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Home / Economics  /
How Good Were The Good Old Days Really?  Part I.
Good Old Days

Were they as amazing as grandma and grandpa said?

Who among us hasn't ever heard a grandparent recount what is was like in the "good old days"? Things were simpler, better, and much, much cheaper. Didn't you hear from your grandparents how it only cost US$0.05 for a bottle of Coke back in the day?

It's difficult to debate what "better" means, as that amorphous word can take on a different meaning for every person. I'll attempt to tackle that as objectively as I can in part two of this article. For now, let's focus on something inherently more objective.  Were the good old days really that much cheaper?

A bottle of Coke did, indeed, cost 5 -- in 1944.  A similar sized bottle in 2013 costs about 90, a nominal price rise of 1,700% over 70 years. At first glance, this looks like a huge jump. Our grandparents, looking at this data, would exclaim how prices have gotten out of control.

Grandparent economics is simplistic.   90 minus 5 equals 85. But an 85 price rise over 70 years isn't remotely the same as your favorite hamburger costing $2.00 on Friday and being marked up to $2.85 on Monday.

In 1944, the U.S. gross domestic product per capita (GDP per capita) was $22,456, in 2013 dollars.  The figure actually published in economic journals in 1944 would have been much lower, somewhere around $1,700.  Inflation erodes the value of a dollar's purchasing power from year to year, such that $1 in 1944 and $1 in 2013 are really two different prices. It's helpful to think of a 1944 dollar and a 2013 dollar as two different currencies which need to be converted in order to be compared.   With the way governments print money nowadays, you can safely assume that $1 from the past will always be worth more than $1 in the future. 

GDP per capita is not the same as average personal income, as it just takes the total domestic output of a country and divides it by the country's population.  It never accounts for vast income disparities, which the U.S. is rife with.  But to keep this discussion on the simple side for analyzing the "good old days", we'll stick with it. In 2013, the GDP per capita for the U.S. was $53,001.   

We now have two figures, priced in the same 'currency' of 2013 dollars, the 2013 figure being almost 2.5 times the size of the 1944 one.

Our representative citizens from 2013 and 1944 would not be taking home these full amounts, of course.  They have to pay taxes on it. Factoring in standard deductions and personal exemptions and applying the various marginal tax rates, our 2013 citizen pays 20.25% in federal taxes plus more in state and local taxes. We're trying to keep this simple, so let' s add on another 14.75% and say our man from 2013 pays a total of 35% in taxes.  His real state and local taxes depend on where in the country he lives.

Our citizen from 1944 pays federal taxes at a rate of 23% up to a ceiling of $2,000 in 1944 dollars.  After adjusting for his personal $500 exemption, Mr. 1944 pays a real rate of 16.2% in federal taxes. Adding on his state and local taxes, we'll say his total tax burden is 30%.

Thus, after all the tax men have enjoyed the spoils, Mr. 2013 is left with $34,451 and Mr. 1944 with $15,719, both in the currency of 2013 dollars.  

To truly compare the prices of Coke bottles from 1944 to those in 2013, we first need to put them into a common currency.  With annual inflation between 1944 and 2013 equal to 3.8%, the equivalent price of a 5 Coke in 1944 in 2013 dollars is 66. This is only 23% cheaper than the 2013 price.

We still need to weigh the price of a bottle of Coke in each era with that era's respective income to see who among our two average citizens finds the Coke more of a financial burden.  In other words, we account for purchasing power.  With Mr. 1944's disposable income, he is able to purchase a total of 23,816 bottles of Coke. Mr. 2013, on the other hand, can purchase 38,278 bottles.  Effectively, the bottle of Coke winds up cheaper in 2013.   Interesting.  Could it be our grandparents didn't know what they were talking about?

Business Insider ran an article about how cheap various items were in the past, but in typical half assed mainstream journalistic fashion, didn't bother to convert the 'cheap' old time prices into more modern dollars for a genuine apples-to-apples comparison. For instance, they claim that the cost of raising a child in 1995 averaged $145,000 and rose to $227,000 in 2012. After converting the 1995 amount into the standard currency of 2012 dollars, we get an equivalent figure of $218,590, not a huge difference from the 2012 figure.  The higher nominal 2012 figure ends up the cheaper one once the higher real incomes of 2012 are accounted for.

We can continue to rip a hole right through Grandma and Grandpa's -- and Business Insider's -- half baked logic that the past was so cheap. Nearly all the items Business Insider discusses and which our grandparents reminisce gleefully from their nostalgia banks turn out to be cheaper in real terms in the present:

postage stamp A U.S. postage stamp in 1971 cost 8; in 2013, 46.  Adjusted for inflation and put into 2013 dollars, the 1971 and 2013 figures are identical, but when you consider that Mr. 1971's disposable income is somewhere around $22,267 (in 2013 dollars) next to Mr. 2013's $34,451, stamps remain cheaper today. 

Hershey Bars Hershey Bars cost 5 in 1937 and about $1 in the present.    But our depression-era Mr. 1937, even with only a 4% marginal federal tax rate, can only afford to buy about a third of the Hershey Bars as Mr. 2013. 

gasoline cost Gasoline cost 21 per gallon in 1923 and around $4 gallon in the present.  Despite nearly non-existent tax rates in 1923, our man from that era can only buy 3,741 gallons whereas his counterpart from 2013 can purchase a whopping 8,613 gallons.

McDonald's hamburgers A juicy McDonald's hamburger cost just 15 in 1955.  We'll estimate that travesty to cost $2 today, as the price varies significantly by locale.   Mr. 1955 gets to munch on 10,766 hamburgers, Mr. 2013 on 17,225.  No wonder colon cancer is on the rise.  

median price new home The median price on a new home in 1963 was $17,200 (or $129,906 in 2013 dollars).  In 2013, that figure stood at $216,000.  Going through our typical calculations, we see that a new home costs Mr. 1963 a multiple of 7.3 times his annual disposable income.  Mr. 2013 needs to only spend 6.3 times to get a foothold in the property markets.

twenty-four pack Budweiser A 24-pack of Budweiser cost $2.93 in 1954, equivalent to $25 in 2013 dollars.  In 2013, that same 24-pack of lousy beer runs $20, a twenty percent decrease in real price.  But once you factor in relative incomes again, Mr. 2013 can guzzle three times as many 24-packs as Mr. 1954. 

new car price The average price of a new car in 1950 was $1,510 ($14,691 in 2013 dollars).  It's $31,000 today.  But considering relative incomes after tax, Mr. 1950 has to pay 10% above his annual income to buy the new car while Mr. 2013's car costs 10% less than his annual income.   

The past was, indeed, cheaper for some things, but the differences are not as dramatic as they initially appear:

corn flake box A box of corn flakes cereal cost 12 in 1945 ($1.55 in 2013 dollars) and costs $3.90 today for a similar sized box.  Adjusted for incomes, Mr. 1945 can consume only 7% more boxes annually than Mr. 2013.

cigarette cost Cigarettes sold for 45 a pack in 1968 and can cost up to $11 a pack today.  Most of that hike is due to high cigarette taxes.  The present federal tax rate per pack today is over $1. In New York City, state and local excise taxes add $5.85 to the cost.  With the federal tax included, that's almost $7 in taxes per pack.  Even with all the enormous taxes levied on cigarettes since 1968, cigarettes are only slightly more than twice as expensive today compared to 1968.  

Yale tuition in 1967 College tuition rates have advanced well above the rate of inflation.  Back when I was in college, I watched the tuition rates at my university rise by 7% per year.  Annual tuition at Yale in 1967 was $1,950.  In 2013, that same tuition stood at $39,000.  In consistent 2013 dollars, the 1967 tuition is a third of 2013's.  However, the burden in 2013 isn't triple or even double.  The tuition bill would comprise 64% of Mr. 1967's annual disposable income.  Forty-six years later, that tuition bill would be equivalent to 113% of Mr. 2013's disposable income. 

And then there are the most dramatic differences, where the past was incomparably cheaper:

movie ticket 1962  A movie ticket cost 50 in 1962 and as much as $13 dollar now.  Mr. 1962 could have gone to the cinema 4,537 times with his disposable income.  Mr. 2013 gets to visit just 2,650 times. 

Disneyland cost  A child's ticket to Disneyland cost just 35 in 1956 (= $3 in 2013 dollars) but runs an astounding $80 today. Mr. 1956, visiting when the park was just one year old, could take his child 5,326 times per year.  A child today could visit a paltry 430 times per year by comparison. 

There's a lot we could add to this discussion on prices. Stamps are cheaper in real terms today than they were in 1971, but many types of communications which would have required a stamp back in 1971 can be sent instantaneously and for free by e-mail today. Gasoline is cheaper today than 1923, and you also get better gas mileage in cars that are 20% cheaper with many more improvements and comforts. Median home prices are 14% cheaper than they were in 1963, and they're also more spacious. The average American home size has more than doubled in size since the 1950's.

Anything involving technology, which leads to greater productivity, lowers the costs. Improved productivity would be responsible for a good share of the lower costs you see in today's Hershey bars, McDonald's hamburgers, and Budweiser cans.

Hershey has already cheapened their already cheap chocolate, substituting in inferior vegetable oils for cocoa butter. This doesn't make the chocolate superior, but it does lower the cost.

A modern McDonald's burger is not made from the beef of one steer, and all these steers are not fed on organic grasses, but genetically modified corn and soy. There could be 12 or 100 steers' flesh in your burger. No one knows. This homogenization offers greater economies of scale and lowers the cost.

Budweiser has always used fillers like rice and corn in their beer. Genetically modified ingredients, improved automation, and greatly increased competition in the beer markets since 1954 have lowered Budweiser to the price it's really worth. Its 1954 price was like paying for a prime sirloin steak and getting fragments of ground chuck in return.        

The past really wasn't so cheap for many items, as I've painstakingly pointed out. A significant flaw in this article is that I document the price of one item and compare how much more or less of it one could purchase with an era's current disposable income.  In real life, we don't spend all of our income on gasoline or on Hershey bars or on stamps or on cornflakes or on tickets to Disneyland.  We spend it on a mix of these items.   So it's not really that useful a conclusion that a child from 1956 could afford to visit Disneyland 13 times more often than a 2013 child when, in reality, each is only likely to visit the park once.

Up ahead, in Part II, I'll put these prices into their proper context to determine if our grandparents may have been on to something after all.

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 The Complete Article Index