Economics

Getting Better All the Time, Price Division

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Sometime Reason magazine contributor Steven Horwitz takes a chart of nominal price rises over the past decade on a variety of consumer items and adjusts them for inflation and average hourly wage rises to calculate how much more (or less) they cost in hours-worked terms.

And the news is pretty good for most things, with real prices in those terms sinking in the past decade by double digits for 34 out of 46 items on the list.

Only buyers of the daily New York Times (up 51 percent), gold (up 125 percent), and admission to the Empire State Building's observation deck (up 184 percent) are truly screwed among the selected items, a pretty varied cross-section of the stuff we might be buying.

UPDATE: As neither I nor Horwitz noted, but perspicacious commenter Mike P. did, Horwitz was dealing with nominal wage rises in his calculations, not inflation-adjusted ones. Horwitz has swiftly adjusted his calculations accordingly, and now only about half the items show a real fall in prices in hourly wage terms, and only 20 of the 46 items have fallen by double digit percentages. That's still good news, methinks, if slightly less spectacularly good news.

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  1. This makes the CPI rather meaningless. Oh, it IS meaningless and HAS been meaningless.

    Just goes to show you that inflation is not simply the increase in overall prices.

  2. If you pay for the NYT at any price, you’re a fool. You can get it for free online, complete with the hacks on the editorial page and the pretentiousness of the Style section, plus cool graphics and videos.

    Direct those willing to pay 51% more for that my way; I have a great investment opportunity for them.

    1. If you read the hacks on the editorial page (Krugman, Friedman, etc) you are a fool.

  3. Why not compare the work hours needed for a fast-food cashier to purchase said items in 1999 and 2009? Call it the McJob index.

  4. As I keep reminding my daughters, it’s not that gold is getting more valuable, it’s the the dollar is getting less valuable.

    … Hobbit

  5. I’m pretty sure I bought between 20-25 of those items in the past decade myself, by the way.

  6. Wait a second…

    Horwitz says:

    But we also have to account for the growth in wages over that period. The private sector’s average hourly wages increased 37.2% over that same period (note that was above the cumulative inflation rate, though not by a lot).

    He then goes on to divide the real price change of the items by the nominal wage change. That shouldn’t be right.

    In other words, the crossover point where things in 2009 are cheaper per hour than things in 1999 should be at 37.2% in the nominal price column, not in the real price column as appears in the table.

    Am I missing something?

  7. Mike P:

    I went back and checked and compared my methodology to others who have done this work, and you are right, I have double counted to some degree. I’m going to repost the numbers with a corrected column over at my blog. I’ll link it here when I do so.

  8. Corrected data here: http://www.coordinationproblem…..-data.html Now it’s about 50% up and 50% down.

    1. Very nice. Thanks for the quick fix.

  9. Entry updated with new link, thanks Mike P. and Steven.

  10. I’ll also note that tables with this wide a range show the difficulty of displaying numbers in percentage increase or decrease.

    If in 1999 one orange was worth one apple while in 2009 one orange is worth two apples, then oranges have increased in apple-price 100%. But apples have decreased in orange-price only 50%.

    Similarly, the reciprocal of +300% in such a table is only -75%!

    So it may not be obvious to the reader that only Empire State Building tickets and gold have greater factor increases in hours worked per ticket or ounce than the factor increase in bottles of spumante per hour worked.

  11. I know, the Empire State Building Observatory costs like $20 per person. That’s fucking ridiculous!

    1. The last time I was there it was full with a long line and a long wait.

      Which means the price is still too low. If someone will pay $200 or $300 for a hotel room in Manhattan, they’ll shell out $40 to see it from the top of the Empire State Building.

      In fact, the safe bet is to figure that the price increase in the Empire State Building ticket is due to a general increase in travel and leisure bringing more visitors to more expensive Manhattan.

      1. Plus less competition from the twin towers.

      2. And yet there are no more Empire State Buildings being built in response to the unmet demand. Can you say “MARKET FAILYUR!!!1!!”?

  12. As if deflation were a good thing…

    1. YEAH! LETS PRINT SOME CASH AND DROP IT LIKE ITS HOT MOTHERFUCKERS!

    2. Yeah, getting more out of life for less effort has long been the bane of human existence. It is why we instituted government, to solve that problem.

  13. I have a question one of you people might feel inclined to investigate for the fun of it.

    Why is it that bicycles are more expensive than cell phones?
    Why do bikes start at $100?

    1. If you don’t get them with a plan, most cellphones are $400 and up. The cost is subsidized by the data carriers. For example, the Google Nexus One is not tied to one carrier, and it costs $530.

      Really cheap prepay phones cost less, but they don’t have any modern, expensive components.

  14. I would be curious to see the results of this run against gold rather than fiat currency.

    But, of course, I’m far too lazy to do it myself.

    1. While I think gold is the better comparison over the long run, over any short run, gold fluctuates too much to be a reasonable measure. For example, all of the current gold runup isnt due to the dollar weakening, part of it is speculative fear of future dollar weakenings. Which is why gold shot up in the 70s and crashed in the 80s.

      1. What the hardline Rothbardians forget, is that gold is a commodity like any other, and just as subject to the whims of the market. Reading most pop-Austrian-pundits, you would think the only use for gold is to be locked away in bank vaults.

  15. robc,

    This is why Mish postulates that gold running up/down is more directly linked with credit availability than the dollar’s strength or weakness.

    Forget the Fed interest rates, look at real world interest rates. Interest rates were very high late 70’s/early 80’s, dropped massively in the late 80’s through the late 2000’s, and are moving up rapidly again except in areas where the government is backstopping risk.

    The government backstopped a lot of risk in the late 80’s-late 00’s by allowing more leverage or looking the other way in assessing bank solvency. The market is figuring out that the government can’t backstop that much risk anymore, even if the government hasn’t figured it out yet.

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