Labor markets and the minimum wage: Crash Course # 28 Economics
Many elderly people face an inflation rate much higher than do the young.
During clear on a recent The Economist we came across a dusty file charges in December 1900 marked an element is a journalist application form on this paper back from a trip to America a century ago, we can not swear it is true, but nor perhaps could it strange things happen even to the upscale end of what at the time was known as Fleet Street is fascinating, anyway plus the usual hotel room, yes long phone calls, even in 1900 and, of course, a project of heavy bar of law, our late colleague seems to have shamelessly claimed for a spending spree on various personal items How prices have changed over the 100 years.
The obvious answer is that everything has increased dramatically the obvious answer would be wrong Since 1900 prices to the average consumption in America have indeed increased by 20 times, an average of about 3 per year, but the variations are large hotel room the cost of our colleague from New York on 8 one night in 1900; the same hotel would charge 600 today, an increase of 75 times at the other extreme, he made a phone call three minutes to Chicago for a lady, we suspect, other evidence, and clearly not his wife ; for the latter, it obviously brought back and charged to this document a memory 49 cents Niagara Falls His call cost 5 45; The cost today is about five cents, a 99 fall.
Over time, general inflation tends to mask changes in individual prices will strip the general rise, and changes are in Table 1 see clearer way, the cost of a hotel room has increased since 1900 by about 300 in real terms; a phone call is cheaper 99 9 The table also reveals some broader trends.
First, goods or services that have benefited from productivity gains through technological improvements and mass production, have seen large price drops in real terms calls are the most obvious example, but electricity , bikes, cars, even eggs with battery hens also fell in 1900, a car, then handmade, cost more than 1000 Henry Ford T, introduced in 1908, cost $ 850, but 1924 original Model- only 265 he used an assembly line, and in a virtuous circle, was also selling a lot more cars in the century, the real price of a car fell 50.
Second, for many products, figures overestimate the real increase in the unit price, because they do not reflect improvements in the quality of potatoes, beer and salt are very well what they were in 1900; bikes are better, but not significantly so; cars are extremely comfortable, reliable and faster.
The table also overstates the increase in prices in other ways Many products that are popular today TVs, such did not exist 100 years ago or how to achieve certain properties nonmaterial In 1900, the phonograph Edison was already all those who want the real sound of music at home, we can t the price of our former colleague bars visits bastringue, may be listed as together with Vanderbilts had to buy an instrument, then pay his daughters to teach how to play in the last century, the price of a Steinway grand piano rose from 160 in real terms, but the real cost of pleasure to our music lover tumbled he bought a compact disc player instead of a piano, paying less than 1 the price of a modern Steinway.
In many labor services, offering few opportunities for productivity gains, prices have soared in real terms and more specifically, hotel rooms, theater tickets and the cost of use of a butler or maid assuming their wages increased in line with average earnings of households responded by substituting goods such as washing machines and vacuum cleaners, for domestic.
Some products that have had their names and strengthened brand also saw the fat price increases Levi 501s, which were once sold as work wear, are now a fashion item and in real terms cost 160 more than in 1900 the Economist real price increased by a third to a US pay the price in dollars in 1900, it cost the equivalent of three Hershey bars; Today, compromise is eight chocolate bars for an economist, a hard decision.
The real price of cigarettes and beer have skyrocketed blame governments and excise duties.
However, not only the price of US gasoline low, compared to other countries; they are also 50 lower in real terms, it was a century ago.
In the century, there were huge changes in relative prices What about the last decade After the era of double-digit inflation in the 1970s and early 1980s, average inflation consumer prices in the developed world is down to about 2, which is generally central bankers definition of price stability for individual prices, these days we no claim of phony charges, perish the thought, to help us, but other documents reveal large variations even in the single decade since 1990 chart 2 shows some changes in the US; in nominal terms this period During the decade, average prices in US consumption increased by 29, an annual rate of 2 6 And the price of a pack of cigarettes jumped to 109, thanks to higher taxes, however, thanks to the electronic revolution, many mobile phone products to videotape recorders are now at least 60 cheaper and the services they offer are cheaper yet the cost of an international call or Internet connection plunged the personal computer price is down only 40, but he is much more powerful way, the cost of computer processing power unit fell by 99 during the decade, however, prices services such as medical care, a stay at the hotel and domestic help continued to increase strongly.
Price changes are also very different in different markets The cost of a business class flight between London and New York surged to 87; another economy class ticket fell 8 in Manhattan the cost of buying an apartment jumped more than 50 during the decade, well ahead of inflation and home prices in many a city landfill where nobody wants to live and who, unlike Manhattan, extend on the side anyway.
Those with a penchant for eating in fancy restaurants and expensive pay more for their pleasure, but those who like fast food has done well a Big Mac and a Coke both increased inflation much less general since 1990 prices the Economist has largely matched inflation, however, another source of knowledge, the Encyclopaedia Britannica, has decreased by about half in the price; Indeed, since its online version is now free, its price has in fact decreased from 100 to anyone on the net.
A consequence of the large changes in relative prices is that individuals may face very different inflation rates, so their spending is very different from the national average for the elderly, for example, are likely to spend more on health care and domestic services, such as gardeners and cleaners, which have risen sharply in price young people are likely to spend more on new products, such as mobile phones or computers, which tend to decline rapidly in the prices during their early years, young people are also more likely to seek low prices on the net.
Take George, aged 60, who smokes, the drinks of whiskey and wears costumes He drives a car, and loves to travel business class and stay in luxury hotels He uses a cleaner and a gardener It pays a heavy premium for medical insurance, and to meet his son for his school fees average inflation rate for such ie discretionary spending, excluding housing, food and heating in the last ten years would be 4 if the gross average of the different elements is calculated.
George has an advantage costumes have not changed in price over the last decade and his wife dresses now cost 30 less However, flashy sneakers that his nephew Ben favors increased slightly in price, and Levi 501s by a hefty 65 but Ben prefers beer or Coke spirits, eats Big Macs, bike rides, is inseparable from his mobile phone, laptop and internet and it doesn t mind flying economy class the price the gym, however, jumped by more than half during the decade Add all, its average inflation rate for discretionary spending was less than 1 These inflation rates are gross, not average weighted few selected items must But in general, many older people do not face a higher indeed the young inflation.
As our comparisons show, even though overall inflation remains low, relative prices can change significantly over a period as short as ten years, let alone a century, thanks to productivity gains from technology improvements or to changes in demand; or very often both and by historical standards, which has been especially true in recent years.
The falls in prices of new technologies are nothing new every technological revolution of steam and electricity to railways and cars benefited from significant savings in electricity prices fell by an average of 6 per year real terms between 1890 and 1920 the car price after a rather heroic, but fair adjustment for quality improvement declined 11 per year in real terms in the first quarter of the 20th century, but recently dives prices were much higher than in previous revolutions see chart 3 in the last 30 years, the price of power data processing decreased by an annual average of 30 in real terms; telecommunications prices have been plunging at the same pace during the last decade.
Information processing and telecommunications strongly witness to the effect of prices and a sharp drop in people companies have taken the new technology quickly to push its low cost yet; in the case of the Internet, even faster than previous technologies like information technology as the popular boast, if the automobile industry has evolved in step with own Thier, consumers could now pay only 25 for a car trip 500 miles an hour and is 1,000 miles to the gallon.
Be honest As General Motors hit back, your car would also crash twice a day, you need to buy a new one every time they repainted the lines on the road, and the airbag system would ask are- you sure about Inpact before inflating.
Comparison of changes in prices of different technologies in different ages should be handled with care, as indeed, in the future, will all refund requests from journalists for The Economist if the last week or 100 years.
The price of the age Economist, Prices, Economist, average inflation rates, changes in relative prices.