Wednesday, August 27, 2014

A World of Plenty

I have a client who is a former home builder. He has lots of interesting stories of home buyers with punch list requests. When it came to concrete, he always told them two "essential truths": (1) Nobody's gonna steal it and (2) It's gonna crack. It may be obvious, but the first part is pretty interesting. Why is this the case? It is not because of our harsh, one-strike-and-you're-out policy on concrete theft. Rather it simply doesn't pay to steal it. And it is not just concrete that carries this property. Do this experiment: place a new HDTV in your front flower garden and leave it over night. Do this for long enough, and you will wake up to find (nothing but) flowers. The thieves were there. They just weren't and generally wouldn't be in the market for flowers.

Megan McArdle recently wrote on this subject of crimes not meeting the cost-benefit test, but I think she left it undone. Let me think through the implications a little further.

Compare the cost of a hammer today to a hammer 100 years ago. Basic hammer quality and technology has really not changed in this time span (well, some hammer technology has changed, but a basic hammer is the same to the consumer today as back then--I said basic, not this one). The only impact of technology and progress has been in the production of hammers--they are A LOT cheaper today.

The Stanley hammer from the 1914 issue of Popular Mechanics linked above was priced at $1.25. The Home Depot's hammer also linked above is priced at $5.75. Average hourly wages for manufacturing workers was about $.22 in 1914, which means a worker would have to toil for about 5 hours and 40 minutes to earn enough to pay for a hammer. Average hourly wages for manufacturing workers today are about $19.60, which means a worker today must work only about 22 minutes to earn enough after tax (assuming a high 20% average tax rate) to pay for basically the same hammer. Which all means the hammer is at least 93% cheaper today than 100 years ago. That is one way to see the cost difference. Here is another.

Imagine this: You purchased a hammer two months ago. It has sat in your toolbox for the last two months, or so you think. It actually was stolen a month ago. You discover this while reviewing your personal video surveillance system. You won't need it for another month at which time you plan on hanging some pictures. This theft is but a minor inconvenience to you. And you are actually pretty surprised anyone would steal a simple hammer. In fact, it sounds like some fanciful hypothetical designed to prove a point. Now imagine if it were 1914 and your hammer was just stolen. Ouch!

We may ask ourselves, "Well, how did we get here?" We're naturally blind to the progress, and we are probably equally blind to where it is heading. You'd be wrong to guess that this must be the place where the story ends.

Tomorrow's HDTV's are today's hammers. As goods keep piling up getting cheaper and cheaper and scarcity meaningfully dwindles, virtually all economic theft becomes undesirable from the standpoint of the thief. It is not worth the thief's time to go to the trouble of robbing you for something that basically has no black market. One day a thief's search for diamonds will be no more than grabbing at straws.

Not only will we live in a world basically without economic theft; we will live in a world safer in other ways. You'll no longer have to worry about someone stealing your TV, but you'll also not have to worry about walking in on someone stealing your TV where a burglary turns into a homicide.

That is the future world of plenty we are heading towards. Eventually there are no pirates on the ship no matter the cargo.