Tuesday, 23 December 2014

How much better off are we?

Tyler Cowan has an interesting post:

I say I prefer $100k today to $100k in 1964, that being a nominal rather than a real comparison. If you are not convinced, try comparing $1 million or $1 billion (nominal) today to 1964. For some income level, we have seen net deflation.
But here’s the catch: would you rather have net nominal 20k today or in 1964? I would opt for 1964, where you would be quite prosperous and could track the career of Miles Davis and hear the Horowitz comeback concert at Carnegie Hall. (To push along the scale a bit, $5 nominal in 1964 is clearly worth much more than $5 today nominal. Back then you might eat the world’s best piece of fish for that much.)
So for people in the 20k a year income range, there has been net inflation.
Think about it: significant net deflation for the millionaires, but significant net inflation for those earning 20k a year. In real terms income inequality has gone up much more than most of our numbers indicate.
(See more at: http://marginalrevolution.com/marginalrevolution/2014/12/comparing-living-standards-over-time.html#sthash.Lu1wmUlF.dpuf)

I am not so sure about this. My maternal great-grandfather was a judge and an member of the Prussian diet; I don't think his income in relative terms at the time was higher than mine (and my wife's) combined. But he owned a large villa in Potsdam, had a car with a driver, employed a cook, nanny, several servants, and a gardener. Yes, there was no penicillin nor netflix, but the real estate and services consumed are beyond those of even people with twice our family income... and since nobody else had a car, it took 20 minutes' driving to the center of Berlin. I think the idea that somehow the "rich" have done better is misguided; they consume more services than most, and it is not clear that these have become cheaper. 

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