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A Shopping Trip to the Past Reveals an Important Truth About Inflation

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Inflation has been pretty well contained lately, averaging well below the Fed’s target rate of 2 percent. But could the true rate of inflation be even lower than that? In a recent piece for The Wall Street Journal, Andy Kessler explains why.
Kessler sees quality adjustment as the big flaw in the CPI and other standard inflation. Government statisticians try to make quality adjustments, but, as Kessler says, “by the time the BLS puts something new in the CPI basket, it’s already cheap.” As a result, he thinks, the CPI overstates the true rate of inflation by about 2 percentage points.
Is he right? Even the best econometricians aren’t sure. That’s not because they aren’t good at what they do. Rather, it’s because quality adjustment is fundamentally subjective.
With that in mind, I’ve developed my own purely subjective approach to gauging inflation, based on a fantasy shopping trip to the past. Off you go, into the time machine. All I ask is that you bring back an answer to this question:

If you could choose between shopping today at today’s prices, or shopping in the past at past prices, what items, if any, would you buy from the past?

Although I can’t give you a seat in a real time machine, I can give you the next best thing: An old Sears Catalog. A great website, www.wishbookweb.com, keeps an archive of page-by-page images for these “Wishbooks” going all the way back to 1937. I won’t take you back that far, just to 1962. I pick that year because that was before the “Great Inflation” of the 1960s and 1970s, which tripled the U.S. consumer price level over the next two decades. All prices quoted from the 1962 catalog are the actual nominal prices of that year, with no adjustments for inflation.
Let’s go shopping!
The clothing department

We’ll start in the clothing department. True, there have been changes in style. Some of the 1962 specials would draw odd looks if you wore them to the office or golf club in 2019. But not everything is out of fashion. How about a women’s turtleneck sweater for $6.95, or a pair of fleece-lined leather gloves for the same price? Classic style, quality materials. Could you beat or match those prices today?
Yes, as it turns out. A search of Amazon.com, today’s analog of the Sears Catalog, turns up the “oodji Ultra Women’s Basic Turtleneck” at the bargain price of $6.70. And that’s with free shipping on Amazon Prime. With the Sears Catalog, you had to pay the cost of parcel post yourself.
I found a pretty close match for the gloves, too: A pair from Ayliss at $6.99. OK, those are lined with cashmere, not fleece, but how picky can you be?
Here’s the amazing thing, though. Those are just the prices in dollars. What if you restate them in terms of how many hours you would have to work to buy those items in 1962 vs. 2019?
In 1962, average hourly earnings for production and nonsupervisory employees in the United States were $2.50 per hour. Today they are $23.24, more than nine times higher. That means you would have had to work 2 hours and 47 minutes to buy the sweater or the gloves. Today, you’d only have to work 25 minutes to buy either item.
The watch department

Let’s get something for the guys. Need a watch? Here are the men’s models on p. 164 of the Sears Catalog. A nice, basic Timex costs just $14.95. Good deal, huh? But, oops, better read the fine print. You have to wind it every day, and reset the time, too, or you’ll miss your bus.
Wait, though — there at the bottom of the page is the newest thing, an electric watch for just $43.95. Not bad, but better check Amazon before you buy. Sure enough, the 2019 “Men’s Easy Reader” from Timex (complete with genuine leather strap) is just $29.95.
Before you buy that brand-name watch, though, you’d better check the “Bargain Finds” department at Amazon. What? What’s this? A “Men’s Fashion Quartz Analog Watch,” with free shipping, for $2.95? You gotta be kidding, Amazon! Are you really selling a watch for less than what it costs you to ship it? (The price may not last, but it’s a real offer as of today. To prove it, I’m keeping screenshots of all the Amazon products and prices mentioned in this post.)
Translating to hours worked: You would have had to work 17 hours and 35 minutes to buy the 1962 model Timex electric watch, but only 1 hour and 10 minutes for the 2019 Timex. To earn enough to buy the $2.95 bargain version, you would only have had to work 8 minutes.
The TV department

Enough of the little stuff. Let’s look for a TV. Flipping through the 1962 catalog, we find a top-of-the line 23-incher on p. 200 for $189.95. And check this out: “Silicon rectifiers as used in military missiles provide great reliability and long life.” Tempted? But, uh, “Controls conveniently grouped on the front?” Does that mean no remote? And color? In 1962? No way.
Checking Amazon, we find a nice 24 inch TV from LG for $84.99. Remote? Check. Color? Check. Not to mention a flat screen and high definition.
In 1962, you would have had to work 76 hours, almost two weeks, to buy that 23 inch black-and-white TV. Today, the LG flat screen model would cost you just 3 hours and 39 minutes — one twentieth as much.
Other stuff

Of course, you couldn’t buy everything from the Sears Catalog in 1962, any more than you can buy everything from Amazon today. Importantly, neither Sears nor Amazon sells services, and prices of services have gone up a lot faster than prices of goods.
For example, suppose you are about to have a baby, and you are shopping for a hospital. According to Parents.com, your average hospital bill will be about $3,500. I couldn’t find a comparable cost for 1962, but I did find an interesting item at babycenter.com that gives details, including a photo image, of the hospital bill for a woman who gave birth in 1954:

Room 1–1 night — $6.50 per day = $6.50 Room 5–4 nights — $9.00 per day = $36.00 Anesthetic — $10.00 Dressings — $2.50 Drugs — $8.50 Delivery Service (Maternity) — $15.00 Laboratory Tests — $8.00 Nursery Care — $10.00 Treatments — $.35 X-Rays & Fluoroscopics — $2.00 Tax — $.99 Total Account — $99.84 Deposit — $50.00 Balance Due Payable — $49.84

You would have to work 150 hours today— nearly a month — to pay the $3,500 bill compared to just 40 hours then to pay the $99.84 bill. That’s a big difference. No wonder the birthrate is down.

On the other hand, there are quality differences here, too. The rate of infant mortality was 26 per 1,000 births in 1954, compared with 5.8 today. Maternal mortality rates were also about four times higher in the 1950s than they are now.
Suppose your choices today were between East Side Hospital, which would charge you a month’s pay, or the West Side Hospital, which would charge you just a week’s pay. Would you really choose West Side if you knew that the chance was four times higher that Mom or the new baby would die there?
As I noted at the outset, quality is subjective. You might find some cool retro stuff in the 1962 Sears catalog. You might be willing to take your chances with 1950s medical care if it would save you a bundle, or if the only alternative was not being able to afford any medical care at all.
On the whole, though, I think the examples given here support Andy Kessler’s belief that the CPI overstates inflation, rather than understating it, when you take quality into account.
Previously published on Medium. Photo credit: Pixabay.com.



Source: http://dolanecon.blogspot.com/2019/05/a-shopping-trip-to-past-reveals.html

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  • b4

    you know why motel 6 is called motel 6? it used to cost 6 bucks to stay in the late 60ties- we would stay at the beach in socal, 10 guys to a room!- new cars were way cheaper -bought my first car in ’67 for 35 bucks,a ’53 chevy that ran great…gas was 35 cents or so a gallon–worked at supermarket for $1.85 an hour and that was great money in ’68—

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