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Service, with a Smile
March 26, 1995

Service, with a Smile

Economist Michael Cox likes the roads not taken. While most of his professional brethren struggle to create a literature of protracted statistical obscurity, he looks keenly at what you and I, collectively, are actually doing and how the economy is changing as a result. In the 1992 annual report of the Dallas Federal Reserve Bank he wrote about "the churn", the constant destruction of old jobs and creation of new jobs in our economy. In the 1993 report he wrote "These are the Good Old Days", detailing how much better off we are than in the past.

The 1994 annual report, just released, declares that we should take a more positive look at the service economy.

We are NOT, he says, "becoming a nation of hamburger flippers."

"The first report was about the past, the second was about the present, and this one is about the future--- as we become richer, we change what we do and how we do it.", he said in a recent interview.

"This is what a free enterprise economy looks like. It's a churning mass. It's NOT growth. That's where everything gets bigger but doesn't change. It's EVOLUTION--- what the dictionary defines as 'a process of continuous change from a lower, simpler, or worse state to a higher, more complex, or better state.'"

The growth of the service sector of the economy--- as opposed to agriculture or manufacturing--- isn't an indication of failure, he declares. While politicians have tried to convince us that our economy is producing "bad jobs", a broader examination leads to a different conclusion. Employment in fast food restaurants, for instance, has grown from virtually zero in 1948 to nearly 3 million in 1994. The average pay in those jobs is only fifty cents above the minimum wage.

Doesn't sound very good, does it?

In fact, 70 percent of those workers are under the age of 20, most are part timers, and most stay on the job less than a year. These are introductory jobs, he points out, often the first job many people have. They are a starting point, not a dead end and they provide income for people who didn't have income before.   Looking at a broad, historical change, Mr. Cox points out that when he was a teenager, kids working bagging groceries and no one complained 'We're becoming a nation of grocery baggers'. What has really happened, he says, is that work of food preparation once done without pay in the household has moved out of the household and into the market economy, providing income for teenagers. In the process, adult home-makers have also moved into the market economy, earning wages that depend on their education and skill.

"This is the way humans are. We spend more on services as we become wealthy. That pattern has shown up here in the nation as a whole. Services will continue to rise relative to goods.", he said.

To illustrate, he showed how households with more income tended to spend more on services than on goods; that we as a nation had spent progressively more on services from the late forties to the present; and that NATIONS with more income spend more on services than on goods.

One problem is cultural: "When people see a tangible good, they see value.   When they don't, they are skeptical."

As a consequence, we regularly mis-perceive actual value because we are fixated on THINGS. "A material good may or may not have value.", he said.

"It depends on whether it provides a service.   You can have a suit you wear... or a suit you don't wear. Both are goods. But only one has real value."

Goods, he pointed out, can also be an expense. You have to protect them. They depreciate. They can be lost. You can't, on the other hand, lose a service.

Similarly, he pointed out that a service needn't be fleeting: eyeglasses, a good, depreciate from the moment they are purchased; radial keratotomy, a service, depreciates little and is long lasting. In the same light he pointed out that he would rather have polio vaccine, a service, than an iron lung, a good; that people in New Jersey owned cars, a good, while people in New York rode cabs, a service, but BOTH had transportation.

One irony: while some lament what others have called the "hollowed out economy" in which manufacturing is done overseas, a growing portion of our trade deficit in goods is offset by our growing SURPLUS in services.

"Everything--- goods and services--- ultimately comes down to TIME. We don't consume goods, we consume the flow of services from them. A product is just a vessel of services waiting to flow forth.", he said.

Turning philosophical, Mr. Cox added, "We have a lot of myths and preconceptions about goods that we have to go through.   We're basically tactile beings. A lot of our myths probably come from the Great Depression when the possession of a good was very important."

Mere semantics?

No.

IMPORTANT semantics. The quality of observations about our world and society is only as good as the quality and acuity of our language.

(Readers who would like a copy of the Dallas Federal Reserve Banks' annual 1994 annual report should call 214-922-5254.)

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