Economics in One Lesson

Our thanks to Philip Michelbach of the Free Enterprise Institute for providing these updates to Hazlitt's statistics.

Endnotes

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  1. National income was $6.2 trillion in 1989 (1993)dollars). Taxes equalled $2.4 trillion, or approximately 40% of the national income. (“What is the Optimal Size of Government?” Gerald W. Scully, NCPA Report No. 188, November 1994.)
  2. In a 1992 essay written for the Dallas Federal Reserve Bank by economists W. Michael Cox and Richard Alm, the authors point out the constant process of job creation. Economist Joseph Schumpeter first recognized this “creative destruction,” whereby technological innovation creates new job opportunities as it frees up labor from old jobs. Cox and Alm explore the explosive growth of employment in this century from 29,000,000 U.S. workers in 1900 to 116,000,000 in 1991. (“The Churn,” W. Michael Cox and Richard Alm, Federal Reserve Board of Dallas Annual Report, 1992.)
  3. The $5,000 figure Hazlitt uses is not meant to be exact. The average price of a new car now borders on $20,000. (“Fun and Games With Inflation,” David R. Henderson, Fortune, March 18, 1996, p. 36.)
  4. The situation has not gotten better since Hazlitt added the footnote. According to Investor’s Business Daily (September 29, 1995), “From 1986 through 1993, the cotton program’s costs totaled $12 billion and averaged $1.5 billion a year. And like many farm programs, large payments went to a small number of producers. In 1993, just under 96,000 growers divvied up the proceeds.” The additional costs to consumers are also high. According to a GAO study released July 20, 1995, the program cost society $738 million on average each year for the previous eight years. The same GAO report concluded that “the cotton program has evolved into a costly, complex maze of domestic and international price supports that benefit cotton producers at the cost of government and society.” Attempts by the 104th Congress to reform this program have failed.
  5. The minimum wage is now $4.25 an hour. A forty-hour week based on this wage costs an employer $170 in wages alone.
  6. Since Hazlitt added the footnote, the minimum wage has been increased three times: in 1981 it was increased to $3.35, in 1990 to $3.80, and in 1992 to $4.25. Increases in unemployment (especially teenage minority unemployment) and decreases in job creation followed each of these increases. (“Should the Federal Minimum Wage Be Increased?” Richard Vedder and Lowell Gallaway, NCPA Policy Report No. 190, February 1995.)
  7. The percentage of the labor force now unionized is 15.5% (Investor’s Business Daily, November 14, 1995.)
  8. Compensation as a percentage of national output has remained fairly constant at about 60% over the past forty years, reported Investor’s Business Daily, January 4, 1996. Economist Kenneth P. Voytek reports that hourly non-farm compensation increased 2.4% annually from 1959—1972. Annual growth in compensation slowed to .8% from 1973—1994.     This was due to increased productivity which averaged 2.4% from 1959—1972, but only 1% from 1973—1994. Overall, compensation as a percentage of national income has increased about 4% since 1959, while union membership dropped precipitously. Increases are often in non-wage compensation like health-care and job training. (Investor’s Business Daily, January 8, 1996.)
  9. For more current figures on wages and salaries as a percentage of national income, see 8 above.
  10. According to economist Kenneth P. Voytek, before-tax corporate profits averaged 10—12% during the 1960s and 1970s. They declined to less than 8% during the 1980s and have risen to around 9% in the 1990s. (Investor’s Business Daily, January 8, 1996.)
  11. For more current figures on corporate profits, see 10 above.
  12. Economist David R. Henderson reports that “in the 56 years since 1939, inflation has averaged 4.4% a year. Although that sounds small, even moderate inflation adds up over time. Actually, it doesn’t add up. It multiplies up. Inflation, like interest, compounds. Net result: Since 1939, prices have increased 998%.” (“Fun and Games with Inflation,” David R. Henderson, Fortune, March 18, 1996, p.35.)
  13. By 1992 the budget deficit had reached $290 billion. Since then the shortfall declined to “only” $165 billion in 1995. (Investor’s Business Daily, October 5’ 1995.)
  14. Great Britain had a 40% top tax rate on income, a 17.5% VAT, and a 33% capital gains tax. (1996 Index of Economic Freedom, Brian T. Johnson and Thomas P. Sheehy, The Heritage Foundation, 1996.) Taxes absorbed 34% of GNP in 1994. (The Economist, February 9,1995, p. 99.)
  15. Annual inflation rates for various countries’ currencies in 1994: USA 2.8%, France 1.7%, Japan -2%, Sweden 4.5%, UK 2.4%, Italy 4%,Spain 45%, Brazil 2,500%, Uruguay 40%, Chile 11%, Argentina 5%.(1996 Index of Economic Freedom, Brian T. Johnson and Thomas P. Sheehy, The Heritage Foundation, 1996.)
  16. The Social Security tax rate is now 15.3%. It is estimated that the program will become insolvent in 2010.
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