That's the title of an article over at The Vulgar Curmudgeon's new blog site (and if you followed him on Blogger, you'll want to update your link to reflect his new home). He provides a number of interesting charts, showing how prices and affordability of various assets, etc. have changed over time in comparison to income. Here's one example - automobile prices.
When you look at the increases over the past couple of decades, and consider that real incomes have largely decreased over the same period, things become clearer. It's even more brutal when you reflect that the "official" rate of inflation has little or nothing to do with the real rate of inflation.
Go read the whole article. It's worth your time.
Peter
9 comments:
Looking at that chart, we see that a new car doubled in price between 1990 and 2014. That's 24 years. Using the "rule of 72" that I learned in Econ 101, we can easily determine the average annual rate of inflation is 3%. This is also the official rate. I don't see the problem.
The problem is that people's wages or incomes have not gone up by the rule of 72.
Another way to put it is that a single income family could afford a mortgage and a car in the fifties. These days it takes two good incomes and maxed out credit cards to afford the same lifestyle. If you are lucky.
I found lots of sites with "inflation adjusted" data, but I wanted to check with the real earnings. I found this table on the social security administration site:
https://www.ssa.gov/oact/cola/central.html
Basically, both the Average and the Median wages have more than doubled in that time, though the average rose faster (in other words, those making above the median saw their wages rise more).
So, relative to wages the doubling in price shown has kept track, no more.
Yes, there are some categories (housing prices, especially some high-wage urban areas) where prices have risen much higher than wages. But there are others (like consumer electronics) where the reverse has occurred - in unadjusted dollars, most consumer goods there cost a *lot* less than the same items would have 20 years back (if they existed at all). Which is one of the reasons that the overall consumer price index hasn't risen faster.
If you accept the inflation adjustments, median household income peaked a tad (an estimated 2-4% higher) in 1999-2000, dropped sharply in 2001 and reached it again in 2007, dropped to a nadir ~2012, and has nearly reached it again.
I think the real difference is the costs they *don't* include in their calculations, housing, taxes, and most especially the increase in medical insurance premiums and uncovered expenses that Obamacare has brought us.
That is why I've never owned a new car, & never will. Should I ever become rich & want a recent model, I'll buy one a couple of years old, to skip the depreciation. My present '04 F150 is the newest vehicle I've ever owned; it was 5 years old when I got it.
--Tennessee Budd
And the hole just keeps getting deeper... Sigh...
As anonymous said, this is why I don't have a new car. The newest is a 2006 and when is time to replace them it will be with another used one.
hey Peter;
Buy a used car, let somebody else pay the depreciation. Also part of the cost is that so many people want all this extra stuff in the car from backup cameras and other hitech stuff, all of this adds to the cost of the car.
Calculate the price of a new Ford Model T in gold, remembering to use the price of gold at the time :)
Calculate the price of a the cheapest currently available new Ford in gold using today's price of gold.
Compare the two figures.
I think they will be closer together than many would expect.
My working, using 30 seconds of Google searches:
Ford Model T sold for at $825 in 1909.
Gold in 1909 was $20.67 per ounce.
Thus the car cost 825/20.67 = roughly 40 ounces of gold.
When the price was later dropped to $260 per car, the gold equivalent was about 12.58 ounces.
Current cheapest Ford Fiesta sells for $15,005. Today's gold price is about $1293 per ounce.
So you can buy a current Ford for 15,005/1,293 = roughly 11.6 ounces of gold.
Post a Comment