Today, a comparable pickup is $22,000 and a similar new home is over $90,000. There is not a carpenter swinging a hammer today who can draw the $48 per hour it would take to make those major purchases with the same 1972 dollars. (It doesn't stop there. The first beer I bought at Luckenbach was 27 cents, plus 2 cents deposit if you took the bottle with you. Today they're $2.50.)
In 1991 I bought a six-year-old "work truck" for $3,750 from a used car dealer. Nothing special, just a plain Jane, low-mileage lease turn-in. Last spring I looked at several 1991 lease turn-ins; the same make, model, and condition as the 1985 model I bought, only six years newer, and they were priced between $12,000 and $13,000. To buy one of those trucks with the same dollars of seven years ago, I would have to be making close to $65 an hour. How much would a house cost if the trades made that kind of money? Perhaps things are better than they were in 1919. Perhaps basic food items and certainly electronics have declined in "real cost" since 1970, but overall, measured in dollars or time, my lifestyle is not as good as it was in 1972.
W. Michael Cox and Richard G. Alm reply: David Primo and Albert Hall have their math right. If we used take-home pay, rather than wages, the work time required to purchase today's goods would be higher. Income and payroll taxes are higher than they used to be, rising from 5 percent of wages in the early 1950s to 21 percent today. Comparisons over time, however, are a two-way street. We ignored taxes, but we also omitted fringe benefits. Today's workers take more of their compensation as health insurance, vacation, holidays, retirement plans, and other non-wage income. The extras rose from 19 percent of wages in 1953 to 44 percent today.
Including these benefits would make today's goods and services even cheaper in work time. Data for taxes and benefits aren't available before 1950, a fact that would make long-term comparisons impossible. What's most important, adjustments for benefits would outweigh those for taxes--so we'd find that modern consumers are better off.
It's not entirely clear, moreover, how to adjust for higher taxes. Excluding them altogether would make sense only if public finance were the equivalent of flushing money down the toilet. That's an extreme view. Granted, some government spending may be wasteful, ranging from inefficiently provided at best to worthless at worst. Even so, the public surely benefits at least some from roads, law enforcement, national defense, and other expenditures. Deciding which government spending is worthwhile entails value judgments. It might be a fine exercise in the theory of public finance, but it would obscure the main point of our article. The goal was to show how the competition and innovation fostered by the free-enterprise system drives down the cost of living, allowing consumers to get more for their money.
Hoppy Hopkins's mistake lies in using one person's experience with just two items to suggest that the early 1970s were better for consumers. We never intended for our conclusions to apply to every American and every product. In fact, we singled out two products that cost more: health care and higher education. We suggested that quality improvements account for at least part of the increase in their real prices. Similarly, starter homes and pickup trucks have improved since the early 1970s, justifying higher prices. We have no information on the specific houses and vehicles mentioned in Hopkins's letter. Our analysis uses average wages and the prices of prominent products, with enough examples to suggest that falling real prices is a dominant theme of the American economy. In that context, we stand by our findings. The cost of a Ford car fell from 4,696 hours in 1908 to 1,638 hours in 1955 and 1,365 hours in 1997. The cost of an average new home went from 7.8 hours per square foot in 1920 to 6.5 hours in 1956 and 5.6 hours in 1996.
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