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
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
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.
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
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
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
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
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
Our citizen from 1944 pays federal
taxes at a rate of 23% up to a ceiling of $2,000 in 1944
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
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
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
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:
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 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 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
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.
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
A 24-pack of
Budweiser cost $2.93 in 1954, equivalent to $25 in 2013
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.
The average price of a new car in 1950 was $1,510
($14,691 in 2013 dollars). It's
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
The past was, indeed, cheaper for some
things, but the differences are not as dramatic as they
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.
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.
College tuition rates have advanced well above the rate
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 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.
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
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.