Are Americans Overfed?; J. McClure and T.N. Van Cott

Could it be that Americans are "over worked"? After all, five percent of the people producing 25 percent of the output hardly seems an equitable apportionment of the work load. Maybe our self-styled hu manitarians should praise Americans, rather than scorn them. The Luck of the Draw? Even when conceding that Americans produce what they consume, these profesDrs. Van Cott and McClure are professors of economics at Ball State University in Muncie, Indiana. sional social critics cling to the notion of "overfed" Americans by arguing that America's claim on the pie is illegitimate. A popular argument is that a lucky draw of natural resources is the source of America's high living standards. This undermines Americans' claim by asserting that they are not responsible for the pie's size. A quick glance at a world atlas exposes the lucky draw contention as sophistry. For example, Hong Kong, Japan, the Nether lands, South Korea, and Taiwan succeeded without such draws. Indeed, Hong Kong's draw didn't even include fresh water! At the sallie time, Brazil, China, all of sub-Saharan Africa (except for South Africa), and the countries of the former Soviet Union are economically backward despite vast re source endowments.

It cannot be denied that the United States was blessed with abundant resources. The Brazils of the world make it clear, however, that the key is that Americans have been good stewards of their blessing. Rather than resource endowments, the inheritance that really matters is that bequeathed by the Founding Fathers: an economic system that encourages this good stewardship. In any event, to condemn U.S. living standards because of generous resource endowments is analogous to denigrating the achieve ments of Nobel Laureates because they have high IQ's. 309 310 THE FREEMAN • AUGUST 1993 Economic Imperialism? At other times, these so-called humani tarians argue that America owes its abun dance to foreign investment by "imperial istic" U. S. multinational corporations. These corporations supposedly sap the strength of their host nations by repatriating profits to the United States. Moreover, because the profits allegedly caused the destruction of the host nations' local indus tries, environment, and cultural heritage, the nations are victims of a corporate double whammy.

A sense of deja vu attaches to this con tention. It is essentially the same argument used to assail colonialism. History belies the notion that a colonial heritage predestines national penury-the United States, Can ada, and Australia were once colonies. Likewise, nations that were never colonies languish economically-Tibet, Liberia, Af ghanistan, and Ethiopia are examples. The evidence attesting to foreign invest ment's positive role in economic develop ment is overwhelming. Except for England, no nation has developed without the active involvement of foreign investors in its econ omy. The post-World War II experience of Pacific Rim countries-South Korea, Sin gapore, Taiwan, Hong Kong-is one recent example of the power of this engine of economic growth. At the other end of the spectrum lies the former Soviet Union and its economic puppets: They actively discouraged foreign in vestment and their underfed people are still paying the price.

Are Americans, Then, Overworked? If economic abundance is assured neither by the luck of the draw nor by economic imperialism, must we conclude that Amer icans are overworked? No, the sources of a nation's output of goods and services go beyond its physical inputs. Americans ap pear to be overworked only because the Founding Fathers bequeathed them an eco nomic system that magnifies the results of their work effort. More than 200 years ago Adam Smith saw that actions of self-interested people can, unbeknownst to them, enhance their na tion's economic pie. In Smith's famous words, people can be "led by an invisible hand to promote an end which was no part of [their] intention." Open markets and se cure property rights are the hand's lifeblood. These institutions give entrepreneurs an incentive to seek out consumers who value their products highly. At the same time, consumers have an incentive to discover producers who provide goods at least cost.

The invisible hand is as much an input in production processes as are land, labor, and capital. Thus, Americans are more produc tive because the invisible hand is their ever-present helping hand. 0 THEFREEMAN IDEASON LIBERTY THE BENEFITS OF VARIATION by James Rolph Edwards A s a professor of economics who wishes to convince his students of the impor tance of economic insights without oversell ing economic knowledge, I have always taught my students that even the best eco nomic models have only heuristic value and cannot be expected to explain everything. The proper question to ask about such models is whether we understand more by having the model than we would without it. I argue that this is particularly true of the theory of perfect competition, with its nu merous small firms, homogeneous product, and perfect information. It is, at best, a useful analytic device for illustrating, in a simple form, certain things about business decision-making and how economic profits and losses motivate firms to shift resources from lower to higher valued employments.