Dollar for your thoughts
July 14, 2022 8:49 AM
I would like to have the tools for more detailed insight on how to compare the relative cost of different items and services from years ago.
While my first step is an inflation calculator, I am interested in a more subjective and nuanced understanding of prices.
For example, I might see on an inflation calculator that $48,000 (the average price of a car in 2022) would be about $6500 in 1971 but in fact the average price of a car in 1971 was less than $4000. So the relative cost of cars was less than it is now compared to other aspects of people's financial lives.
Going to the movies when i was a kid was a much cheaper activity than it is now, even adjusting for inflation.
What is the economic language for this issue? I'm interested in the subjective experience of buying and spending over time, more than just adjusting systematically for dollar-amount inflation.
While my first step is an inflation calculator, I am interested in a more subjective and nuanced understanding of prices.
For example, I might see on an inflation calculator that $48,000 (the average price of a car in 2022) would be about $6500 in 1971 but in fact the average price of a car in 1971 was less than $4000. So the relative cost of cars was less than it is now compared to other aspects of people's financial lives.
Going to the movies when i was a kid was a much cheaper activity than it is now, even adjusting for inflation.
What is the economic language for this issue? I'm interested in the subjective experience of buying and spending over time, more than just adjusting systematically for dollar-amount inflation.
The link above is a good overview.
Inflation is the change in price for the same basket of products or service. Since the basket of products and services changes over time, this is really, really hard to do correctly. But there are lot of smart people at the BLS (in the United States) and their sister agencies around the world who have been thinking hard about this for decades. (This may sound defensive, and it is. There's so much misinformed and hostile attacks on inflation measures.)
One big challenge is how to adjust for quality. Inflation measures attempt to adjust for quality changes.
"Going to the movies when i was a kid was a much cheaper activity than it is now, even adjusting for inflation." In once sense, that's not true: Using an accurate inflation measure of theater-going, the price of going to the same movie, in the same kind of theater, would be identical: That's what it means for an inflation measure to be accurate.
But not all prices change at the same rate. If you apply average overall inflation measures to various products, roughly half will be cheaper and half more expensive. For example, TV and computer prices are way, way lower than they were. Education is much more expensive.
A second issue is that you probably can't go to the same theater as you did 30 years ago. Screens are bigger, seats more comfy, etc. That's an increase in quality. In a sense that's good: Think what would happen if someone tried to sell an average 1972 car today, even at a lower price than today's cars. As health economists have noted, health care prices are way higher than they were, but for some reason no one is opening a hospital advertising "1950s Healthcare at 1950s Prices!" It's almost impossible to appropriately quality adjust health care prices.
A separate issue is that average real (inflation adjusted) incomes have increased. Imagine a world where all prices and products remained constant, but incomes increased. Inflation would be zero, but each product would cost a smaller share of your income.
Comparing overall standards of living is difficult, but in terms of specific items, the vast majority of people have access to many more goods than they did in 1971. For example, in 1970 only 11 percent of households in the US had central air conditioning; now it's around 2/3.
All this is a meandering answer, because it's a vague (but interesting) question.
posted by Mr.Know-it-some at 9:35 AM on July 14, 2022
Inflation is the change in price for the same basket of products or service. Since the basket of products and services changes over time, this is really, really hard to do correctly. But there are lot of smart people at the BLS (in the United States) and their sister agencies around the world who have been thinking hard about this for decades. (This may sound defensive, and it is. There's so much misinformed and hostile attacks on inflation measures.)
One big challenge is how to adjust for quality. Inflation measures attempt to adjust for quality changes.
"Going to the movies when i was a kid was a much cheaper activity than it is now, even adjusting for inflation." In once sense, that's not true: Using an accurate inflation measure of theater-going, the price of going to the same movie, in the same kind of theater, would be identical: That's what it means for an inflation measure to be accurate.
But not all prices change at the same rate. If you apply average overall inflation measures to various products, roughly half will be cheaper and half more expensive. For example, TV and computer prices are way, way lower than they were. Education is much more expensive.
A second issue is that you probably can't go to the same theater as you did 30 years ago. Screens are bigger, seats more comfy, etc. That's an increase in quality. In a sense that's good: Think what would happen if someone tried to sell an average 1972 car today, even at a lower price than today's cars. As health economists have noted, health care prices are way higher than they were, but for some reason no one is opening a hospital advertising "1950s Healthcare at 1950s Prices!" It's almost impossible to appropriately quality adjust health care prices.
A separate issue is that average real (inflation adjusted) incomes have increased. Imagine a world where all prices and products remained constant, but incomes increased. Inflation would be zero, but each product would cost a smaller share of your income.
Comparing overall standards of living is difficult, but in terms of specific items, the vast majority of people have access to many more goods than they did in 1971. For example, in 1970 only 11 percent of households in the US had central air conditioning; now it's around 2/3.
All this is a meandering answer, because it's a vague (but interesting) question.
posted by Mr.Know-it-some at 9:35 AM on July 14, 2022
Sometimes historians summarize income and material goods for a time/place by quintile, or estate (farm laborer, city artisan, lawyer, aristocrat) to do this from the other perspective. The more detailed "how to understand Dickens and Austen" books might, for instance. As do contemporaneous household advice manuals; I believe Mrs Beeton has a range of household budgets for different incomes.
posted by clew at 10:16 AM on July 14, 2022
posted by clew at 10:16 AM on July 14, 2022
You have to find old newspapers and see the actual prices people were paying, because directly adjusting prices doesn't account for various differences in standards of living/technological advancements between then and now. Also various sales prices too, since people always buy what they can on sale.
Here's one I like to use, because I can always find it via a silly article about a "bunny bus".
Lawrence World Journal - December 1978
First column is the old price and the 2nd is the CPI inflation-adjusted price. Then you have to find the price-equivalents. Just a quick look says most have actually gone down in price and there are far more variations in pricing between low-end and high-end models, so you have to decide where you are creating your pricing model. Surprisingly, rent is about the same in Lawrence KS (I found a few for less), McDonalds wage rate has followed inflation. Tech changes too are highlighted - check out how much a microwave cost.
kinkos copy: .04 = $.18
holiday inn spaghetti and garlic bread: $1.50 = $6.57
dairy queen ice cream sundae: .69/1.19 = 3.02/5.21
DQ hamburger: .25/.49 = 1.09/2.14
Ken's Pizza buffet: 2.59 = 11.34
Movie tickets (Superman) $3/1.50 (kids) = 13.13/6.57
Ladies shoes 17-29 (21-35) = $74/126 ($91/153)
avocados : 6 for $1 = $4.38
rent-a-car $5.95 a day = $26
car battery: $50 = $218
Broyhill dining room:$800 = $3500 (Broyhill is owned by BigLots now. You could buy this same set for less than $800 in now dollars).
lettuce: $.50 = 2.19
potatoes: 10lb for $1 = $4.38
2 bed rent: $225 a month = $984
microwave: $539 = $2359
McDonalds: $2.65 per hour = $11.60
posted by The_Vegetables at 10:22 AM on July 14, 2022
Here's one I like to use, because I can always find it via a silly article about a "bunny bus".
Lawrence World Journal - December 1978
First column is the old price and the 2nd is the CPI inflation-adjusted price. Then you have to find the price-equivalents. Just a quick look says most have actually gone down in price and there are far more variations in pricing between low-end and high-end models, so you have to decide where you are creating your pricing model. Surprisingly, rent is about the same in Lawrence KS (I found a few for less), McDonalds wage rate has followed inflation. Tech changes too are highlighted - check out how much a microwave cost.
kinkos copy: .04 = $.18
holiday inn spaghetti and garlic bread: $1.50 = $6.57
dairy queen ice cream sundae: .69/1.19 = 3.02/5.21
DQ hamburger: .25/.49 = 1.09/2.14
Ken's Pizza buffet: 2.59 = 11.34
Movie tickets (Superman) $3/1.50 (kids) = 13.13/6.57
Ladies shoes 17-29 (21-35) = $74/126 ($91/153)
avocados : 6 for $1 = $4.38
rent-a-car $5.95 a day = $26
car battery: $50 = $218
Broyhill dining room:$800 = $3500 (Broyhill is owned by BigLots now. You could buy this same set for less than $800 in now dollars).
lettuce: $.50 = 2.19
potatoes: 10lb for $1 = $4.38
2 bed rent: $225 a month = $984
microwave: $539 = $2359
McDonalds: $2.65 per hour = $11.60
posted by The_Vegetables at 10:22 AM on July 14, 2022
BTW, one would expect most things to fall in price due to technological advances, which can be mitigated by creating luxury hierarchy (clothing, shoes, furniture, cars), changing average customer profile (movie tickets), or by enacting shortages (housing).
posted by The_Vegetables at 10:28 AM on July 14, 2022
posted by The_Vegetables at 10:28 AM on July 14, 2022
Since the basket of products and services changes over time, this is really, really hard to do correctly.
The historians have been laboring mightily on this one for a long time, too. It's very challenging.
posted by praemunire at 11:39 AM on July 14, 2022
The historians have been laboring mightily on this one for a long time, too. It's very challenging.
posted by praemunire at 11:39 AM on July 14, 2022
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posted by praemunire at 8:58 AM on July 14, 2022