A Ford Mustang Costs About the Same as in 1968, but College Costs a Helluva Lot More

A brief look at 50-year cost and quality trends in cars, houses, college and health care.


Kathryn Sidenstricker/Dreamstime

In my article, "Faster, Better, Cheaper," for the 50th anniversary issue of Reason, my editors asked me to trace the cost and technical trends for various common products over the past five decades as way of showing how our living standards have improved since the 1960s. When the article came out, various gloomy folks complained (in the comments and on twitter) that I had "cherry-picked" the items. In fact, the complainers asserted that we Americans are much worse than the steep fall in prices and vast improvements in a few consumer products could demonstrate.

If I were being serious and fair, many complainers suggested, I would have focused on the cost trends in cars, houses, health care and college education. So let's do that and see what we find.

In 1968, the average price of a new car was $2,822 ($20,806 in 2018 dollars). According to Kelly Blue Book the average price for a new car in 2018 stands at $35,359. On the face of it, this nets out to an increase of around 70 percent. But are bare prices really a fair way to compare cars over the past 50 years? For example, the average lifetime for passenger cars has increased from 12.2 to 15.6 years between 1970s and the 2000s. And not only that, we drive our cars a lot further than folks did back in the 1960s before we scrap them. In the late 1960s, just over half of cars had air conditioning. The average car got about 13.9 miles per gallon; today the average is 24.7 miles per gallon.

To illustrate the trend in car prices and functionality, let's take a look at an iconic American ride, the Ford Mustang. The price for a basic Mustang hardtop in 1968 was $2,707 ($19,598 in 2018 dollars); today the lowest priced Mustang goes for $25,680. That would suggest that the price of a basic Mustang has increased by 31 percent, but that would be wrong. Consider that adding features to the 1968 model that are now standard on the 2018 car, such as air conditioning, AM/FM radio, tilt steering wheel, power disc brakes, and power steering, would increase its price to $3,466 ($25,553 in 2018 dollars). And this does not take into account other standard modern features such as power windows, rear defrost, car alarm, back-up camera, intermittent wipers, power door locks, airbags, electronic stability control, and much more. In addition, the 1968 car got about 12.7 miles per gallon; today's model gets 31 highway miles per gallon.

What about the prices of single family houses? According to the Census Bureau the median price for a new house in 1968 was around $25,000 (about $185,000 in 2018 dollars). The median price was $320,000 for a new house in 2018. Prima facie that implies a 73 percent increase in the price of new houses over the past fifty years. But like the cars, new houses built fifty years ago were very different from those of today.

In 1968, the average floor area of new house was 1,665 square feet. By 2015, the average size had risen to 2,736 square feet and has recently dropped back to 2,495 square feet. Basically, the average price per square foot of living spaces was $111 in 1968 and is now $128 per square foot. In 2016, economist Mark Perry noted that the price per square foot has bounced around in that range since the early 1970s. But modern houses have many amenities that were not common in the 1960s that must be taken into account when calculating the price per square foot. For example, only 10 percent of new houses in the 1960s had two and half or more bathrooms; now nearly 50 percent do. Central air conditioning was found in 45 percent of houses in the 1960s; now 89 percent have it. In addition, most new houses incorporate improvements like better insulation, double-paned windows, and electrical panels rather than fuseboxes.

What about the rising cost of college education? The National Center for Education Statistics reports that tuition, room and board for a year at a public university averaged $1,245 in 1968 ($9,179 in 2018 dollars). That has more than doubled to an average of $21,370 this year. What accounts for this huge increase in the cost of a college education? The steady expansion of the federally subsidized student loan program is the biggest culprit.

Back in 1987, then-Secretary of Education William Bennett argued that "increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase." Recent research by New York Federal Reserve economist David Lucca and his colleagues have substantially confirmed the "Bennett Hypotheses" finding that a dollar increase in subsidized student loan caps result in a 58 cent increase in an institution's tuition sticker price. Research by Indiana University economist Grey Gordon and his colleagues confirm the dominance of this effect.

Gordon also notes additional cost drivers including substantially increased demand and the expansion of expensive high skilled workforce to meet that demand. Consider that in 1980, there were just over 12 million students enrolled in U.S. colleges and universities; today nearly 20 million are enrolled. Another relatively minor factor is "cost disease." Salaries in jobs that have experienced no or low increase of labor productivity, such as college teaching, nevertheless increase in response to rising salaries in other jobs that have experienced higher labor productivity growth. In order to teach more students, universities must hire more faculty and pay them enough to compete with their other opportunities. Ratcheting back subsidized student loans would seem to be reasonable first step toward moderating escalating tuition hikes.

Finally, my critics are dreaming if they expect me to explain in a paragraph or two the vexed issue of rapidly rising health care costs. That being said, a big part of the reason we pay more for health care is that we get more. Consider that average life expectancy in 1968 was just shy of 70 years, and is now 78.7 years. A considerable portion of that improvement can be attributed to increasingly effective medical treatments.

Back in 1968, total health care spending was $58.4 billion ($431 billion in 2018 dollars), amounting to $284 ($2,100) per person. As of 2016, U.S. health care spending had risen to $3.55 trillion (2018 dollars), amounting to about $11,000 per person. A lot of analysts point out that the service intensive health care sector suffers from cost disease. And if federal student loan subsidies are driving up college costs, surely $700 billion in U.S. government subsidies is having a similar effect on health care.

A 2017 study in the Journal of the American Medical Association found that five factors—population growth, population aging, disease prevalence or incidence, service utilization, and service price and intensity—are largely responsible for rising health care costs. Population growth and aging accounted for 23 and 12 percent of the increases, respectively. Rising service prices and intensity are responsible for more than 50 percent of the cost increases. Basically, Americans are resorting more to specialists and paying more for services like hospital stays and knee replacements.

One general point: Government mandates and subsidies have, during the past 50 years, distorted the cost trends in all four of the sectors discussed above. Safety and fuel economy requirements have contributed to keeping car prices higher; mortgage interest deductions along with building code and zoning regulations have done the same to housing costs. The vast proliferation mandates and subsidies have increasingly untethered the college and health care sectors from the disciplining effects of market competition. (It must be acknowledged that if health care can't be significantly automated, cost disease will likely continue to push up prices in that sector.)

The bottom line is that cars and houses have not notably increased or decreased in their prices over the past 50 years, but they have significantly increased in quality. Research strongly suggests that increases in educational attainment explains some 75 percent of recent economic development. So the most significant college education trend is that 33 percent of Americans now have bachelor's degrees and higher, up from only 10 percent in 1968. For one vision of how our dysfunctional health care system might be repaired, see my proposal for BaileyCare.

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  1. Faster, better, cheaper…but enough about your mom…

  2. You should track which was more embarrassing, the Mustang II or the entirety of the third generation Mustang line.

    1. Wow, um, take that to Jalopnik or something. Don’t think you’re going to get too many people saying the legendary Fox body Mustang sucked, though. It spanked the Camaro and Firebird until they started putting Corvette and Buick GNX engines in them.

    2. The Fox-body notchbacks look better than any other ‘stang since 1971.

        1. Be glad you didn’t end up getting probed with the original mustang four.

          SIV, the 71 is horrid. 70 is the last year they produced an attractive mustang.

      1. Well, my uncle is a huge fan of Fox body stang. He still maintains his Mustang to date, got new stuff from 4WheelOnline for few mods in the interior.

    3. I bought a brand new 1977 Mustang II and drove it for years. Underpowered compared to previous and later Mustangs, but it had decent looks and was an appropriate car for its time (the oil crisis and stagflation).

  3. But like the cars, new houses built fifty years ago were very different from those of today.

    Why focus on only new houses? Most people don’t buy new construction.

    1. J: That’s because they incorporate construction quality improvements. Here’s some historical Census data showing that the median value for all homes in 1960 was $58,600 (2000 dollars) rising to 119,600 in 2000. But of course the average house size in 1960 1200 square feet rising to 2,265 by 2000.

      1. “improvements”

        But yes, houses have thankfully gotten bigger, especially the kitchens and bathrooms.

      2. however if you have a house over 8 years old in California and replicate that house under todays codes and then went to sale the old house and the new house you will loose your shirt due to the 30% increase in cost due to codes that a buyer does not see. And after the fires this year who knows what kind of rules will be put on houses. As a building designer I see what is happening and I often ask clients why not buy an existing house you will get more for your money.

        1. Your chart is too old and even in 2000 It was hard to find a home for $200k except in the worst of neighborhoods.

          now lets look at how taxes have increased as a proportion of a persons income its way different and takes a bigger chunk of income making these so called economical houses out of reach

          1. even in 2000 It was hard to find a home for $200k except in the worst of neighborhoods

            Please, we’re referred to as “flyover country”.

            Out here on the far fringes of metro Atlanta, there are whole subdivisions of nice houses being built at a 189k price point. Cheap starter homes are readily available at 129k. Not everybody lives in San Francisco or New York, despite what their residents believe about the extent of the known world.

            1. Truth.

              Along the coasts 200k is nothing but in less popular areas it can get a lot more.

    2. Neither do most people by fifty-year-old houses. But the more important point is that even old construction has (usually) been extensively remodeled to include modern amenities – and the few that don’t are very steeply discounted in price.

      In fact, a comparison of just sales of the remaining unimproved houses might be a really interesting analysis. Unfortunately, I doubt you could find enough of those these days for a statistically-relevant conclusion.

      1. Neither do most people by fifty-year-old houses.

        It depends on the region. In the east, most houses are older.

        1. Right

          Here in Iowa there are a great many pre-1970 houses bought and sold, all the time. With rare exception, they are generally less costly than modern houses.

          Most of the time they also, at least in town, are on teeny tiny lots which is another factor in price.

          1. I live in a community of victorian homes from the gold rush they go for premiums.

      2. Average price is a poor metric also, there weren’t any $500k McMansions in the 1960s, so even someone who had the extra money didn’t really have the option to spend it. It would be interesting to know what the standard deviation is for the 1968 and 2018 average house prices are.

        Personally I’ve been house shopping with my fiancee for the past few months and we are finding plenty available at all price levels (from under 20k all the way up to 3.2 million plus) it all depends on where you are willing to live (fortunately we have good enough jobs that we don’t have to shop in the 20k neighborhoods, but if that’s what you can afford then you too can own a home)

    3. Why focus on only new houses? Most people don’t buy new construction.

      He misses the mark a bit with breaker boxes and fuse panels as well. 100A fuse boxes existed in the 50s and 60s, but virtually no houses had them, 60A with a handful of circuits *or* maybe a 240V line were standard. Towards the 70s and 80s, 100A panels (fuses or breakers favoring breakers) were the norm. Nowadays, 100A panels are the miniumum for new construction, 200A being more common. Breakers didn’t really change anything and appliances don’t really care as much as the steady upward march in amperage means one house (or panel) can support more appliances. It’s a bit like pointing to carpeting or hardwood as a transformative surface in flooring while it’s far more important and true to note that the square footage, regardless of material, has increased.

      1. I suspect what that was about was to say that modern houses have considerably safer wiring.

        My previous house was built in the early 60s and apart from the 60a fuse box being replaced with a 100a breaker panel at some point, none of the wiring had been updated before I bought it in 2005.

        No grounds anywhere, cloth sheath over the two pvc insulated conductors, only a single outlet on any wall. I never measured the gauge but I wouldn’t be surprised if they were 16awg instead of 14awg.

        Modernizing wiring was one of the primary reasons I remodeled rooms in that house.

  4. the 1968 car got about 12.7 miles per gallon; today’s model gets 31 highway miles per gallon.

    V8 vs 4 cylinder?

    1. no true Mustang has a 4 cylinder engine. heh

    2. The base 1968 Mustang came with an inline 6, not a V8.

      The base 2018 Mustang comes with a 4 cylinder Ecoboost that puts out 3 times the horsepower and torque of the 1968 I6. The base engine even beats the HP of any 1968 Mustang engine except the Cobrajet– and that’s conservative, because those were exaggerated gross HP numbers back then.

      1. Not to mention that the modern engine puts out all this hp, still manage to sip gas instead of gulp it, and does so with considerably less pollution, and will in all probability run for 2-4 times as many miles w/o major maintenance.

        1. My “64 Mustang convertible was falling apart by 75,000 miles. Lucky to get $400 for it when I traded it in.
          Wish to Zardoz I had it today!

      2. Does it use turbo? If so, that adds a layer of cost and complexity.

  5. Sure, college costs have more than doubled but honestly, can you expect them to bring about diversity and inclusion and so much as put in dent in rape culture on a budget?

  6. The bottom line is that cars and houses have not notably increased or decreased in their prices over the past 50 years, but they have significantly increased in quality.

    I don’t know about an increase in the quality of a newly constructed house compared to 50 years ago. Well, ok, maybe 50 years ago, but not 75. If you buy a house built before WWII, it will likely be built very solidly although with smallish rooms and a tiny kitchen. If it’s brick, it’ll be solid brick. None of this brick facade bullshit. It will contain zero particle board or strand board. The walls will be lath and plaster, not sheetrock. Anyway, if you built a house like that today it would take forever and cost a fortune.

    1. The trend for houses depends a lot on geography – there were places where it was true in the US but has definitely reversed (and reversed at least 20 years ago). I think it’s a topic that requires a narrower scope to really address correctly.

  7. Ronald Bailey: Voice of Reason. Great article.

    Some other writers here could take a hint…

    1. BORING!

  8. >>> the 1968 car got about 12.7 miles per gallon; today’s model gets 31 highway miles per gallon

    my 2013 5.0 gets about 12.7. but that’s me.

  9. And the worst engineered part on a 2018 Mustang is orders of magnatude better engineered than the best part on a 1968 Mustang. Cars are today by almost any objective measure far superior to cars in 1968.

    The quality of a college education in contrast is orders of magnatude inferior today than it was in 1968. Colleges have raised their prices through the roof but made up for it by providing a vastly inferior product.

    1. >>>by almost any objective measure

      in car-porn the ’68 wins.

      1. Looks are a matter of taste and not objective. But, yeah cars looked a ton better back then and were a ton cooler than cars today as far as I am concerned.

        1. >>>Looks are a matter of taste and not objective.

          to cover my inability to read I will post-facto pretend I was including subjective prices under “car-porn”

    2. Bingo. And is it any wonder that the product that has seen its government subsidies escalate the most is also the product to have shown the greatest deterioration in quality?

  10. btw one of the prettiest pics ever @HnR

  11. It’s also worth noting that you can get family sedans with a faster 0-60 time than a ’68 mustang, and that you can walk away from car crashes today that were instant death in the 60s.

    1. That’s thanks to Ralph Nader, duh!

    2. 5.8 seconds in my 2018 Honda Accord 2.0, so they say. It does have surprising gitty up for a common four-door family roadster.

      1. dad’s ’85 accord (5-speed) was super-quick.

  12. Ok. So lets play the what you bought then doesn’t compare to what you get now because look at all the other stuff you get game as applied to education.

    Then: you pay your money and you get an education in some useful field like engineering or medicine. A free exchange of ideas. Work for your degree or you fail. Profs bang the hottie co-eds who want it.

    Now: you pay your money and you get diversity training, gender awareness, racial grievance wokefulness, lessons in why due process matters, why western civilization is oppressive, and prohibition on wrong thinking. Play along and you get a degree, with honors. Profs are afraid to challenge students for fear of mothers coming to investigate and/or leaving bad reviews on social media sites.

    I think you can see why paying much more now is worth every penny.

    1. R: Cheer up. Science and engineering majors as percentage of undergraduates has been trending up for the past couple of decades.

      “For the 35-year period from 1972 to 2007, about a third of all first-time freshmen at 4-year institutions planned to major in S&E when they started college. The proportion rose gradually to 40% in 2011 and then declined to 39% in 2012.”

      1. OK. I’ll cheer.

        But I do see that “S&E” is quite broadly defined in that study: “S&E = science and engineering. S&E includes biological/agricultural sciences, physical sciences, computer sciences, mathematics/statistics, engineering, psychology, and social sciences; excludes health sciences.”

        The last two included are not like the others. Wiki, per my google machine, says: “The social sciences include, but are not limited to: anthropology, archaeology, communication studies, economics, history, human geography, jurisprudence, linguistics, political science, psychology, public health, and sociology.”

        1. It’s like the local school district. They used to have STEM activities. Now it is STEAM. The A is for art.

      2. Planned? What about graduation rates or are they switching to the humanities because math is difficult?

    2. Profs bang the hottie co-eds who want it.

      Richard Feynman would be in jail these days.

    3. Are you suggesting that due process doesn’t matter?

  13. Maybe compare post grad salary from past/present in specific industry

  14. There is a good reason that the 1968 Mustang and the new Mustang cost about the same while college education have increased many times over. That reason is college is paid by the government being more than willing to loan the students the money to go to college and the colleges are more than willing to take it. With the influx of federal money the universities have gown crazy in handing out salaries and building projects. This have brought us to the student financial crises that we have now. With the easy money to pay for college the students went kinda wild and worked less, played more and changed majors often.

    1. C: I agree. That’s what I reported in my article.

  15. I bought a new VW ’67 beetle for $1760, which was a dollar a pound. By today’s standards of anything–safety, economy, performance, durability, comfort, handling, braking, amenities and features, the fabled bug is far below anything modern, which is why even Mexico quit producing them.

    In 1988 a junkie on a Seattle street corner could get a pretty good hit of black tar heroin for $40. Thirty years later they can get a potent dose of meth, China white, or crack, for $20. You want to see capitalism in action, track the way addictive street drug prices have fallen even as potency (and addictiveness improves) over the decades.

    Methadone is one of the cheapest substances in the universe to manufacture, but by the time government produces, procures, distributes, and sets up the end programs and administers each dose to an approved recipient, the individual dose has cost taxpayers over $200.

    All of which shows to go ya how much more efficient even criminal private enterprise is than high-minded public enterprises.

    1. In 1988 a junkie on a Seattle street corner could get a pretty good hit of black tar heroin for $40.

      $40 of tar would OD a whole cheerleading squad back in ’88. You shoulda tasted what $5 in Bushwick woulda bought you back then.

  16. I took a gander at Bailey’s old article which he linked to, and at the comments section.

    Man, what a breath of fresh air. Will we ever get the pre-Trump commentariat back? It’s fuckin’ depressing nowadays.

    1. It’s all Tony! Tony! Tony!

      Neu Mejican even makes a late appearance.

      robc is the only quality commenter I could find with a quick scan.

      I say “quality” but he’d divy up the oceans into privatized quarter sections and charge the fish tolls to swim through it.

  17. First, good article and I appreciate the point you’re making. But, isn’t it circular to deflate these prices by CPI (assuming that’s what you did)? The nominal prices have definitely increased and that is notable when talking about inflation. Perhaps a better way to adjust would be relative to income. Obviously, that data is flawed as well given the change in composition toward benefits. But it would seem that this analysis is only worth while if income has also increased commensurately.

    1. Median household income has increased (adjusted for inflation), even not counting benefits

      Considering the typical 2018 household is smaller than the 1970 household, there’s more to spread around within that typical household.

      Were it not for the government artificially increasing costs of certain things, and the consumer choice towards considerably larger houses for fewer people, most people would be doing far better.

    2. The CPI itself is widely considered to understate the actual increase in the cost of living. Therefore the adjusted 1968 prices cited in the article are likely much higher, making today’s prices even better by comparison.

  18. This comment may be too late to be seen by Bailey or anyone, but I don’t have time for the detail I had hoped to provide.

    Undifferentiated discussions of anything about higher education tend to be misleading, because in fact this is a market with several very distinct segments. The non-profit segments, roughly, are top private universities, major public research universities, private liberal arts colleges, non-research state universities (which used to be called colleges, and may have some research). The funding model of each segment is distinct, and there are also large state-to-state variations within segments. In this context, sweeping discussions of college tuition, among many other topics, tend to mislead more than they enlighten.

    On the topic of tuition, there is one example with which I am closely familiar, which is the University of Michigan. At this school, state support has dropped from 64% of the general-funds revenue in 1970 to 15% now. Increases in tuition and fees have made up the difference.* This accounts for the lions share of the increase in constant-dollar tuition charges. There are many nuances, which we could discuss and argue about the other effects mentioned by Bailey until the cows come home, but are all small by comparison, in this particular case.


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