Two weeks ago, we learned that inflation in the U.S. declined in June to 3%.
That’s still too high, but just a third of what it was a year ago.
Last week we learned that wages are growing faster than inflation.
That’s positive because it increases consumers’ purchasing power – and may help the nation skirt a recession.
This is a particularly welcome development because for the past two years wage increases were completely erased by price increases.
Inflation – the thief that robs us all – had been running at the highest level in 40 years, making Americans feel poorer.
Fortunately, consumer prices have not risen faster than wages over the long haul.
This is clear when you look at time prices.
A time price is the length of time the average blue-collar or unskilled worker has to work to afford something.
Prices are expressed in dollars and cents. Time prices are expressed in hours and minutes.
This is important because while we buy things with money, we pay for them with time.
For example, if a barrel of oil costs $75 and you earn $15 an hour, the time price is five hours.
If the cost of a barrel of oil rises to $80 and you earn $20 an hour, the time price is four hours.
Even though the nominal cost is higher, the time price is lower.
Time prices are an excellent way to measure increases or decreases in abundance over time for three reasons:
- Time prices cannot understate or overstate inflation because current prices and wages are used at every point on the timeline.
- Time prices are independent of currency fluctuations. (They can be measured in euros, yen or any other currency.)
- Time prices provide a standardized way of measuring changes in well-being.
In their excellent book, Superabundance, authors Marian L. Tupy and Gale L. Pooley measured the costs of 50 commodities between 1980 and 2020.
They didn’t just find that the time prices of some of them went down. The time prices of all of them went down.
And not by a little.
The average time price decline of those 50 commodities – including oil, natural gas, wheat, cotton, soybeans, beef, corn, pork and sugar – was a whopping 75.2%.
Put differently, a blue-collar worker had to work 75% less to afford the same amount of those commodities.
Of course, unless we’re at the gas pump or the grocery store, we don’t generally buy commodities but rather finished goods.
Yet the time price decline in these was just as dramatic. And in many cases, more so.
Over the same 40-year period, the time price of a utensil set declined 51%, a dishwasher declined 62%, a washer declined 65%, men’s clothing declined 72%, a bicycle declined 74%, a vacuum declined 83% and a food processor declined 86%.
And that’s just for blue-collar workers. White-collar workers – especially those with a college degree – saw the time price drop even more dramatically.
It’s impossible, of course, to measure the 40-year time price decline in things like laptops, smartphones and flat-panel TVs because none of these were even imagined in 1980.
Home prices always seem high – and especially so today. Yet the cost of housing has also declined when measured in time prices.
For example, the average price of a square foot of housing in 1970 was $15.33, and the U.S. blue-collar hourly compensation rate was $3.93, indicating a time price of 3.9 hours per square foot.
In 2019, the average price of a square foot of housing was $88.89 and the blue-collar hourly compensation rate was $32.36, indicating a time price of 2.75 hours per square foot.
In other words, the time price of a house declined by nearly 30%.
Moreover, today’s homes are more energy efficient, contain numerous major appliances, and almost always include modern features like central heat and air and granite countertops.
When you spend less time laboring to feed and clothe your family, put a roof over your head, keep the lights on and pay your bills, you are gaining the ultimate wealth: more time to do what you really want.
That’s not just prosperity. It’s superabundance.
This is a well-documented fact. Yet, surprisingly, many people get angry when they find out about it.
In Friday’s column, I’ll explain why.