The Myth-Busting Economist by Larry Malone

The Miracles of Distribution

Last time we tossed around some myths about wealth and money and got reacquainted with local legend George Hamway. We discovered that having a ton of cash does not necessarily mean that you are wealthy. If you have lots of money, but spend none of it, you are essentially poor. And if you are poor, due to a lack money, the reason you aren’t as wealthy as others is because you don’t own what they own.

We also began to consider if Americans are still the wealthiest residents of the planet. That proved to be a challenging question because our information about the incomes people earn is rather limited.

We could answer that question if we had the hard drives that are now in the possession of Elon Musk after he hacked the U.S. Treasury Department computer system. Musk also has the past tax returns that you and I submitted to the IRS. That should shake you to the core, regardless of how you voted in the last presidential election.

Economists have always wanted to get their hands on the financial information disclosed on tax returns. If we had what Musk now has, we could conduct studies that would provide a clear picture of the distribution of income in the United States. We haven’t been able to undertake those studies because the U.S. Treasury and the IRS protected our privacy. But now, the “World is a Better Place” because Musk has your tax returns and mine, and all of the income and personal information that comes with it.

So, we will have to rely on something other than hard numbers to investigate whether Americans are still the wealthiest citizens of the planet. A little American history can go a long way in helping with our quest.

One of my favorite non-fiction books is Carol Sheriff’s “The Artificial River.” Sheriff takes a unique look at the completion of the Erie Canal, 200 years ago on October 26, 1825. Instead of focusing on its engineering marvels—like most books about the canal—Sheriff shows how the canal changed the lives of Upstate New Yorkers.

The first page of “The Artificial River” begins with the headline “Oysters! Oysters! Beautiful Oysters!” from the Batavia, New York “Republican Advocate.” The newspaper was heralding the completion of the Erie Canal and the fact that it brought fresh oysters from Long Island to Western New York.

To get to Batavia from the eastern end of Long Island, the oysters had to travel over 450 miles—by boat to New York City, by sail up the Hudson River to Troy, and then on barges towed by mules along the Erie Canal for 250 miles. The oysters also had to be kept on ice, which had to be replenished from ice houses along route.

Imagine how many “hands” were needed to make this possible! Harvesting the oysters, taking them to a boat for transport to New York City, switching them to another boat for the journey up the Hudson, and offloading and reloading the oysters near Troy for the journey to Batavia. And all that time, the ice had to be refreshed to preserve them.

A true count of hands would also include the people operating the sail and canal boats, the shop selling the oysters, the bookkeepers, the workers operating the 75+ locks along the canal route, the ice harvesters and handlers, and the untold other hands needed to get them 450 miles without motorized transportation.

Now let’s consider the same scenario today. There are still delicious Bluepoint oysters at the eastern end of Long Island and oyster lovers in Batavia. Suppose that the oysters are harvested and brought to a local fish shop. Then the owner gets an online order for four dozen oysters from an oyster lover in Batavia. She packs them in a box with dry ice, contacts FedEx, and the box is picked up and delivered to the door in Batavia the following day.

Far fewer hands are involved in the transaction. And since we don’t have to pay as many workers, the oysters end up being cheaper in 2025 than they were in 1825. This, in a nutshell, is the miracle of 21st century distribution.

The United States has the most efficient, low-cost distribution system in the world. To move items from supplier to purchaser, we have the Interstate highway system, semi tractor trailer trucks, FedEx, UPS and the USPS, dozens of large container seaports along each coast, and railroad container trains.

Now, to complement our ability to move stuff, and to make our distribution system even more cost effective, we have the distribution warehouses that have sprouted up alongside the interstate highway system. Amazon, WalMart, Target and Dollar General all have distribution warehouses less than a two-hour drive from where you are reading this.

In my previous column, we learned that a comparison of GDP per capita had the U.S. ranked at number 14, behind such countries as Brunei, Ireland, Luxembourg, Norway, Singapore, Switzerland and Qatar. This would lead you to think that citizens of 13 nations are richer than U.S. citizens. But it is much more difficult to move items from sellers to buyers in those countries. The terrain and a lack of good transportation infrastructure create more challenges. Most items purchased from afar will cost more than the same items would cost in the United States because of the higher cost of transport.

So at the end of the day, even though we don’t have the information that Elon Musk pilfered from the U.S. Treasury, the miracle of 21st century distribution means that Americans are probably the wealthiest citizens of the planet. That’s because the average American has more toys than anyone elsewhere in the world. The WalMart motto captures it best in just four words: “Save Money. Live Better.”

Larry Malone is professor emeritus of economics at Hartwick College.