Is the Cost of Living Really Rising?

Is the Cost of Living Really Rising?

·  One contemporary economic myth is that cost of living has consistently rising over the last 100 years

·  and has never been higher for most of Americans.

·  At first glance this seems to be truth

·  as the sticker price of most goods and services is higher than its have ever been.

·  One thing we need to take into account - there is inflation, of course.

·  But beyond inflation, the reality is that most goods and services have never been cheaper.

·  The way to see this is to think about the cost of goods and services in terms of the amount of labour time it takes to purchase those

·  at the average industrial wage.

·  So for example when the average industrial wage is low,

·  it takes a lot more labour hours to purchase the average good than it does when the average industrial wage is high.

·  What we discover is the cost of pretty much everything is dramaticly cheaper then it was 100 years ago, or even a generation ago.

·  For example, in 1920 the average private-sector wage was less than a dollar an hour.

·  And the 3 lb chicken took about 2,5 hour of labour time to purchase.

·  If we fast forward to ??? 21st century, when the average private-sector wage was about $12,50 an hour.

·  that same 3 lb chicken took about 14 minutes worth of labour to purchase.

·  If we think about other kinds of examples, in early 1960's one could have gone in appliance store and for $500 buy top of the line home stereo system.

·  Today, that same $500 you can go into the store and buy two new iPODs.

·  Not only that, the iPOD can carry all of your music with you anywhere you go,

·  whereas the old stereo system had to stand at your home and can play only one thing at the time.

·  More important if you think about that $500 that would someone spent to buy that system in early 1960's

·  and then convert that all to labour hours and think what the same number of labour hours could buy today.

·  What we find out is that could buy a ??? electronic products

·  from LCD TVs, to Blu-Ray players, to home speaker system, to an iPOD, to a laptop, to digital camera, all of them.

·  And all of them being of much higher quality than ever before.

·  Some goods are actually more expensive then it used to be even if we calculate in terms of labour hours.

·  One example of this are cars.

·  Cars actually cost slightly more in terms of labour hours today than they did decades or even almost 100 years ago.

·  One of the important thing to realise here is, what would we buying with our money is not quite the same.

·  Cars of the early ??? on course were basicly four wheels ??? engine.

·  Today, they're safer, and they last longer.

·  Today if you don't get 100.000 miles out of your car you feel like you've been ripped off.

·  To get 100.000 miles out of car in 1920 or 1950 was nearly a miracle.

·  So even our cars cost a little bit more in terms of labour hours, what we getting from them is a lot more.

·  The dramatic fall of cost of living over the course of 20th century, it was straight perfectly the power of market competition.

·  As firms compete for consumers dollars they have the incentive to come out with new and better products

·  that are continually cheaper.

·  Firms have the incentive to innovate, to find more efficient ways to make those products and to make them available to more Americans.

·  The result of all of this is that poor Americans today have more standard household appliances in their homes,

·  such as microwave, refrigerators, freezers, air conditioners, even cars,

·  than did the average American family a generation ago.

·  So clearly over the course of the 20th century the cost of living has fallen,

·  as most goods and services are cheaper in terms of labour time it takes to purchase them.

·  And as result all Americans - poor, middle class, as well as upper class are living better than ever before.