In 2018, the Yale economist William Nordhaus was awarded the Nobel Prize in economics for his work on integrating climate change into long-run macroeconomic analysis. Professor Nordhaus’ research of climate change economics is worth reading, because his predictions of the economic impact of global warming stand in stark contrast to the dire warnings from the climate emergency doomsday prophets: by the end of the 20th century, Nordhaus estimates it will have cost each person on earth around two to four percent of their income, but by that time, we will all be 400-500 percent wealthier than we are today. No wonder the climate alarmists don’t consider Nordhaus their favourite economist.
But two decades before his Nobel Prize win, Nordhaus conducted another piece of research which is equally interesting, because it tells a magnificent story about human progress and ingenuity and gives us all reason for rational optimism about the future of mankind (and our planet). What Professor Nordhaus sets out to understand in his 1998 paper Do Real-Output and Real-Wage Measures capture Reality? The History of Lighting Suggests Not is the economic significance of Thomas Edison’s famous invention: the light bulb. Nordhaus wants to examine if real wages, calculated by conversion of historical nominal wages by price indices, really captures the impact of technological change on living standards – and to do that he looks at a single, but extraordinarily important, measure: how the cost of lighting has fallen throughout history, from the use of wood fires through roman oil lamps and spermaceti candles all the way to Edison’s light bulb and beyond.
Specifically, Nordhaus calculates what it takes to produces 1,000 lumen hours of light, the equivalent of a modern light bulb burning for a little less than an hour, and he translates the cost of such lighting into hours of work, to find a measure that is comparable over the ages. And so, for our ancient ancestors, who needed to chop and gather wood to build a fire, Nordhaus estimates that the cost of those 1,000 lumen hours was six days, working 10 hours a day, for which our cave-dwelling forefathers could get a dim, flickering woodburning light.
But as human civilisation developed though invention, capital accumulation and trade, the cost of lighting started to fall. By the year 1800, a spermaceti candle was able to generate 1,000 lumen hours from just 12 hours of work – though dirty and dangerous work it was: spermaceti is harvested from the head cavity of sperm whales. A few decades later, lamps were invented that were lit by whale oil, and the price of 1,000 lumen hours had fallen to just under five hours of work. The later kerosene lamp was another step forward, reducing the price to less than 15 minutes of work.
But it was the twin developments of electric power and Edison’s carbon-filament lamp that represented the real quantum leap in spreading cheap lighting throughout the world. A 1920ies filament lamp produced 1,000 lumen hours for the price of less than one minutes work, and as technology advanced the price continued to fall: today, a 60-hour work week for the average American worker, for which our distant ancestors got their 1,000 lumen hours of wood fired light, stretches to pay for 52 years of lighting. Nordhaus found that the cost of light has fallen by a factor of 500,000! (This is obviously a much higher number than what you’d calculate using traditional price indices, which is what Nordhaus set out to examine.)
Of course, lighting is just one of myriads of things that were extravagant luxuries to our ancestors, but which today are easily affordable to everyone. Healthy and varied foods, clean water, insulated housing, education, healthcare – the list of things that were once reserved for only the richest in society (or not available at all) but are now commonly accessible goes on. The simple reason for this extraordinary progress is that specialisation of skills, a growing capital stock, and free exchange of goods and services has enabled humankind to exponentially increase our productivity. And perhaps even more extraordinarily, it is those at the bottom of society who have benefited the most. There are still many angry voices that complain about inequality and demand forcible redistribution of wealth, but the lesson from professor Nordhaus work is clear: in a dynamic, free economy the price of life’s necessities is on a continuous path downwards – and that is the greatest equaliser of opportunity and quality of life there is.