and Pooley finally refute all the “sustainability” concerns of academic economics.
As the world population has grown from 4.5 billion in 1980 to 7.7 billion today, Pooley and Tupy show, the population has become more sustainable than ever.
They show, for example, that all the fears of “peak oil” or “peak food production” or “peak fish harvests” are radically and fundamentally wrong.
That’s because time-prices disprove most prevailing economic data.
They show that the time-price of oil has dropped 64%, the price of foods of all kinds have dropped by 75% or more. Fish? The price of salmon has dropped 85%. Shrimp is 76% cheaper.
The Tupy-Pooley effect says all these items are between four and six times more abundant than they were in 1980.
All the 50 most important commodities to support human life — from aluminum and bananas to beef and chicken, to coffee and rice, to crude oil and natural gas, to zinc and wool — have become drastically cheaper, and many times more abundant per capita.
Time-price theory proves that human beings, far from being a burden on the planet, constantly enrich it.
Time-Price Theory Undermines Radical Environmentalism
The effects of this revolution touch every economic calculation. The economic model behind the environmental movement, with its stress on sustainability, becomes itself unsustainable.
Claims of environmental damage from increased atmospheric CO2 clash hopelessly with the evidence of an abundant planet that has grown ever more fertile, green and fruitful as CO2 has increased. As CO2 rose by 60%, resource abundance increased by 518.98%.
These findings document a key rule of entrepreneurship: Waste what is abundant — physical resources. This is imperative in order to economize on what are scarce — time and human creativity.
The success of this strategy is explained by the Tupy-Pooley effect.
Banished for good will be all the fears and alarmism that inform the movement for so-called “ethical” and “socially responsible” and “sustainable” investments.
When the world fully absorbs the power of the Tupy-Pooley effect, investment and enterprise will never be the same again.
for The Daily Reckoning