THE IMPENDING SHORTAGE OF PEOPLE, AND A DEVICE TO AVERT IT Irving (Duke) Johnson, 66, has polished shoes on U Street in Washington, D. C. for 27 years. He "remembers when more than 25 `bootblacks' were working along the street". Now Johnson is the only one, according to the newspaper story. The decline in the number of shoe polishers could in theory be due either to a decline in either the demand for shoe polishing or in the supply of workers. Booker T. Carrington, the "dean of the shoe-shine professionals" who has "more than half a century of experience", asserts that the explanation is a decline in the labor supply. He says the young boys, "all are looking for the big money". In other words, the pay necessary to attract shoe polishers has increased over the years. Fast-food restaurants,too, complain of a growing shortage of help, even at higher wages than in earlier years. So there has been an increasing shortage of shoe polishers in the nation's capital. By the same token, there has been an decreasing supply of labor in general in the United States and in the world. This is shown by the higher price that one must pay to obtain almost any type of help, from journalists in Washington to drivers in Delhi. One can just as well say that there has been a growing shortage of people in the world. This sounds paradoxical. It is exactly the opposite of the conventional doomsday warnings, which point to the world's growing population. Nevertheless it is economic fact that we have been experiencing an increasing shortage of people even though there are more people on earth with each passing year. And we ought to start planning to make the necessary adjustments. To compound the paradox, the trends in past centuries also reveal an amazing increase in natural resources --just the opposite of the conventional doomsday warnings. Yes, you read correctly. There has been a decreasing shortage -- that is, an increasing availability -- of natural resources, And this needs explaining. How can it be that we use some of our stock of a new material, and yet we have even more available to us than we started with? First we must be clear about the economic meaning of scarcity. As consumers, we complain that a good has become more scarce when we have to pay more for the services that we want from the resource. We say it has become less scarce when the price goes down. Current and future prices are all that matter economically with respect to resources. Discussion about how much of a good "really exists" is quite beside the point for economic purposes. By now, "pure" economists and "practical" operators in raw- materials markets agree that all prices have been trending downward as far back as the data go. The most important price to consumers is the amount of labor time that one must trade to get a pound of, say, copper or iron. And the U.S. prices of these and all other metals, relative to wages, have fallen by an astonishing factor of perhaps twenty since the founding of the country, and in U.S. terms by a factor of perhaps a thousand over the last few millennia. The prices of raw materials relative to consumer goods -- the "terms of trade" -- have also been falling over the years. The doomsayers somehow remain unaware or unconvinced of this astonishing trend toward greater availability of natural resources relative to manufactured goods and services. The basis of their unbelief can only be theological or mystical or emotional, because there is no doubt about the statistical evidence. The explanation lies in the increasing stock of knowledge about resources. A resource does not really exist until we understand what it will do for us, discover where to find it, and learn how to make it ready for our use. Finding new lodes of the old resources, figuring out how to mine and refine them more efficiently, and discovering how to substitute new resources for the old ones, all push the price down. The process usually begins with an expected or actual shortage caused by increased population or income. And the process usually ends with us having more resources and better off than if the shortage had not threatened. Now about people, whose shortage is even more paradoxical. Everyone knows that world population has been growing rapidly. And most laypersons assume that this implies a state of "overpopulation" -- that is, too many people. From this fact of increasing population, laypersons wrongly conclude that people are becoming less scarce. Therefore, we must ask about the purported "overpopulation": Compared to what standard of comparison are there "too many" people? According to normal economic procedure, we compare the present state of scarcity to past scarcity, and we measure the change in scarcity by the change in the price of obtaining the services of people. The appropriate measures -- wages and income -- clearly show that the average price of people has been going up everywhere in the world except in a few exceptional situations. The logic is inescapable: Despite the rising numbers of people, human beings have been becoming economically more scarce. Determining the price of labor can be tricky. The most meaningful index of the long-run increase in the price of labor is the change in the proportion of the labor force that is occupied in producing basic foodstuffs that is, -- grain. To make the arithmetic easy, let's assume a starting point of everyone working in subsistence agriculture, although even in the least-developed society perhaps five or ten percent of the working population occupy themselves being priests or chiefs. (The actual figures both for China in 1949, and for the United States in 1800, were about 80 percent working in agriculture). And let each working man stand for an entire household, neglecting the fact that in many places women do most of the farming work. Think of a society that progresses from all the labor force being in agriculture to only half working in agriculture. This means that each working person can support his own family and that of another working person. And the other working person can now spend his time producing other goods to trade for half of the agricultural output. The agricultural worker now has an income composed of as much food as in the original state, plus other goods that are of equal value, if both workers are of equal efficiency. Hence, each worker has an income equal to twice what it was in the original state. Now compare the situation of the United States today, where each farmer provides food for about fifty other working persons. This implies that the farmer's production provides him about fifty times as much income as it did in the original state of subsistence agriculture. This squares with the fact that income per worker might be about $400 in the poorest country in the world and perhaps $20,000 in the U. S. This index is not perfect. Japan has a much higher proportion of its labor force working in agriculture than does Great Britain, and Britain's income per person is not proportionately higher. But this is due to the fact that many agricultural workers in Japan are older persons or have little education. If we were to take into account the relative earnings in agriculture and in the modern sector in Japan, most or all of this anomaly would surely disappear. We can dramatize this history by projecting it into the future. A comparable multiplication of U.S. income would imply an average worker earning today's equivalent of one million dollars every year instead of, say, $20,000. And it is not unreasonable to expect an increase of this magnitude in fewer years than passed between 1800 and now, given the speedup in the rate of productivity increase over the years. Another dramatization: It should not be many decades before poor countries now embarking on economic development reach a level of income comparable to that of the U.S. now. If we reflect on the implications of the historical shift in a person's lifetime welfare, progress is even more amazing. Not only have wages per hour and income per year risen, but also the number of years that a person lives to produce and enjoy this material welfare have increased greatly. The wage alone tells us how much it costs to purchase another person's services for an hour, but lifetime income tells us how much an entire human life is worth. This was the way the market valued a slave, but that does not disqualify the concept. Nowadays it is the appropriate concept when one thinks about the value of one's own human capital created with education. Depending on how one thinks about the matter, this increase in length of life implies yet another doubling or tripling of a person's lifetime income, compared to the original state of subsistence agriculture. The economic changes that lead to an increased shortage of people, and increased economic value of life, have a variety of practical implications. The most obvious implication for business activity is that the poor countries will become much like today's rich countries in their purchasing and consumption patterns, as well as in their production patterns. Businesses in today's poor countries, and those that deal with countries that are now poor, will have to alter both what they produce and how they produce. Production will have to adjust by giving up the idea that "life is cheap." This implies providing better protection against safety hazards. More costly will be the shift to technologies that use physical capital more intensively, along with less unskilled labor. This continues trends that began more than a century ago in such places as Great Britain and the United States. Julian L. Simon teaches business administration at the University of Maryland, and is an adjunct scholar at The Heritage Foundation and Cato Institute. Linda Wheeler, "D. C.'s Few Shoe Polishers Still Shine", The Washington Post, August 10, 1987, p. B1. Doomsday warnings about scarcity of resources and overpopulation -- a glut of people -- usually arrive together. Indeed, it must be so. There is a logical connection between the two threats, one implying the other. By this standard measure of price, raw materials have been getting increasingly available and people have been getting increasingly scarce. 87-118 Peopshrt 2-28-8 article8 /page 1 /article8 peopshrt /[date?]