Modern humans first emerged about 100,000 years ago. For the next 99,800 years or so, nothing happened. Well, not quite nothing. There were wars, political intrigue, the invention of agriculture -- but none of that stuff had much effect on the quality of people's lives. Almost everyone lived on the modern equivalent of $400 to $600 a year, just above the subsistence level. True, there were always tiny aristocracies who lived far better, but numerically they were quite insignificant.

Then -- just a couple of hundred years ago, maybe 10 generations -- people started getting richer. And richer and richer still. Per capita income, at least in the West, began to grow at the unprecedented rate of about three quarters of a percent per year. A couple of decades later, the same thing was happening around the world.

Then it got even better. By the 20th century, per capita real incomes, that is, incomes adjusted for inflation, were growing at 1.5% per year, on average, and for the past half century they've been growing at about 2.3%. If you're earning a modest middle-class income of $50,000 a year, and if you expect your children, 25 years from now, to occupy that same modest rung on the economic ladder, then with a 2.3% growth rate, they'll be earning the inflation-adjusted equivalent of $89,000 a year. Their children, another 25 years down the line, will earn $158,000 a year.

Against a backdrop like that, the temporary ups and downs of the business cycle seem fantastically minor.

Comment: Except that the "temporary ups and downs" have crippling human effects. People lose jobs, lose their homes, can no longer feed their kids. It doesn't matter if in a few years things turn around in the business cycle because those years of suffering aren't forgotten.


In the 1930s, we had a Great Depression, when income levels fell back to where they had been 20 years earlier. For a few years, people had to live the way their parents had always lived, and they found it almost intolerable.

Comment: According to Landsburg, the Great Depression was just about income levels falling back to where they where twenty years before, as if life went on as usual, only people's paycheques were reduced! Uh, what about unemployment, the dustbowl, people losing their homes, their farms, etc? Doesn't that count? Was it living like their parents that they found intolerable, or was it losing their jobs, being unable to support their families, and suffering the humiliation that accompanies the above?


The underlying expectation -- that the present is supposed to be better than the past -- is a new phenomenon in history. No 18th-century politician would have asked "Are you better off than you were four years ago?" because it never would have occurred to anyone that they ought to be better off than they were four years ago.

Comment: And does it occur to anyone today? Four years ago the US had just invaded Iraq. Bush had told us it was "Mission Accomplished". Are the Iraqis better off today? Are the Americans? But we're not supposed to look at politics. Landsburg is focusing on money, on income. He is selling a vision that is supposed to ease the pain on those who are feeling the effects of a crumbling US economy. "Don't Worry!" he wants you to believe. "It'll get better!"


Rising income is only part of the story. One hundred years ago the average American workweek was over 60 hours; today it's under 35. One hundred years ago 6% of manufacturing workers took vacations; today it's over 90%. One hundred years ago the average housekeeper spent 12 hours a day on laundry, cooking, cleaning and sewing; today it's about three hours.

Comment: Isn't life wonderful! Of course, the "average housekeeper" is now spending three hours a day on these chores after coming home from working eight hours.


As far as the quality of the goods we buy, try picking up an electronics catalogue from, oh, say, 2001 and ask yourself whether there's anything there you'd want to buy. That was the year my friend Ben spent $600 for a 1.3-megapixel digital camera that weighed a pound and a half. What about services, such as health care? Would you rather purchase today's health care at today's prices or the health care of, say, 1970 at 1970 prices? I don't know any informed person who would choose 1970, which means that despite all the hype about costs, health care now is a better bargain than it's ever been before.

Comment: Why should anyone have to purchase health care? Shouldn't it be free?


The moral is that increases in measured income -- even the phenomenal increases of the past two centuries -- grossly understate the real improvements in our economic condition. The average middle-class American might have a smaller measured income than the European monarchs of the Middle Ages, but I suspect that Tudor King Henry VIII would have traded half his kingdom for modern plumbing, a lifetime supply of antibiotics and access to the Internet.

The source of this wealth -- the engine of prosperity -- is technological progress. And the engine of technological progress is ideas -- not just the ideas from engineering laboratories, but also ideas like new methods of crop rotation, or just-in-time inventory management. You can fly from New York to Tokyo partly because someone figured out how to build an airplane and partly because someone figured out how to insure it. I'm writing this on a personal computer instead of an electric typewriter partly because someone said, "Hey! I wonder if we can make computer chips out of silicon!" and partly because someone said "Hey! I wonder if we can finance startups with junk bonds!"

Which contribution is more important? By one rough measure -- the profits earned by the innovator -- they're about equal. In the late 1980s, Microsoft earned economic profits of about $600 million a year, while Michael Milken, the inventor of the junk bond, earned an annual income that was just about the same.

Comment: So, it's OK??? This one really is strange. Milken was famous for having bilked all sorts of people with his junk bonds, spurring on the eighties economic revival in the US that was the heyday of mergers and hostile takeovers, the epitomy of selfishness and greed. You know, the 'good, old days'. Since his release from prison after serving less than two years of a ten- year sentence for racketeering and fraud, Milken has been playing philanthropist and trying to polish his tarnished reputation. It seems to have worked if Landsburg's comments are any indication....


Some good ideas even come from economists. Julian Simon came up with the idea of bribing airline passengers to give up their seats on overbooked flights -- and gone were the days when you relied on the luck of the draw to make it to your daughter's wedding. Economists first suggested creating property rights in African elephants, a policy that has given villagers an incentive to harvest at a sustainable rate and drive the poachers away. The result? Villagers have prospered and the elephant population has soared.

Engineers figure out how to harness the power of technology; economists figure out how to harness the power of incentives. Our prosperity relies on both.

Mr. Landsburg's latest book is "More Sex Is Safer Sex: The Unconventional Wisdom of Economics" (The Free Press, 2007).