The Tortoise and the Hare: A Modern Revision

First, I am going to make a statement that seems outlandish. Second, I am going to ask you to prove me wrong. Third, I am going to offer some explanations.

Here is my statement:

“You are not significantly better off economically than your parents were in 1973, and you are significantly worse off culturally.”

This may not seem conceivable. After all, we live in America, and this is a land of ever-greater opportunities. We are always improving. Retrogression is impossible here, but if it were possible, it would be anti-American.

There was a time when the previous paragraph was true. I think those days are gone. I think, sometime late in 1973, Americans went into preservation mode. We became defensive. In doing so, we abandoned a characteristic feature of America that was foundational. This happened without fanfare or even widespread awareness that anything major had changed. But it had.

Americans are better off in the area of computer power. As an editor and a publisher, I am much better off. I was in a position to take advantage of the one clear-cut economic advance since 1973: the price of computer technology. But this development has not changed the lives of most Americans to the extent that it has changed mine. How much has it changed yours?

Here is my challenge. Get a piece of paper and a pencil. Draw a paper-filling T. Above the left hand-side of the T, write 1973. Above the right-hand side, write 2003.

We are going to go from October to October. Why is October so important? Because, on October 17, 1973, OPEC announced its first oil embargo and price hike. (I am not so good an historian that I remembered this date, and scheduled this report to commemorate that event. I got this fact off the Web after I began to write this report. I had known the OPEC embargo began in the second half of 1973. I had not known it was exactly 30 years ago to the day.) OPEC did this in response to the Israel-Egypt war, which had begun with an invasion of Israel by Egypt on October 6. The West backed Israel. OPEC backed Egypt. The price of oil quadrupled over the next six months.

The second reason I chose 1973 was the official devaluation of the dollar. This took place in February. Nixon had unilaterally announced on August 15, 1971, that the United States Treasury would no longer sell gold to foreign central banks or governments at $35/oz, thereby ending the last remaining traces of the gold standard. He floated the dollar, ending fixed exchange rates (price controls) over the dollar. The following December, central banks re-imposed fixed exchange rates. This did not work. The banks could not afford to redeem each other’s currencies at the fixed rates. Britain devalued in 1972. The Swiss revalued (upward move) in early 1973. The U.S. devalued in February 1973. This introduced a system of floating exchange rates — free pricing — or at least managed rates. This system was officially recognized in 1976.

We now live in a world in which a currency speculator, such as George Soros, can short a currency and make a short-term profit of a billion dollars or more at the expense of a central bank, whether Malaysia’s or England’s. Currency rate management has shifted to private individuals rather than central bankers. This is where it belongs. Price controls don’t work. They never have. It is only because of men’s near-worship of the wisdom of central banking (a government-created cartel of bankers) that the idea of fixed exchange rates still has supporters among some economists and policy-makers, who reject the whole idea of price controls in every other area of the market.

From 1973 until now, the word “devalue” has had no meaning in most currency markets. To devalue or revalue a currency is to move from a government-imposed price control at one rate of exchange to a new price control at another rate of exchange. But when governments and their central banks ceased attempting to establish price controls on their currencies in 1973, the old terminology ceased to have any meaning. Currencies depreciate or appreciate according to supply and demand, but they are no longer devalued or revalued by governments.

Today, there is only one major fixed exchange rate: the dollar-yuan rate. This rate is fixed by the Chinese government through its central bank. The central bank supplies yuan to product-buying Westerners who present dollars in order to buy goods with yuan. It does this by expanding the supply of yuan. Chinese officials still cling to the illusion that government price controls can make an economy more successful. The Chinese will eventually learn, in a depression, that expanding the money supply produces a misallocation of capital. They are new at this. They still play the mercantilist’s game: expanding exports through currency expansion, which holds down import prices in foreign nations. They will learn, painfully, that such a policy has costs attached to it.

From 1973 until today, the partners in the twentieth-century alliance between banking and oil have been in a race, with the politicians who run the oil-exporting nations pressing up the price of oil in response to Western central bankers, who keep cranking out more fiat money to keep the boom alive. In inflation-adjusted terms (dollars in 2000), the price of oil has been in the range of $20 a barrel since 1945.

Today’s higher rate is an anomaly. There are analysts who think oil will return to $20. Others think we have entered a new era of oil shortages, based on physical limits of oil production and rising demand from Asia. What is not disputed is that the price of oil has kept up with the decline in purchasing power of Western currencies, which has been steady since 1973.


Start filling in your T-page. Where are you significantly better off than your parents were three decades ago?

I know you are better off economically. Three decades ago, you were younger. You were not equally productive. You were just starting out.

In 1973, I was earning $1,000 a month, worth about $4,200 today. Of course, I was in a lower income tax bracket. Social Security taxation was less. But I had no insurance or retirement savings. I had not started publishing Remnant Review. I was working for my father-in-law. Am I better off now? Not biologically, surely. In most other ways, yes. But this is because I’m older. Also, I was one of the few who were in the top 5% in terms of income generation. We won the race after 1973.

For the average Joe, there has been very little progress. While this Web page has extracted material from authors with a bias against capitalism, the figures are generally accurate. The page’s creator sees economic stagnation pretty much the way I do: a product of anti-gold, pro-fiat money ideology. I suggest that you click through and spend five minutes surveying the evidence. The first entry is worth considering.

The average weekly earnings of the 80% of rank-and-file working Americans, adjusted for inflation, fell by 18% between 1973 and 1995, form $315 a week to $258 per week.

This has been confirmed by all of the surveys I have seen. This is not just one economist’s opinion. Between 1973 and 1995, inflation-adjusted wage rates fell. Family income stayed stable only because wives entered the work force.

There is no agreed-upon explanation among economists. (Surprise!) There is not even a majority opinion. Somehow, economists tell us, everything changed. Prior to 1973, there had been labor productivity increases with wage increases to match since 1945. These increases were in the 2+% per year range — a rate that had been sustained for two centuries, excepting mainly the 1930’s. Then, without warning, everything changed. Productivity hit a brick wall.

This reversed after 1995, but then hit another brick wall in March, 2001, exactly one year after the stock market peaked. Worker productivity is rising today because about three million jobs have disappeared since 2001. Those who are still in the work force are facing tremendous competitive pressure from unemployed Americans, who can get back into the labor pool if wages rise, and also from highly employed Asians. Real wages do not seem to be rising. The trade deficit is. So is the U.S. government’s deficit.

In this T-exercise, consider one day in your parents’ lives. They got ready for work. They fed you a bowl of Cheerios, just as they had been fed as children, when it was called Cheeri-oats. They put you on the yellow school bus, which looks just the same, and smells just the same, to today’s kids.

They drove to work in a larger car. Today’s cars are better in many ways, but if you had to drive one just like they did, you would find it roomier. It would have air conditioning. It probably had an AM-only radio. Well, most people still listen to AM radio in prime drive-time. They listen to talk shows, not music. What hurt them in that car was the gasoline prices, which began to rise as a result of OPEC.

How about television? It was color. The set had the same clarity as today’s sets. Americans watched just as much of it. They watched Mary Tyler Moore. The average Joe today watches “Friends” and “Will and Grace.” Who is better off? Do you want to make a case for 2003 on the right-hand side of the T based on “Will and Grace” vs. “The Mary Tyler Moore Show”?

The movies had the same technology. They were shown in a shopping mall. You only saw one feature.

They listened to vinyl records that went click & pop. You listen to CD’s. OK, that’s one for 2003. But the CD is not significantly better technologically than in 1987. What happened since then?

You have a VCR. Your parents didn’t. Score one for 2003. Hooray for Sony and Sanyo. The Asians have made us richer. You get to record “Will and Grace.” You will even have tape left over for “Queer Eye for the Straight Guy.”

Aren’t things grand today?

In medical care, it’s positive for people with certain rare diseases and conditions requiring surgery. As for heart attacks, stroke, and most cancers — the afflictions that kill most people — it’s no better. Whatever is better is due to changes in people’s lifestyle, plus the discovery that aspirin can reduce heart attacks. This works for the masses because aspirin was on the market before the Food and Drug Administration came into existence, and so it got “grandfathered” by the regulators. If aspirin had been invented in 1973, it would probably still be a prescription-only drug.

If you’re talking life extension, the big improvements were these: wire mesh screens that kept out insects, separating water supplies from latrine areas, and the replacement of horse-drawn trolleys by automobiles — fewer flies. Those were developments of the 1860’s through the pre-World War I era. Penicillin and the sulfa wonder drugs were innovations of the pre-World War II era. The great pandemics were gone by 1960, including polio.

I still wear a suit I had made in Hong Kong in 1973. It still looks better on me than any of the off-the-rack, garment-district suits I wear, which are 1980-era.

Start writing down the clear-cut improvements in your lifestyle vs. your parents’ lifestyle 1973 — improvements that you can tie to economic growth.


Now think of China and Russia. In 1973, China was still suffering under Mao. The cultural revolution was still in force. Rural poverty was massive. There was no economic growth. Deng’s agricultural reforms came in 1979. In 1973, Deng was stripped of all power by Mao.

As for Russia, then the USSR, Brezhnev was in power. The economy was a continuing disaster — a fact visible to everyone who looked at the facts except Nobel-Prize winning economists like Paul Samuelson. It was in 1973 that Solzhenitsyn’s Gulag Archipelago was published in the West. The next year, he was expelled from the Soviet Union.

Japan and the Asian tigers were beginning to grow rapidly. Japanese automobiles began to get a toehold in the United States. I had bought my first and only new car in 1971: a Toyota Corolla.

Sub-Sahara Africa was still a basket case, but India was beginning to escape Third World status.

If you consider the economic condition of the typical Asian today and compare this with his father’s condition in 1973, there is no question of improvement. The right side of the T gets filled. An Asian probably has to turn the paper over to make another T.


For Asia, there was little growth prior to 1950. It is only as free market ideas penetrated the thinking of Asian leaders, who began to free up their economies, that the marvel of compound annual economic growth spread to Asia. Within the lifetimes of adults born under colonialism, the world of Asia changed.

The world in sub-Sahara Africa for the most part has not changed. The difference is ideas. Sub-Sahara Africans, apart from South Africans, still live under despotism.

Asians are cleaning the West’s clocks, economically speaking. Their growth rates are much higher than ours. The average man is becoming middle class. The number of millionaires in China is unknown, but it is probably in the millions.

The tortoise in the Aesop’s famous fable is the slow, steady-as-you-go fellow. The hare gets off to a fast start, but then takes a nap. The tortoise wins the race.

Those who listen to this story always think of themselves as the tortoise. That is why parents tell the story to their children. They know that most people are not hares. They don’t want their children to lose hope at an early age.

The problem is, the West seems to be the hare in the story. Since 1973, Western economies, most notably the United States, have slowed. We are napping at the side of the road. Meanwhile, Asians, who were the economic tortoises after 1500, have turned into hares. It’s not just steady as you go in Asia. It’s more like a middle-distance race where the winner has the ability to kick in the second lap. In just one generation, everything has changed.

Because Western economic analysts do not have a theory to explain the failure of Western economies since 1973, policy-makers are following pre-1973 policies, mostly Keynesian: tax and spend. These policies are remnants of the 1930’s.

To fund these fiscal policies without experiencing a tax revolt, national governments have called on central bankers to produce sufficient fiat money to keep the economy booming, at ever higher prices, so as to push more taxpayers into higher tax brackets. The combination of graduated income taxation and a rising money supply favors the tax collector.

To this, add the fiscal pressure of a rising number of Social Security and Medicare recipients. This is a prescription for reduced thrift. This means reduced entrepreneurship, because a lower rate of saving leaves less capital to invest.

This leads me for my third reason for selecting 1973 as the turning-point: the U.S. Supreme Court’s legalization of abortion on demand in “Roe v. Wade.” This led to at least 1.2 million legal abortions per year in the United States: 36 million people so far. The future of Social Security and Medicare is now threatened by a reduction of middle-class workers coming into the work force.

So, American employers have relied more and more on immigrants, mainly from Mexico, to make up the difference. These Latin American immigrants have come out of a non-entrepreneurial society, a society in which mostly white oligarchies — Mexican President Vicente Fox’s grandfather was Irish — have for four centuries used State coercion to keep the mixed-race population in something like peonage. These immigrants have poor educations. They marry young. They go on the public dole in higher percentages than pre-1973 immigrants did, since there is a far better organized government bureaucracy that earns its collective living by getting people on the dole. These newcomers are not well-capitalized entrepreneurs. There is a now a rising class of Latino-American entrepreneurs in this country, but they are not coming on-stream fast enough to pick up the tab for retirees that aborted Americans would otherwise have picked up.

What we are seeing is a race in which Asians are gaining ground very fast on the West, and especially on the United States, which keeps adding to its trade deficit by borrowing from export-surplus nations. You and I know that this cannot go on forever. As to whether we are facing a slow fuse or fast fuse, economists and forecasters disagree, but that this is a lit fuse, there can be no doubt. At some point, foreign investors are going to ask themselves: “Is the United States the most profitable place for our earnings from exporting?” The answer will be “no.” The gravy train will cease. The dollar will fall.

Remember, this will not be dollar devaluation. It will merely be good, old-fashioned dollar depreciation. It will be a time when currency speculators who have shorted the dollar will take their money — not dollars — to the bank: not an American bank.


You are a little better off than your parents were in 1973. That’s because you read a Web site like this. The average Joe doesn’t read this sort of Web site. In his world, there has been little or no improvement. Some are even worse off. This is unique in American history.

What has happened? Part of this is moral: the question of will-power, meaning won’t-power. We are running short of will. We are running short of grace.

Economically, we are marching into big government. As a nation, we are steadily substituting government-guaranteed security for entrepreneurship and thrift. Our thrift, such as it is, is flowing into government-regulated enterprises that are eligible for corporate pension plans to invest in.

Across the sea, our competitors are marching out of big government — the biggest governments in human history. The former Communists are becoming entrepreneurs. Even the official Communists who are still in power in China are hooking up personally with entrepreneurs, just as Chinese warlords have done for millennia.

Economic liberty always has this effect. Capital doesn’t care who your parents were or what color you are or what language you speak, other than the two major international languages: mathematics and money. (The third international language, another M, is music, but Internet file sharing is creating profit-reductions for distributors in this area of the economy.)

In Asia, the Communist and Fabian tortoises are turning into capitalist hares. Capital flows toward liberty. That is the Asian threat. It is a threat to those who have trusted the siren song of Fabianism, namely, that bureaucrats, using tax money and newly created fiat money, can and will take care of us when things go wrong. Fabianism can be summarized in one sentence: “I’m from the government, and I’m here to help you.” It always means this: “I’m here to help myself to whatever you own that is not hidden, and in exchange, I promise to do the same thing to your next-door neighbors.”

The welfare state turns hares into tortoises. The free market turns tortoises into hares. This is the lesson taught, but not yet learned, since 1973.

October 17, 2003

Gary North [send him mail] is the author of Mises on Money. Visit For a free subscription to Gary North’s newsletter on gold, click here.

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