An old friend posted the following on her facebook page which showed the cost of living in 1958. On the one hand, it seems that things were so much less expensive, on the other, factors like efficiency gains, and inflation make a $ to $ comparison pretty tricky.
As a result, I decided to go do some digging, first to spot check some of the 1958 data, and then capture some 2012-2014 data to use as a comparison. Getting back to the $ to $ comparison, I pondered using CPI, but decided to go with household median income as the factor for normalization. Being a 10.003 multiplier is a bit higher than CPI 8.06[1958-2013] it makes the increases harder hitting, but being most households require 2 FT incomes today, the harder hitting aspect seems justifiable.
Take a look at the spreadsheet and source data.
Going down the list, a few things stood out.
1. Female median income has shot through the roof, being over 300% higher than it was in 1958. Granted, gender inequality is still at play, but labor participation rates are much much higher.
2. Real estate has gotten insanely expensive. Elizabeth Warren brought this up as an anti-family thing / loss of reserve capability a ways back in her book “A Fighting Chance“. While her conclusions are entirely reasonable, its interesting to note that from a real estate rental point of view, the reverse effect, albeit slight, has occurred. Namely, back in 1958, it was a much better deal to buy than to rent as mortgage payments were under half the cost of renting, where as today’s declining rents have made it near equal.
3. Tax rates are much much less than they were back then, and not just the 91% top marginal rate, but pretty overall, folks are paying much much less. Then again, folks were serious about getting rid of WWII debt, and they were serious about investing for the future too. Alas, neither is much of a priority today, unless one is talking about govt spending on programs one likes or doesn’t like depending upon party affiliation.
4. Per-capita health spending is in crazy land. We went from $134 per-capita in 1958 to nearly $9000 per-capita, and for that huge amount of spending, we get an increase of life span of about ten years.
5. Tuition has gotten crazy, both at the Ivy League as well as the state level. Back in 1958, taxpayers saw technical colleges and universities as a means of investing for the future and most states subsidized tuition 100% or very close to it. In recent years, most states have cut their share of tuition more and more. Higher ed is no longer an investment in the next generation, but more so, an entity to be cash-cowed. We do so at our peril.
6. The costs of food have dropped multifold. Its no wonder that its near impossible to make money in the dairy industry anymore, short of having a boutique offering or massive scale. Similar things could be said for other staples, albeit nothing was hit as hard as milk as far as price deterioration goes.
As far as the the why aspect goes, crony capitalism, global competition, and Baumols curse have all played a role as to where we are today. Short of some black swan or science fiction type event, we are stuck with Baumol, he isn’t going anywhere fast. Global competition is a hard read, its a pig in a poke as to predicting where it will lead within the 3 big cost issues…. but crony capitalism, that we can do something about, the question is whether there is any will to do so.