[HN Gopher] Purchasing power of one US dollar in every year from...
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Purchasing power of one US dollar in every year from 1635 to 2020
Author : throwkeep
Score : 172 points
Date : 2021-06-10 14:37 UTC (8 hours ago)
(HTM) web link (www.statista.com)
(TXT) w3m dump (www.statista.com)
| liquidify wrote:
| What happened in the mid 1700's to start a drop? I can understand
| the drops starting in the 1910's, and then again in the 1960's
| due to the federal reserve and the removal from gold standard,
| but what about the 1700's?
| corysama wrote:
| What happened in 1981 that bent and smoothed the curve?
| iso1210 wrote:
| Reganomics
| randomopining wrote:
| How did Reaganomics happen in less than 1 year from when he
| was elected? What did he change?
| jdsully wrote:
| It wasn't reganomics (typically referring to the tax
| policies) but the central bank taking extreme action on
| interest rates to curb inflation. Prior central bankers
| wanted to do this but didn't have the political cover. As
| expected this created a deep recession but after a year and
| a half the inflation epidemic was ended.
|
| Its considered a rare example of politicians "doing the
| right thing" for the country even at great short term cost.
| ISL wrote:
| Oh, for a logarithmic vertical axis.
| kurthr wrote:
| Yeah, and for site name Statista!
| craigharley wrote:
| I thought this was interesting so I created a chart to show the
| value of US Dollar, against US Dollars over time:
|
| https://i.imgur.com/89MSmlf.png
| WalterBright wrote:
| Note the change after 1914. The switch to fiat money!
| _Microft wrote:
| The beginning and then ongoing World War I (1914-1918) might
| have had an influence. There is also a dip during the American
| Civil War for example.
| WalterBright wrote:
| The government printed fiat money in the Civil War.
|
| WW1 was financed with fiat money.
| ourmandave wrote:
| Back in 1980 when I graduated high school someone gave me $20 so
| I used this site just a month ago to figure out how much to give
| a friend's daughter who was graduating.
|
| The force multiplier is 3.16 or $63.20. =(
| AnimalMuppet wrote:
| Hmm. The current trend is to do $20.21, up $0.01 from last
| year...
| ngngngng wrote:
| Is there anywhere that's done a deeper dive into "what you could
| afford" means? I want to see how few hours you could work
| throughout history to afford absolute necessities. And then split
| this based on minimum wage, average wage, median wage etc.
| mooreds wrote:
| Here's a podcast which covers how long you have to work for an
| hour of light:
| https://www.npr.org/2014/05/02/309040279/in-4-000-years-one-...
| There's a book referenced, which I have not read.
|
| EDIT: sorry, it is the inverse: how much light you get for a
| day's work.
| wincy wrote:
| I don't have time to find the exact pages but the Rise and Fall
| of American Growth tries to quantify real realized quality of
| life gains through what the author Robert Gordon calls "the
| special century", 1870-1970.
|
| https://www.goodreads.com/book/show/26634594-the-rise-and-fa...
| ghaff wrote:
| There's a graph in the book Why the West Rules--for Now that
| charts a "social development" index from hunter-gatherer
| times until today. (Basically a complicated distillation of
| various measures of civilization.)
|
| The bottom line is that if you zoom out essentially nothing
| happened for thousands and thousands of years until the
| industrial revolution.
| AnimalMuppet wrote:
| Exponential growth is always like that. The question is,
| what happens on a log scale? Does it still jump at the
| industrial revolution? And what has happened since then?
| bobthepanda wrote:
| The basket of goods has also changed due to technology and
| living standards.
|
| In 2021 I can buy a bunch of bananas for $1 in the winter in
| the PNW. This is pretty much not possible for a 1900 factory
| worker let alone some remote 1800 pioneer. And let's not even
| get to differences in the quality of housing like with
| electricity, or running water, or even a stove with temperature
| control. (Fun fact; recipes with exact cook times and
| temperatures only start showing up around the 1930s because
| previously it wan't easy to control.)
| RamshackleJ wrote:
| also the basket of goods is mostly impacted significantly by
| technology which causes deflation.
|
| it doesn't include things that don't have acute tech-driven
| inflation (housing/education/healthcare) where tech can't
| drive prices to zero as easily.
| iso1210 wrote:
| > it doesn't include things that don't have acute tech-
| driven inflation (housing/education/healthcare
|
| 80 years ago the President of the USA suffered from polio.
| A vaccine costs about $1 now.
|
| Education at primary/secondary level is mainly salary,
| buildings, land, so tracks well with inflation.
|
| As locations concentrate, attractive land increases in
| value. Land in the middle of nowhere decreases in value if
| population is stable (but of course population has
| increased too)
| ngngngng wrote:
| I realize it's hard to cut out the things that become
| standard in different periods of time, but I'm really just
| hoping for a comparison only factoring in fresh water, 2000
| calories a day, average housing (for the time).
| esens wrote:
| Would be better as a long graph, or as the derivative (e.g. year-
| over-year change).
|
| Viewing decay graphics in this form is incredibly misleading.
| jb_420_dad wrote:
| What was the minimum wage in the US between 1776-1865?
| jb_420_dad wrote:
| What was the minimum wage in the US like between 1776-1865?
| ericmay wrote:
| Here's the purchasing power of one Euro (EUR):
| https://www.statista.com/statistics/1055948/value-euro-since...
| sib wrote:
| Hmm. How many computers or iPhones or cars or televisions or
| bicycles could I have bought in 1635 with one US dollar. Come to
| think of it, where would I have gotten a US dollar in 1635?
|
| (And yes, I've studied lots of economics and understand price
| deflators, inflation, etc.; the point is, these comparisons don't
| really make sense over extended periods of time like this.)
| ghaff wrote:
| >these comparisons don't really make sense over extended
| periods of time like this
|
| Yeah. It's probably useful in something like a magazine article
| or book to give a sense for how someone in 1800 would have
| viewed a $20 bill in purchasing power. But you go back a
| century or so and the basket of goods you're comparing look so
| much different.
|
| And behaviors are also just a lot different. Most middle class
| people in the US won't have a cook but they have tons of dining
| and take-out options. Just to give one example.
| Scott_Sanderson wrote:
| True but couldn't some good be compared like the cost of
| housing, food, clothes, etc.?
| sib wrote:
| Yes - although what would be completely acceptable for a
| well-off person to live in in 17th-century North America
| wouldn't come close to meeting building codes today. It
| wouldn't even have plumbing, electric power, indoor toilet,
| true insulation, etc. And it would be tiny. So can you really
| compare it as though they are both "housing"?
| aeternum wrote:
| Even with those items, they have changed significantly. For
| example, how do you compare the value of a house that has
| indoor plumbing, electricity, central hvac to an old house
| without those things?
|
| If the price of the modern house is 2x the old house, should
| it be attributed to inflation or a higher intrinsic value?
| vel0city wrote:
| Right? These days it's so much more expensive to pay a
| doctor to bleed you to cure the evils in your blood, and
| trying to find an available apothecary to sell you
| medicinal mercury at a good price is darn near impossible
| these days.
| 101008 wrote:
| Yeah, I agree. Coming from a country with a lot of inflation,
| it doesn't make sense if you don't show salaries as well. It's
| true, a US dollar could buy more things in the past, but
| salaries weren't as high as now. A better relationship would be
| what could you buy with a average salary, for example, or how
| many salaries you needed to buy a house back then.
| jiofih wrote:
| There are extensive records[1] available, average wage in the
| 1700s was about $20/week, highest up to $250/week. That
| translates to a range of $1200 - $15000 / week in today's
| dollars according to the value chart.
|
| A pair of shoes would cost something like $1. A slave, $400.
|
| https://babel.hathitrust.org/cgi/pt?id=wu.89071501472&view=1...
| GolDDranks wrote:
| Forgive me for an ignorant question, since I haven't studied
| economics: how are is the purchasing power calculated over time
| then?
|
| Here's my naive/intuition based attempt to guess how it works:
| If it varies as a continuous function, and small increments are
| measurable/well-defined (i.e. stuff like TV's and iPhones don't
| get invented as point-like events enough to screw the
| continuity), one could think that treading back increment by
| increment and then taking a limit would yield a valid time
| series. Then, everything outside that time series would not be
| indicative of the purchasing power of dollar, but the price of
| that specific good or service.
|
| Does my reasoning make sense?
| ghaff wrote:
| To quote the BLS: CPI is "a measure of the average change
| over time in the prices paid by urban consumers for a market
| basket of consumer goods and services."
|
| That market basket gets changed over time which makes
| comparisons harder and harder over time because you're buying
| things that were maybe "typical" for those two points in time
| but are very different. Imagine telecoms and entertainment
| costs for a typical 1970 consumer vs. today.
| hogFeast wrote:
| As another comment has said, you realise that there is fairly
| substantial records on wages, prices. I am sure you have
| studied economics, have you studied economic history though?
| The data is pretty solid.
|
| The issue with consumer baskets has become more difficult but
| only in the recent past where the quality of goods is often
| hard to compute. But historical data is much more solid because
| the relevant consumer basket changed relatively little.
| sib wrote:
| Yup. I actually was a research assistant for a university
| professor who specifically studied economic history, price
| changes, and the econometric models that could be built from
| them, etc. The problem is that the basket of goods is so
| different that it's largely irrelevant too compare them. Even
| a pair of shoes, which certainly existed in the 1600's, can't
| exactly be compared to the shoes (quality or variety) that we
| have today.
| jackfoxy wrote:
| It's really impossible, or at least impractical, to factor in all
| the changes in money supply, baskets of goods, inflation, growth
| in societal wealth, etc. to do inflation comparisons across
| centuries.
|
| Gold has always been internationally recognized money, at least
| until Bretton-Woods
| https://en.wikipedia.org/wiki/Bretton_Woods_system. But there has
| never been enough gold to provide sufficient liquidity in the
| economy, so silver has also been considered money. And of course
| the gold/silver ratio has fluctuated historically. The dollar is
| derived from the Spanish silver doubloon, which was money in the
| New World. Britain restricting circulation currency was one of
| the grievances of the American colonies leading up to the war for
| independence. A doubloon could be divided into eight pieces with
| a chisel, hence the terms _two bits_ to refer to a quarter and
| _pieces of eight_ from pirate stories.
|
| Apparently in law one troy ounce is still the official U.S.
| dollar coin
| https://en.wikipedia.org/wiki/Dollar_coin_(United_States)#Am....
| So I would say a better measure of dollar inflation is to smooth
| out the fluctuations in the gold/silver ratio and fluctuations in
| the silver/dollar price.
| juancn wrote:
| Argentinian here: Ohh... my sweet summer child.
|
| Anyway, it's not really that important unless it changes in value
| suddenly without giving you time to adjust.
| mjh2539 wrote:
| Putting your sources and method(ology) behind a paywall is really
| lame. It's akin to having to pay to see the ingredients included
| in a food item.
| yk wrote:
| That is, in 1700 my 5G contract would have costed $1 if I
| understand the description correctly?
| narrator wrote:
| The trade of the 20th century was shorting the dollar. How do you
| short the dollar? Take out big loans on fixed interest rate debt
| and buy commodities that don't depreciate.
| tyingq wrote:
| Inflation-adjusted views of the US minimum wage are similarly
| interesting: https://theintercept.com/2021/03/05/minimum-wage-
| raise-15/
|
| Just the chart/image: https://theintercept.imgix.net/wp-
| uploads/sites/1/2021/03/mi...
| mc32 wrote:
| That's pretty interesting given that the impression in the
| media is that minimum wages have gone down dramatically
| compared to the past. But that's not borne out by the stats
| (there is some depression, but not much compared to the mean).
|
| What must be going on is the average take home for non-college
| educated has gone down (or stagnated) combined with increased
| expectations -driven perhaps by the media (I should be able to
| have two cars and multiple phones, and go out and spend money,
| etc).
| tyingq wrote:
| It did mostly stay above $10 from 1960 to almost 1980, so
| it's down ~30% from there.
|
| One of my favorite conspiracy theories is that the
| Legislative Reorganization Act in 1970 is the primary driver
| for income inequality in the US.
|
| Somewhat unintuitive theory, but the idea is that prior to
| the act, congressional votes were secret. You got the totals,
| but not which congressperson voted yes or no. In that
| situation, a congressperson could take lobbyist money, but
| vote however they wanted to. The lobbyist had no way to
| verify if they actually got the vote they paid for.
|
| This chart is interesting in that regard:
|
| https://budget.house.gov/sites/democrats.budget.house.gov/fi.
| ..
| hellbannedguy wrote:
| I can't find where in that bill that congressional votes
| were blind?
|
| I see a bunch of changes, but you could still see whom
| voted for what. Or, I read it wrong?
| tyingq wrote:
| I'm not an expert in the wording, but you can read quotes
| from several people on it, and it's clear that they were
| blind or mostly blind prior to the act. By "mostly
| blind", I mean things like a verbal vote, but at a time
| that would be hard to predict, and no CSPAN, paper
| transcript, etc, to record what exactly happened other
| than the totals.
|
| See https://congressionalresearch.org/LRA.html for
| example.
|
| Edit: Guessing it's mostly sections 104 and 121 of the
| bill:
| https://www.govtrack.us/congress/bills/91/hr17654/text
|
| "Roll Call" is their wording for detailed info on who
| voted for what.
| jpadkins wrote:
| https://wtfhappenedin1971.com/
|
| interesting theory. I've always thought it was end of
| bretton woods arrangement (pure fiat monetary system)
| tyingq wrote:
| Oh, wow, that's a great collection of different things
| that have changed. Thanks for sharing that.
| mc32 wrote:
| That is interesting. I'd be interested to have at least one
| session revert to the old way, and see what happens.
| YinglingLight wrote:
| The Inflation-hysteria is really being artificially pushed. Feds
| want a 'justifiable' excuse to raise rates and crash the economy.
| trimbo wrote:
| Related: Pound sterling from 1209-2019:
| https://www.statista.com/statistics/1031884/value-pound-ster...
| TMWNN wrote:
| I'd heard that there was no inflation in England in 1914 versus
| 1614. The chart doesn't show this, but it does show a
| remarkably stable period (for some value of "stable") between
| c. 1650 and c. 1750, and another from 1820 to 1914.
| nonameiguess wrote:
| It's a damn good thing people on fixed incomes don't live to be
| 400 and don't have to hold all their savings in cash. Aside from
| the basic nonsense of projecting purchasing power over periods in
| which what you can now purchase didn't exist.
|
| This is of course also nonsense, but the one good that has
| existed that entire time is land. Manhattan was purchased for 60
| guilders in 1623, projected to $24. According to Bloomberg, the
| estimate of Manhattan land value in 2018 was $1.74 trillion.
| Amusingly, thanks to the magic of compounding, that actually only
| implies a 6.5% average annual inflation rate.
|
| Of course, land is a capital asset and expected to appreciate,
| but this is granting the Hacker News inflation hawks worst case
| that inflation rates should include nominal price increases in
| capital assets.
|
| I'm having trouble finding decent data on this, but it looks like
| a guilder averaged about 10g of silver at the time? So saying
| Manhattan was worth 600g of silver, that's about 21.16 oz. The
| present value of Manhattan in ounces of silver is 62,142,857,142.
| That is 5.674% annual inflation denominated in silver.
|
| Not bad for the dollar, I guess? Less than 1% per year worse
| decrease in purchasing power compared to silver?
|
| I have no idea how the website I was looking at computed a dollar
| to guilder conversion rate a century and a half before the United
| States existed, though.
| rovolo wrote:
| > Manhattan was purchased
|
| It wasn't purchased from the people who inhabited the island.
| [0] The dutch created a deed to claim the island, and paid one
| village to move to make the deed seem legit. [1]
|
| [0]
| https://en.wikipedia.org/wiki/New_Amsterdam#1624%E2%80%93166...
|
| [1] https://www.americanheritage.com/24-swindle#
|
| Claiming that Manhattan was purchased for cheap is similar to
| claiming that the Louisiana purchase only cost 65C/ per acre.
| The Louisiana purchase didn't transfer land to the U.S. from
| the inhabitants, it purchased conquest rights from the other
| European powers.
|
| > for the majority of the area, what the United States bought
| was the "preemptive" right to obtain Indian lands by treaty or
| by conquest, to the exclusion of other colonial powers.
|
| https://en.wikipedia.org/wiki/Louisiana_Purchase
| arcticbull wrote:
| It genuinely does not matter whatsoever how much $1 buys you at
| any given time. It's a unit, like a liter, except one whose
| definition changes over time.
|
| Roughly speaking, you can approximate this in your head by
| vintaging a dollar. A 2019-dollar is worth more than a
| 2020-dollar. They're different 'things.' But it doesn't matter
| because...
|
| Your job is not to save money. Your job is to save value. You
| save value by exchanging dollars for investments. It's a medium
| of exchange and an intentionally-lossy short term store of
| value.
|
| A currency should be (1) predictable (2) stable (3) fungible
| and (4) cheap and easy to exchange. It only needs to hold its
| value for as long as it takes you to either invest it or spend
| it on productive assets. Any longer than that is a non-goal.
|
| Wages have kept pace with inflation. You can argue they should
| be higher but that's a social policy issue not a monetary
| policy issue. Without inflation they would have just been flat
| in notional terms. In a deflationary environment they would
| have gone down in notional terms. That part doesn't matter.
|
| If you want to make things better for the lower class and
| reduce inequality, go talk to Congress. Vote for stronger
| unions, vote for a higher inflation-pegged minimum wage, vote
| for a wealth tax, vote for an estate tax, vote for universal
| healthcare. Stop tilting at windmills.
| jkepler wrote:
| > It genuinely does not matter whatsoever how much $1 buys
| you at any given time. It's a unit, like a liter, except one
| whose definition changes over time.
|
| Except that the whole point of units like liters, inches, or
| joules is that they remain constant and unchanging over time.
| Money should be a unit of measure, not a changing unit. In
| what sense is a changing unit a unit?
|
| > Your job is not to save money. Your job is to save value.
|
| But value is subjective, so how can you save it? Different
| people will make different and subjective valuations of thing
| based on a host of criteria - a vegan won't value a burger
| anywhere as much as a hungry carnivore would.
|
| The dollar, as a money, should be a constant unit. Then
| people could value it as they see fit, some choosing to hold
| more or less of it for the proverbial rainy day.
| lend000 wrote:
| > Your job is not to save money. Your job is to save value
|
| I could not disagree more. For much of human history, and
| most of American history, saving currency was exactly how you
| saved value. You already created value in exchange for the
| money; now you should be able to hold on to that value until
| you want to spend it. The fact that putting money under your
| mattress is no longer a viable strategy is why we have
| massive and growing wealth inequality. It is horribly
| unrealistic to assume that every person can or should become
| financially savvy enough to make smart investments in the
| global economy, and it is naive to think that just buying
| some index is efficiently allocating capital.
|
| > Wages have kept pace with inflation.
|
| Wages have barely kept up with CPI [0], which is not true
| inflation (see my other comment on this thread). While I
| don't agree with most of their economically illiterate
| proposed solutions (minimum wages, wealth taxes, etc.), the
| people clamoring about a living wage have a point these days.
| It makes sense that CPI and CPI-adjusted wages will always be
| a flat line, by the way. I recently learned that the CPI
| basically just measures the annual median American's budget
| via their consumer spending survey, which is of course
| directly related to wages.
|
| [0] https://www.pewresearch.org/fact-tank/2018/08/07/for-
| most-us...
| notahacker wrote:
| The average person doesn't need an "investment strategy".
| They "invest" most of the money buying stuff they actually
| think might help them, and the rest goes in a savings
| account, index or pension fund where businesses that do
| have a strategy use it to generate returns. On the other
| hand, it's better for the average person that need access
| to capital to grow businesses and create jobs that people
| with significant holdings of capital have some downsides
| from not letting anybody use it.
|
| Imagine a wealthy person in 1635 has 1% of the dollars in
| the US. Their investment strategy regards actually using
| those dollars to help people as too risky, so they instead
| bury it in the ground. Four centuries later, thanks to
| millions of non-wealthy people working billions of hours
| and some very clever inventions and investments and no
| thanks at all to the wealthy miser, 1% of the US comprises
| many of the world's successful businesses and modern cities
| full of technology. Does the heir of the wealthy miser have
| a rightful claim on 1% of four centuries of other people's
| labour and capital being put to better use if he digs up
| the dollars? I would say no.
| lend000 wrote:
| A contrived example ignoring the inheritance taxes on
| whoever digs it up, but an interesting point to address.
|
| Consider:
|
| 1. The money supply can grow without inflation, as GDP
| grows (via fractional reserve banking).
|
| 2. The number of years (400) is irrelevant -- the
| question is, does an heir deserve anything? I would argue
| that a value creator has the right to pass on wealth, and
| the government has a right to tax it (inheritance tax).
|
| 3. You are ignoring how someone came to acquire 1% of the
| money supply in the first place. They must have created a
| tremendous amount of value. How much further into the
| future did they push forward society in acquiring that
| wealth? Years? Decades?
|
| Finally: I am not advocating for a deflationary currency.
| I think 1% inflation is a reasonable concept. The Fed
| aims for 2%, but measures it with a CPI that is broken,
| and so the true inflation rate ends up being something
| like 3.5% or more, which causes all sorts of problems,
| most notably wealth inequality and asset inflation. Not
| hyperinflation, but not a picnic, either.
| notahacker wrote:
| 1) I'm glad you agree that the money supply should still
| grow and that fractional reserve banking has its uses
| (many critics of inflation do not). Of course it is also
| fractional reserve banking that generates the inflation,
| and whilst it is in theory possible for the Fed to force
| inflation down to zero with higher interest rates, that
| actually benefits the rich who lend the money more than
| the poor who borrow it, even before we get into deflation
| threats.
|
| 2) I agree with both your points on inheritance, but
| subtracting six or seven generations of inheritance tax
| from the original example still leaves our inheritor with
| the economic output of multiple modern cities their
| capital was not used to build, as opposed to a few
| plantations, villages and exploration parties (and it's
| not too difficult to envisage scenarios where the
| inheritance tax is skipped: if the gold bars are simply
| found under treasure trove laws, for instance)
|
| As for 3: have you looked at the sort of people that held
| enormous wealth in the 1600s? Most of them inherited it
| from the feudal system. If anything, their concentrations
| on wealth held society back rather than pushed it
| forward, especially when they were disincentivised from
| doing anything with it. (and the less said about how some
| of the actual self-made millionaires of the era plundered
| their wealth, the better...) I'm sure other people have
| pushed society on and been suitably rewarded for it, but
| that doesn't mean that choosing to hold it back in future
| by preventing access to the capital accumulated should be
| cost free. Investment isn't risk free; noninvestment
| shouldn't be either.
| lend000 wrote:
| If we are assuming nothing changes, comparing now to 400
| years ago is unproductive, and there is no point
| hypothesizing if this person was Napoleon-esque.
|
| In a more realistic, modern interpretation, Rockefeller
| sold his assets and buried his wealth circa 1900.
| Rockefeller did, undoubtedly, push forward industry a
| huge amount. While he is considered a monopolist, it was
| never the detriment of consumers. Kerosene prices fell
| dramatically over Standard Oil's tenure.
|
| If he hid 1% of the money supply in a trust after paying
| all inheritance taxes and fees, to be opened today (let's
| say 1% of real GDP in his time), his wealth today would
| be about 0.02% of real GDP. His heir experienced
| tremendous inflation, in terms of their influence on the
| economy, whereas their buying power stayed roughly the
| same, in this hypothetical non-inflationary world.
| notahacker wrote:
| Sure, in this different hypothetical world with no
| deflation or inflation the Rockefeller heirs preserve
| rather than increase the buying power of their capital by
| refusing to allow it contribute to growth for several
| decades. That doesn't necessarily sound deserved either.
|
| Especially when we consider that zero inflation is
| achieved by higher interest rates, generating higher
| compounding returns for the wealthy who do invest,
| imposing higher borrowing costs on everyone else, and
| leading to slightly lower growth compared with a modest,
| predictable rate of inflation. Probably more recessions
| too, since struggling companies can't cancel pay rises
| they never award and probably go straight for
| redundancies. These aren't upsides for people who don't
| have piles of cash they're uninterested in doing anything
| with
| lend000 wrote:
| They buried it, remember, they didn't invest it into CD's
| with high interest rates. If they did put it in a bank,
| then your whole point is moot, because any bank that pays
| interest is actually lending your money to generate that
| interest, so the capital was actively involved in the
| economy the whole time.
|
| An aside: pre-central banking, that isn't how interest
| rates really worked. Inherently, interest rates increase
| with inflation. The opposite exists only at far below-
| market interest rates as an artificial byproduct of the
| way central banks typically inject money into the economy
| (by buying cheap/low interest government bonds), which
| paradoxically contributes to inflation.
| arcticbull wrote:
| > I could not disagree more. For much of human history, and
| most of American history, saving currency was exactly how
| you saved value.
|
| For much of human history we pooped in the street and
| murdered each other with reckless abandon - then we found a
| better way. I'm not sure the rose colored glasses mean much
| here.
|
| That may have been how we did things in the past, but
| there's no reason to couple a medium of exchange (short
| term) and a store of value (long term). There's really no
| justification for it, and the economy has been much better
| off for it. Stability has improved dramatically over a gold
| standard.
|
| > The fact that putting money under your mattress is no
| longer a viable strategy is why we have massive and growing
| wealth inequality.
|
| As I explained these are completely unrelated. You're
| conflating a social policy issue with a fiscal policy
| issue. There's no reason to believe that if inflation were
| 0% wages would not have remained exactly constant in
| notional dollars, and if there was deflationary currency
| they wouldn't have just gone down in notional dollars.
|
| > It is horribly unrealistic to assume that every person
| can or should become financially savvy enough to make smart
| investments in the global economy, and it is naive to think
| that just buying some index is efficiently allocating
| capital.
|
| http://betterment.com
|
| > Wages have barely kept up with CPI [0], which is not true
| inflation (see my other comment on this thread).
|
| Agree to disagree.
|
| > While I don't agree with most of their economically
| illiterate proposed solutions (minimum wages, wealth taxes,
| etc.), the people clamoring about a living wage have a
| point these days.
|
| Works all over the world, why not here?
| lend000 wrote:
| > For much of human history we pooped in the street and
| murdered each other with reckless abandon. I'm not sure
| the rose colored glasses mean much here.
|
| Is this a straw man or a red herring? Try to avoid your
| logical fallacies on HN, regardless.
|
| > That may have been how we did things in the past, but
| there's no reason to couple a medium of exchange (short
| term) and a store of value (long term). There's really no
| justification for it, and the economy has been much
| better off for it. Stability has improved dramatically
| over a gold standard.
|
| There is a reason. Normal, hard-working people can thrive
| under that simple system, and wealth inequality does not
| systematically increase to the betterment of the
| financially savvy. Which is exactly what is happening in
| our inflationary utopia you are describing. Where have
| you been? I don't know what metric you are using to
| define stability, but keep in mind bear markets are the
| only periods in American history where wealth inequality
| reliably decreases as capital is reallocated [0]. Staving
| them off at all costs benefits the wealthy more than the
| many.
|
| Betterment, which you linked, is a free market solution
| to a policy problem, but it's about 50 years too late,
| and unless they capture 100% market share, they aren't
| going to solve the problem going forward (and of course
| they will scoop some nice fees off your savings).
|
| > Agree to disagree.
|
| With data?...
|
| All of your points hinge on CPI being a correct measure
| of inflation. It isn't [1]. CPI quite literally measures
| what typical Americans are buying, _and how much of it
| they are buying._ I.e. their budget. A budget directly
| set by their wages.
|
| [0] https://www.federalreserve.gov/releases/z1/dataviz/df
| a/distr... [1] https://www.forbes.com/sites/perianneborin
| g/2014/02/03/if-yo...
| arcticbull wrote:
| Btw, re: #2, you linked to a Forbes opinion piece. Forbes
| opinion section is basically a glorified Medium. Not only
| is that write-up from 2004, so almost 18 years old, it
| was written by someone unaffiliated with Forbes. I would
| encourage you to put as much stock in a Forbes opinion
| piece as something you read on Medium. In a lot of was
| its worse because it lends them the credibility of Forbes
| - but you wouldn't believe the garbage you find mixed in
| there.
| lend000 wrote:
| Some people would naturally respond to the content of the
| article. Others would naturally appeal to authority or ad
| hominem the author. Some food for thought.
|
| CPI ostensibly worked the same way in 2004, by the way.
| Based on your other comment linking the definition of
| CPI, it seems like you have no idea how it's calculated.
| Even I didn't know the details until recently -- I just
| knew the numbers weren't matching up with my models and
| very obvious price data.
|
| So here's how it works. In the US, a consumer expenditure
| survey is obtained by the BLS [0]. This determines what
| items account for typical Americans' spending, and in
| what quantity, to determine weights [1]. Price data is
| obtained, with in-house selected indices and hedonic
| adjustments [2]. These prices are multiplied against the
| weights, summed, and reflected as a ratio compared to the
| previous year. The Wikipedia page provides a nice summary
| [3].
|
| What is the problem with this? Well, the problem is in
| the consumer expenditure survey.
|
| If wealth inequality is stagnant, this is actually a
| decent measure of inflation in so far as it affects
| people's personal expenses. However, if wealth inequality
| is increasing (and the assets and expenses of the wealthy
| are not factored into this survey, which they are not),
| inflation can only increase so much as median Americans'
| wages increase (plus their debt). When prices are
| increasing, Americans buy dramatically different amounts
| of the expensive items (you can see that in the weights
| in [1] in the mid 2000's when gas prices varied
| significantly) to fit their budget, under-weighting the
| items that are manifesting high inflation. Inaccurate
| hedonic adjustments and any other adjustments done behind
| closed doors could also account for why CPI veers so far
| from independently calculated inflation measures like the
| Big Mac Index, but the core of the problem is that the
| inflation weights are reactionary to inflation and there
| isn't much of a delay on letting weights change each
| year.
|
| So, that is why real wages adjusted for "inflation" is a
| straight line.
|
| [0] https://www.bls.gov/cex/ [1]
| https://www.bls.gov/cpi/tables/relative-
| importance/2019.pdf [2] https://www.bls.gov/cpi/quality-
| adjustment/questions-and-ans... [3] https://en.wikipedia.
| org/wiki/United_States_Consumer_Price_I...
| arcticbull wrote:
| > Some people would naturally respond to the content of
| the article. Others would naturally appeal to authority
| or ad hominem the author. Some food for thought.
|
| This was a general comment on the quality of Forbes
| opinion pieces not an ad hominem attack. It's worth
| mentioning it because I think there's a strong tendency
| to trust the Forbes brand, but it doesn't extend to their
| blogging platform. That's why I actually separated it
| from my other reply.
|
| Inflation is defined relative to basic goods and
| necessities, not to all goods - or to luxury goods, and
| there's a reason for that. Prices of goods change all the
| time for all sorts of reasons. Lobster used to be garbage
| food, now it's luxury. Same with sushi, monkfish, oyster
| and pig trotters. If the quantity of lobsters in the
| ocean start going down and the price of lobster
| increases, does that mean inflation is happening? Even if
| people switched from lobster to salmon? Certainly not in
| my opinion. Nobody's not entitled to a constant basket of
| necessities isolated from the world around them.
|
| Basing the inflation definition on basic goods and needs
| at the time is a reasonable proxy due to their broad-
| based requirement by individuals. Nobody needs luxuries
| by definition. Luxuries are expensive by definition.
| Luxuries tend to be scarce and their price as a result
| fluctuates substantially. But further, they're a product
| of social tastes that change for any reason or no reason.
|
| Weights are adjusted because the price of things changes
| for all sorts of reasons, and the goal is to index
| against a basket of common necessities - not _specific_
| necessities for that reason.
|
| A good analog would be the S&P 500 and the Dow Jones.
| Those index components change regularly as some companies
| fall out of favor and others rise to prominence. They
| reflect the _economy_ but not specific companies. That 's
| not a bug, it's a feature IMO.
|
| The weights being adjusted is reactionary to the cost and
| availability of goods and the preferences of consumers,
| and that's totally fine. A platonic, isolated increase in
| price is not inflation, it's just what it says on the tin
| - an increase in price.
| reedjosh wrote:
| > Basing the inflation definition on basic goods and
| needs at the time is a reasonable proxy due to their
| broad-based requirement by individuals
|
| But what of non-luxury goods that aren't included like
| housing? If the CPI is to measure essentially the value
| of the dollar to what is required to live, isn't it
| useless without housing?
|
| Why is housing left out? I surmise it wouldn't fit the
| inflation targets the fed claims to be attempting.
|
| Either way, when a measure becomes a target it fails to
| be a measure.
|
| Edit: Just another thought. Is today's produce even
| equivalent to that of 60 years ago?
|
| Today's corn is genetically modified and soaked in `safe`
| glyphosate. If the CPI was honest they'd at least have to
| acknowledge that the food we eat today is of extremely so
| lesser quality.
|
| Today's nearest equivalent would be to eat a wholly
| organic diet. If one were to hold the quality of food
| stable, that too would have to show a _much_ higher rate
| of inflation.
| arcticbull wrote:
| > But what of non-luxury goods that aren't included like
| housing? If the CPI is to measure essentially the value
| of the dollar to what is required to live, isn't it
| useless without housing?
|
| Housing is included by proxy of rent. [1]
|
| However, I think you'll generally find that rent growth
| has significantly outpaced mortgage costs, and therefore
| housing is overrepresented in the CPI. [2] This makes
| intuitive sense, after all, people tend to refinance into
| lower interest rates (and the general trend has been
| down) whereas rents seem to only go up. So, by using
| rents your housing costs go up a lot more over time
| (indicating higher inflation) as compared to using
| mortgage principal and interest payments.
|
| [1] https://arbor.com/blog/how-does-rent-factor-into-the-
| consume...
|
| [2] https://www.businessinsider.com/monthly-mortgage-vs-
| monthly-...
| arcticbull wrote:
| > Is this a straw man or a red herring? Try to avoid your
| logical fallacies on HN, regardless.
|
| Neither, I was pointing out that just because we used to
| do things a certain way doesn't meant they were
| inherently better. In fact, "for much of human history"
| things were much worse, and we were approaching them in
| ways that are by and large inferior.
|
| This is a kind of declinism bias or rosy retrospection
| bias. [1]
|
| > There is a reason. Normal, hard-working people can
| thrive under that simple system, and wealth inequality
| does not systematically increase to the betterment of the
| financially savvy.
|
| You're once again missing the forest for the trees. The
| unit itself doesn't matter. How much of it you have
| matters and what you put it to work doing matters.
|
| > Where have you been? I don't know metric you are using
| to define stability, but keep in mind bear markets are
| the only periods in American history where wealth
| inequality reliably decreases as capital is reallocated.
|
| Boom and bust cycles under the gold standard were
| dramatically exaggerated, in part because no entity could
| stabilize the medium of exchange. As bad as 2008 was, I
| guarantee you the _Great Depression_ was worse.
|
| > Betterment, which you linked, is a free market solution
| to a policy problem, but it's about 50 years too late,
| and unless they capture 100% market share, they aren't
| going to solve the problem going forward (and of course
| they will scoop some nice fees off your savings).
|
| It's not a public policy problem, it's a public policy
| solution. Your job in a capitalist economy is to allocate
| capital to the most productive investment. If you choose
| to abdicate that responsibility you can pay a fee to
| Wealthfront of Betterment to do it for you, or you can
| pay a 2% per annum fee and keep it at home.
|
| However, money only has value when it changes hands, not
| when its jammed under your gramma's mattress. Inflation
| encourages investment to keep capital flow moving. GDP is
| in fact money supply times velocity. This is how the
| economy functions.
|
| > All of your points hinge on CPI being a correct measure
| of inflation. It isn't.
|
| > The Consumer Price Index (CPI) is a measure that
| examines the weighted average of prices of a basket of
| consumer goods and services, such as transportation,
| food, and medical care. It is calculated by taking price
| changes for each item in the predetermined basket of
| goods and averaging them. Changes in the CPI are used to
| assess price changes associated with the cost of living.
| The CPI is one of the most frequently used statistics for
| identifying periods of inflation or deflation. [2]
|
| [1] https://en.wikipedia.org/wiki/Declinism
|
| [2] https://www.investopedia.com/terms/c/consumerpriceind
| ex.asp
| whakim wrote:
| > I could not disagree more. For much of human history, and
| most of American history, saving currency was exactly how
| you saved value. You already created value in exchange for
| the money; now you should be able to hold on to that value
| until you want to spend it. The fact that putting money
| under your mattress is no longer a viable strategy is why
| we have massive and growing wealth inequality. It is
| horribly unrealistic to assume that every person can or
| should become financially savvy enough to make smart
| investments in the global economy, and it is naive to think
| that just buying some index is efficiently allocating
| capital.
|
| Actually, predictably very low long term rates of inflation
| was one of the main causes of inequality for much of the
| period of human history for which we have reliable tax data
| (18th century to the beginning of the 20th century). When
| inflation is predictably low, and economic growth is low
| (as it has almost always been - the majority of growth is
| tied to population growth), the wealthy only need a modest
| after-tax rate of return on their capital in order to stay
| ahead of inflation and increase their relative wealth
| basically without bound. If inflation is high or erratic,
| then those debts which the wealthy rely on quickly
| disappear. As the chart in the OP shows, this was basically
| true in the United States throughout the 19th century and
| up until the eve of WWI, with the notable asterisk of the
| Civil War; it helps explain increases in inequality in the
| antebellum period and through the Gilded Age. It's even
| more clear if you look at the Insee statistics for CPI in
| 19th-century France, where inflation was consistently low
| and no disruptions on the level of the US Civil War
| occurred. (France on the eve of the first World War was
| staggeringly unequal - although the United States is fast
| heading towards that mark.)
| RC_ITR wrote:
| The right response to all of these kinds of things is 'so an
| iPhone only cost $150 in 1665?'
|
| EDIT: To make the point more clearly - we get a very accurate
| global map for free (with ground level pictures, even!), but
| that would have been an unimaginable luxury anytime before
| 2000.
| ClumsyPilot wrote:
| Thats precisely the wrong responce, how does an iPhone help
| when somone can't afford housing or insulin and dies? Both
| costs skyrocketed.
|
| Besides many natural reources are increasing i. Price or
| dissapearing, from caviar to the amazon rainforest to the
| great barrier rief.
|
| We had very accurate maps in 1970's, just because they were
| on paper doesn't mean they were bad for navigation. They also
| didnt run out of battery.
| RC_ITR wrote:
| You think it's harder being a homeless person with a phone
| vs not having one?
|
| You also think a smaller percentage people are housing
| unstable today vs 1665? Be careful how you answer, because
| you have to include non-white people in that figure too.
|
| I simply do not get your point. Housing is more expensive
| for a lot of reasons, but it's sure as hell more abundant
| today than it was in the 17th century.
| HPsquared wrote:
| Technology is deflationary, in general.
| Retric wrote:
| Just as you can get a live Passenger Pigeon, Dodo, etc in
| 2021 for ???
|
| Inflation is a measure of the value of _Money_ not other
| things.
| RC_ITR wrote:
| Lol, inflation is a measure of the supply of money vs. the
| supply of any non money thing. The whole "inflation is a
| monetary phenomenon" belief is why we've had "unexplained"
| falling inflation since China began exporting goods to the
| US.
|
| And to the pigeon point, I can? It's just a very very small
| part of the inflation basket, so it's not super relevant.
| As for the dodo, were those ever consumption goods? I'm not
| getting your point.
|
| EDIT: I'll take an L where it's due. The species passenger
| pigeon (which is extinct), not a pigeon used to transmit
| messages. But I guess the same point as the dodo applies,
| then.
| Retric wrote:
| The Passenger Pigeon went extinct because we used it as a
| cheap food source. They where sometimes fattened in
| captivity, but often just hunted. As such it was a
| commodity in much the same way as iPads or Oil.
| RC_ITR wrote:
| iPads are famously not a commodity. They are a branded
| good.
|
| And just to be clear, people still eat squab all the
| time. The fact that it's a different species of pigeon
| likely has 0 impact on consumer welfare.
|
| Is your point that resources are finite? I agree. And I
| also agree that fact is a major forward looking risk that
| could drive inflation, but if your argument is that there
| are numerous desirable things from the 17th Century that
| we do not have access to, then I'd have to disagree.
| Human innovation has just been too rapid over that
| period.
| Retric wrote:
| Many extinct species where known for being quite tasty
| without any surviving equivalents. Being unusually tasty
| is in fact why many species are extinct because people
| put extra effort into hunting them.
|
| Now you personally may not particularly care but most
| species have a rather distinct flavor which is why
| flounder, salmon, etc are listed differently on a menu
| rather than as generic fish.
|
| PS: Among my circle of friends Tablets/iPads are into the
| whole Tissue/Kleenex brand as synonyms with category.
| RC_ITR wrote:
| I mean, it's sort of great that now this is just a back
| and forth about the specifics of squab, but I assure you,
| most squab farmed today will taste far better than 'game'
| passenger pigeon.
|
| Not to blow up my own spot, but if you want better
| metaphors against arguments like mine, the Ansault pear
| and Gros Michel banana are better candidates.
| zild3d wrote:
| What you could not buy for even a trillion dollars in 1665,
| is now free
| kybernetikos wrote:
| Some of the functions of an iphone could have been somewhat
| replicated with enough money.
|
| The very wealthy could afford to pay musicians to play the
| music they wanted when they wanted it.
|
| (Somewhat) detailed maps were available for large sums of
| money or sometimes painted on walls. If you had enough
| money, you could commission an expedition to map somewhere.
|
| You could pay someone to carry messages to those you wanted
| to communicate with.
|
| Skilled artists could paint pictures of your food, or
| selfies, if you were prepared to sit still long enough.
|
| Of course, even this hypothetical gaggle of skilled
| servants following you around all day would still not be
| able to cover some of the basic aspects of a modern mobile
| phone, but if you can apply enough cheap labour, you can do
| quite a lot.
| zild3d wrote:
| now do facetime with someone on another continent :)
| ClumsyPilot wrote:
| Now explain to a modern kid what is privacy.
|
| The kids born today will never see a coral rief or an
| iceberg or a glacier, most kids living today have never
| tasted an actully ripe tomato.
| RC_ITR wrote:
| Most kids in any era ever have not tasted a ripe tomato.
| Until very recently it's unlikely that most even saw a
| tomato.
| isbvhodnvemrwvn wrote:
| They also haven't died of cholera or due to a broken leg.
| I doubt an average child saw a coral reef, iceberg or a
| glacier in their lifetime at any point in history.
| kybernetikos wrote:
| It was pretty rare that you'd know someone on another
| continent and want to face time with them, but if you did
| (and didn't want to spend months travelling), I think
| you'd be stuck using magic. Doctor Faustus for example
| used his deal with the devil to allow him to travel
| rapidly around Europe and visit famous people like the
| Pope.
|
| I think it's fun how much of what a modern mobile phone
| gives us is an amalgam of magic from fantasy stories -
| Jack's harp that plays itself, Aragorn's Palantir,
| predictions of future weather and harvest (without even
| having to consult any entrails), summoning physical items
| to your location (with 1 hour prime), inhabiting and
| controlling remote drone servants, imbuing talismans you
| wear around your wrist with the power to keep you
| healthy, or binding you with someone else so they always
| know where you are.
|
| And of course one of the main functions of magic in the
| ancient world is accessed through twitter - the power to
| curse an enemy.
| cesarb wrote:
| > I think it's fun how much of what a modern mobile phone
| gives us is an amalgam of magic from fantasy stories
|
| This goes deeper than most people realize. Think of
| fantasy stories which use some kind of crystal as a
| medium for magic. Well, a modern mobile phone literally
| works through crystals, we just don't think of them
| because they're usually encased in plastic or covered by
| a metal heat spreader. A LED lamp is literally a crystal
| which glows. And so on.
|
| (If you didn't know about it yet, start at
| https://en.wikipedia.org/wiki/Silicon_ingot and
| https://en.wikipedia.org/wiki/Silicon_wafer)
| an_opabinia wrote:
| > Amusingly, thanks to the magic of compounding, that actually
| only implies a 6.5% average annual inflation rate.
|
| That's funny.
|
| I wanna add some perspective on how meaningless that is though.
|
| In 1623 most people you meet could not do exponentiation.
|
| In 2021 you can turn a muni bond ETF into 6.5% return by
| levering it ~2x.
|
| People harp about what you could and could not buy in 1623.
| Blah blah blah. That is a complicated argument to make about
| purchasing power. Its real limitation is the inability to model
| credit.
| ddalex wrote:
| > In 2021 you can turn a muni bond ETF into 6.5% return by
| levering it ~2x.
|
| Until the black swan event comes and you lose your shirt.
| rebuilder wrote:
| Well, price discovery in illiquid markets is notoriously noisy.
| trylfthsk wrote:
| > Of course, land is a capital asset and expected to appreciate
|
| I believe Henry George made a strong case that, while land is
| many things, it is distinct from capital.
| RamshackleJ wrote:
| most people globally do hold most of their savings in cash,
| many people are unbanked and physical currency is the only way
| they have to preserve wealth.
| MrsPeaches wrote:
| I wonder if this is a western/urban phenomenon.
|
| In most of the places I have been in developing countries,
| people hold their wealth in livestock and gold.
| kube-system wrote:
| _Savings_ , yes. But those same demographics also save very
| little, and spend most of their income almost immediately
| with no opportunity for it to inflate.
| iso1210 wrote:
| Where they do typically have debts, which massively benefit
| from deflation
| variaga wrote:
| No, debts are massively _hurt_ by deflation.
|
| Since debts/credits are made in nominal terms debtors are
| benefited by inflation, and creditors are benefited by
| deflation.
|
| Example: in 2021 I borrow $100, with an agreement to pay
| back $105 in 2022. If inflation over that year is +10%
| (or any amount of inflation > 5%), then I benefit because
| the real value of what I pay back is only worth $105 *
| (1-0.1) = $94.5 in constant 2021 dollars.
|
| If on the other hand, there is deflation (or any amount
| of inflation < 5%), I lose because the real value of what
| I pay back is higher than what I received. E.g. if there
| is 10% deflation, then the amount I have to pay back is
| now worth $105 * (1+0.1) = $115.50 in constant 2021
| dollars.
| iso1210 wrote:
| Sorry you're absolutely right -- typo honest, not me
| brainfarting.
|
| Inflation whittles away at your debt, which is why
| inflation is good for the average person who owns very
| little cash and has lots of debt (i.e. someone with a
| mortgage) - assuming that wages keep up with inflation so
| the cost of the weekly shop is still x% of the weekly pay
| slip.
|
| Of course high interest rates offset that somewhat, but
| if interest rates are around inflation level, for those
| with debt (ie young people who haven't benefited from
| inheritence a lot) it's a good thing.
| jkepler wrote:
| Inflation is good for corporate debtors, too, which is
| why governments around the world are so generally
| enamored with it.
| lend000 wrote:
| Some problems with this line of thinking: for much of US
| history (as demonstrated by the graphic), the value of the US
| dollar did not steadily decrease, but oscillated around the
| value of gold, and during many periods increased. So most of
| that inflation occurred in the last half century, dramatically
| increasing the inflation rate.
|
| Granted, Manhattan had no buildings or relative importance in
| the economy when it was purchased either, so a better example
| might be some comparable tracts of farmland using their 1970
| value (during Bretton Woods) and current value, and calculating
| from there.
|
| EDIT: Doing so with this data [0] does indeed yield an
| inflation rate much higher than reported CPI, at 5.7% average
| over the last 50 years. You can see a similar higher rate by
| looking at the Big Mac Index [1]. Conclusion: Real inflation is
| higher than CPI.
|
| [0]
| https://www.ers.usda.gov/webdocs/charts/55910/farmrealestate...
| [1] https://capstoneinvest.com/inflation-cpi-and-the-big-mac-
| tak....
| yaa_minu wrote:
| The US dollar for a long period of time was backed by gold and
| was therefore pretty stable for that period so calculating
| inflation over 400 years is disingenuous at best. It would be
| interesting to see how much value it's lost since the gold
| standard started to be compromised and eventually discontinued
| in 1971.
| leoedin wrote:
| The problem with looking at Manhattan's value inflation is that
| nobody at the time knew what Manhattan would become.
|
| What was the going rate for similarly occupied land that didn't
| become Manhattan further north or south? What's that land worth
| today?
| ghaff wrote:
| Picking a random listing for forest land in upstate New York
| (no land), maybe $1K-$5K per acre. (Of course, even at the
| time, Manhattan was known to be on the ocean with a good
| harbor so not really a fair comparison.)
| ballenf wrote:
| Yes, it makes about as much sense to talk about the ROI of a
| soon-to-be-winning lottery ticket before and after the
| winning numbers are announced while ignoring the losing
| tickets.
| NickM wrote:
| I think that's exactly the point OP was making. They are
| saying that even in a situation like Manhattan where nobody
| had any idea that the land would one day be worth a fortune,
| the average annual percentage increase in land value has not
| actually been _that_ high. Certainly if you picked some
| random plot of land that 's not part of a huge city, the
| numbers would be even smaller.
| nixass wrote:
| What happened between 1635., 1636. and 1637.?
|
| > 1637 20.33 > 1636 17.47 > 1635 31.63
| DennisP wrote:
| This looks bad but a while back I read that if you put your
| dollars in t-bills, you actually came out slightly ahead in real
| terms over the past century. (I think it was in one of William
| Bernstein's books.)
|
| T-bills of course are risk-free and arguably just another form of
| dollars. So don't hold your dollars long-term in the form that's
| intended for short-term spending.
| paulpauper wrote:
| The duration of a tbill is up to 1 year so this not too
| surprising
| AuInsect wrote:
| "T-bills of course are risk-free"
|
| How are you so sure?
|
| If its because an American default is unimaginable, then that's
| "presentism" - assuming that whats true today will continue to
| be.
|
| If its because the US could just print its obligations, than Id
| argue that the Tbills are not risk free since one would only
| get the nominal value back
| csomar wrote:
| > If its because the US could just print its obligations,
| than Id argue that the Tbills are not risk free since one
| would only get the nominal value back
|
| Depends. The US could honor the T-bills owners at the expense
| of currency holders.
| itake wrote:
| Inflation is good. We want the dollar value to decrease over
| time, because it encourages spending. If people keep their
| dollars (thinking $1 will be worth more tomorrow, than today),
| then it hurts jobs and growth.
|
| Why is this bad?
| reedjosh wrote:
| And what of wages that don't increase along with the standard
| of living?
|
| The only reason we feel like our standard of living is okay
| right now is that the economy has grown substantially over the
| past few hundred years, but our (being peasants) share of it
| has decreased dramatically.
| aj7 wrote:
| How many dollars did it take to cure Stage 1C breast cancer in
| 1635? How much did a Facetime call to Peru cost in 1635?
|
| Ridiculous.
|
| The deflator is useful only in the short term. If that.
| klochner wrote:
| this is a feature not a bug.
| marcodiego wrote:
| Better metric: purchasing power of 1 hour of work.
| kingsuper20 wrote:
| vs. a pair of shoes, an acre of farmland, food.
|
| I think that Peter Turchin has done long term analysis on this
| sort of thing. A related article.
|
| https://peterturchin.com/cliodynamica/more-on-labor-supply-w...
| [deleted]
| joelbondurant wrote:
| The African slave trade stole less human time than the Federal
| Reserve ponzi.
| davidivadavid wrote:
| The problem with those kinds of graphs is that the price-based
| fluctuations in purchasing power are dwarfed by the uncertainty
| in the hedonic adjustment that should be applied to make the
| comparisons meaningful across time.
| AnimalMuppet wrote:
| It's interesting to see the bump in the 1930s. That's what a
| deflation looks like - money gets more valuable.
|
| And the curve flattened around 1980 when Volcker broke the back
| of inflation (at the price of two recessions).
| mythrwy wrote:
| On the upside look at how much money you'd be making now as
| opposed to in the past!
| Bang2Bay wrote:
| also when we draw a similar graph 20 years from now. :)
| lolinder wrote:
| > When converted to the value of one US dollar in 2020, goods and
| services that cost one dollar in 1700 would cost just over 63
| dollars in 2020, this means that one dollar in 1700 was worth
| approximately 63 times more than it is today.
|
| Does anyone know what they mean by saying that the U.S. Dollar
| was worth X in 1700 (much less 1635) when it didn't even exist
| until 1792? Are they implicitly converting to the Spanish Dollar,
| or are they just saying that this is what the dollar _would_ be
| worth if it were around back then? If the latter, how would you
| go about calculating this?
|
| They attribute the data before 1913 to Dr. Robert Sahr of Oregon
| State, but I can only find him going back to 1774 [0].
|
| [0]
| https://liberalarts.oregonstate.edu/spp/polisci/research/inf...
| slg wrote:
| Whatever the approach, I'm not sure those 17th century numbers
| pass the eye test. Does it make sense that pre-industrial
| revolution purchasing power would be roughly the same as it was
| at the beginning of the 20th century?
| amanaplanacanal wrote:
| It's a tough problem. I'm guessing their assumption is that
| since the dollar was commodity money in that time frame, an
| ounce of silver was worth the same in 1700 as in 2000. It's
| probably not far off.
| ghaff wrote:
| That's one problem with trying to compare CPI over long
| periods. Consumers are buying totally different types and
| quantities of things with their dollars.
| FredPret wrote:
| On one end of that timeline people were buying buying
| barrels of whale oil, and on the other end they are
| subscribing to internet services!
| slg wrote:
| Exactly, it all seemingly depends on the arbitrary
| decisions about how we define our basket of goods.
|
| For example is it generic "clothing" or an individual
| outfit of clothing. Individual pieces of clothing cost
| drastically more pre-industrial revolution. Because of
| that, people owned a lot less clothes. Therefore purchasing
| power increased by that metric.
|
| However consumers responded to clothes becoming cheaper by
| expanding their wardrobes. The average person likely owned
| a lot more clothing by the time the 20th century rolled
| around. That could mean purchasing power was relatively
| similar if the metric was generic "clothes".
|
| I'm not sure either approach is any more correct than the
| other.
| ClumsyPilot wrote:
| I was always interested in how much discretionary
| spending they had - you have to pay electricity or whale
| oil bill, and have whatever clothing is mininally
| required to not look homeless - but after all that, what
| do you have left?
| [deleted]
| derbOac wrote:
| There's a discussion of it here:
|
| https://www.americanantiquarian.org/proceedings/44517778.pdf
|
| Not sure if it's the same method, but there they say these
| kinds of analyses are produced by using known exchange rates
| for different currencies, and then sort of back-estimating the
| value of the dollar based on those exchange rates.
|
| So if you know the value of the USD in 1792, you can use
| different exchange rates with existing currencies to
| retroactively estimate the value of the USD if it had existed.
|
| Ideally it seems you'd somehow aggregate over different
| currency exchange rates; maybe they all produce a unique
| solution, or maybe that aggregate is done some other way.
| hbrav wrote:
| If you were to do this with a new currency that was created
| today, that would not giver you a unique solution. e.g. if
| you said "well Bitcoin started its existence in 2009, and had
| an exchange rate of X USD = 1 BTC, so before this date we'll
| use X USD to stand in for 1 BTC", you get a different
| solution if you change USD to EUR, or GBP, or CAD, etc.
| because the EUR/USD rate changes over time prior to 2009.
|
| But back around the 1700s, were most currencies pegged to
| precious metals? In which case I think you have a lot less
| freedom in your solution (I think you're basically choosing
| between gold and silver).
| kd5bjo wrote:
| > But back around the 1700s, were most currencies pegged to
| precious metals?
|
| From 1792 to 1853, the US Dollar was pegged to a fixed
| amount of both gold and silver. It seems reasonable to
| extrapolate backwards in time using that fixed standard,
| though the changing relative values of those metals might
| give you some problems.
|
| (According to Wikipedia: https://en.wikipedia.org/wiki/Gold
| _standard#In_the_United_St... )
| derbOac wrote:
| I agree it's odd. I could see some kind of legitimate
| rationale if it were specified clearly, depending on the
| rationale, but there's some sort of fuzz going on that
| makes it sketchy. I'm also not sure where the 1635 date
| comes from -- that implies something meaningful but not
| necessarily, and what exactly I don't know.
| zamadatix wrote:
| > When converted to the value of one US dollar in 2020, goods
| and services that cost one dollar in 1700 would cost just over
| 63 dollars in 2020, this means that one dollar in 1700 was
| worth approximately 63 times more than it is today. This data
| can be used to calculate how much goods and services from the
| years shown would cost today, by multiplying the price from
| then by the number shown in the graph. For example, an item
| that cost 50 dollars in 1970 would theoretically cost 335.5 US
| dollars in 2020 (50 x 6.71 = 335.5), although it is important
| to remember that the prices of individual goods and services
| inflate at different rates than currency, therefore this graph
| must only be used as a guide.
| lolinder wrote:
| Yes, I read that. That explains how to use the graph, but not
| how they arrived at the numbers on the graph. What
| methodology did they use to compare prices for goods in U.S.
| Dollars in 1913 with prices for goods in Spanish Dollars (or
| pounds sterling, or whatever) in 1635 to come up with an
| index?
|
| This is one of the things I dislike about statista.com. By
| putting their sources behind a paywall, they create a bunch
| of graphs that people can throw around the internet, but hide
| the context necessary to properly interpret them. The
| misinformation potential is huge.
| paulpauper wrote:
| How about 2000 years ago? Imagine a dynasty that invested
| just $1 in AD 0 and kept adding to it
| Spooky23 wrote:
| The dollar was based on silver content (~25g iirc), and I think
| you can reasonably accurately compare values and inflation
| based on comparable coins.
| nexuist wrote:
| I know that it says the values prior to 1913 were estimated, but
| how can it be possible for the dollar to have any purchasing
| power before the country even existed? Shouldn't it be a constant
| 0 until at least 1776?
| kube-system wrote:
| The US dollar was introduced in 1792. The early days of US
| currency was a mix of notes/coins issued by states, banks, and
| foreign currencies.
| dragontamer wrote:
| Don't forget the "Continental dollar", which went worthless
| almost immediately. The "Continental Dollar" was the
| denomination of debt of the Revolutionary War. It was
| horribly mismanaged, hyperinflated into worthlessness and
| then largely forgotten about.
|
| It wasn't a big deal because IIRC, the typical citizen back
| then was using Spanish Pesos.
| toyg wrote:
| As others said, you calculate it as an indirect FX rate with
| currencies that did exist.
| treeman79 wrote:
| What was the exchange rate of dollar to British pound at 1776?
| You can keep going backwards from that point.
| dharmab wrote:
| Still zero because the dollar didn't exist. The American army
| was paid in various currencies, some of which (the
| continental dollar) went to zero before being offered a
| conversion rate to the new dollar in the 1790s.
| unstatusthequo wrote:
| Yes. Wasn't legal tender until then. Everything prior is
| conjecture. The value at creation wasn't based on anything
| prior. So why analyze it that way?
| inglor_cz wrote:
| One possible idea. The American dollar, when introduced, had a
| certain exchange ratio to the Spanish _real de a ocho_ ,
| commonly called the Spanish dollar. In fact, _real de a ocho_
| was legal tender in the US until 1857, parallel to the American
| dollar! [0]
|
| Spanish real goes much farther back, so you can calculate the
| hypothetical value of the American dollar backward, too, just
| against the Spanish real.
|
| [0] https://en.wikipedia.org/wiki/Spanish_dollar
| wegwe33 wrote:
| Taxation and inflation are theft, because no one is allowed to
| take my property without my permission.
| lettergram wrote:
| One interesting thing to note..
|
| Historically, 1-1.5lbs of silver bought you a sheep and it's the
| same for today (Rome -> 1500 -> Today).
|
| I'd be interested to see what 2021 brings..
| squiggleblaz wrote:
| I guess that information is cherry-picked? Or are you saying
| that at all time we have accessible record, the price of a
| sheep has exceeded 1 pound of silver and always been below 1.5
| pounds of silver?
| jpadkins wrote:
| it's true for other things where we have historical records
| and the production method hasn't changed significantly
| (productivity). for example, a hand tailored italian shoes +
| suit is 1 oz of gold, going back to roman times. The style
| and material have changed, but the tailor labor : gold ratio
| hasn't changed much.
| lettergram wrote:
| I was just pointing out something interesting and stable.
|
| silver and gold have continued to be relatively comparable to
| historic prices (obviously there are spikes based on needs).
|
| Fiat dollars are not stable and are intentionally worth less
| every year. This lets the banks and government just inflate
| themselves out of debt.
|
| I never keep cash for instance, typically only what I need
| for 45-60 days. The rest is in investments (crypto, stock,
| land, silver & gold, guns, etc)
| 988747 wrote:
| Similarily, 30 ounces of gold could buy you a car (Ford Model
| T) in 1912, and can still buy you pretty nice car now (anything
| that costs ca 60,000 USD)
| wing-_-nuts wrote:
| How exactly am I to acquire a USD in 1635, when it wasn't
| established until 1792?
| [deleted]
| jl2718 wrote:
| (Housing and property excluded)
|
| Try charting the cost of the same exact parcel of land in
| Manhattan over the same time period.
| mikewarot wrote:
| A silver dollar in 1960 would buy about 4 gallons of gasoline.
|
| That same silver dollar now buys about 7 gallons. (Melt value)
|
| A 1960 dollar bill bought 4 gallons of gasoline back then, and
| now would purchase about 1/3 gallon.
|
| It really does depend on what kind of "dollar" you're talking
| about.
| jollybean wrote:
| How many 1850 'dollars' would it take to get from NYC to London
| in 5 hours?
|
| How many to get a heart transplant?
|
| Or a 'vehicle' that travels great distances, quickly, on rubber
| wheels?
|
| Or to get strawberries during winter?
|
| Or to talk, live, to a person on the other side of the country?
|
| Inflation is a difficult thing to measure.
| helsinkiandrew wrote:
| I'm not sure how valid these charts are - how much of what can be
| purchased exists across the ages? How do you compare a bag of
| flour, the cost of a carpenter to make a table, the wool to make
| a sweater - with a pop tart, an iPhone and a pair of Nike
| sneakers?
| extr wrote:
| To look at historical purchasing power, it's possible to
| normalize to a metric something like "ratio of average yearly
| income to minimum required for sustenance". Eg, assuming you
| need 1800 kcal a day, scraps of cloth to serve as clothes,
| small amount of fuel/electricity, etc. So if average wages were
| $100/Year in 1700 and you needed $50/Year for bare-minimum
| sustenance, and today an average wage is $50K/Year, but you
| only need $15K/Year for bare-minimum sustenance, there is a
| sense in which purchasing power has gone up.
|
| Obviously if you start bringing things like iPhones or pop
| tarts into it, it becomes entirely subjective, and under
| certain metrics people today live better than the kings of
| ancient times simply because we have A/C. But then it becomes
| more of a philosophical question.
| reedjosh wrote:
| Kind of need a way to measure peasant level income to total
| wealth available over time.
|
| Over the past several hundred years the 'pie' that is total
| economic goods and services has grown enormously.
|
| However, the share a median income can buy of the pie has
| shrunk greatly. Inflation vs median income intuitively gives
| a sense of this while not necessarily being scientific. But
| then economics is the dismal science.
| fancifalmanima wrote:
| It's also only part of the story. If the median or average
| income has grown at a larger rate than the decline in value of
| the dollar, you still come out ahead from the perspective of
| human living conditions. I'm fairly confident that the median
| American is living a better life than someone in 1630, or 1730,
| or 1830, or 1930.
|
| In short, from an economic growth perspective -- things have
| generally worked out. Not that things are perfect, or that I
| love that anything sitting in my bank is slowly losing value.
| Just that things have been generally going in a positive
| direction and I'm personally cool with a slowly devaluing
| dollar if that means that same general trend continues.
| FredPret wrote:
| Interesting to see the periods of deflation in the 1800's.
|
| I believe the US was on a mixed gold and silver standard at the
| time and they periodically ran into silver production issues.
| jcadam wrote:
| We should move to a lumber-backed currency.
| FredPret wrote:
| You mean like... a greenback?
| airhead969 wrote:
| Increasing forest fires would boost the value, but then
| watch-out for those damn illegal tree farms printing their
| own money.
| mywittyname wrote:
| I think this is a joke, but Virginia had Tobacco-based
| currency in colonial times.
|
| It was just as terrible as one would think. In surplus years,
| a family could spend their life savings on essentials to get
| them through the next season, to be left with nothing when
| prices spiked the next year.
| cronix wrote:
| We were on the gold standard (Bretton Woods system) that was
| established after WWII until Nixon ended it in 1971 when
| countries started to demand gold as payment from the Federal
| Reserve Banks instead of US Dollars because they didn't believe
| America could pay its debt due to spending more than it
| collected in taxes, and they were correct. We've been deficit
| spending ever since to pay for all of our toys. We owe more now
| than at any other time in our history. No country that has gone
| to a fiat currency system at any time in world history has
| lasted. It was probably the worst thing that Nixon did to this
| country, but we only talk about the other bad thing he did.
|
| https://www.federalreservehistory.org/essays/gold-convertibi...
| FredPret wrote:
| I think the price of silver was fixed in terms of gold as
| well.
|
| However, today, we have more economic activity than we have
| gold. If we went back to gold standard, we'd either literally
| not have enough money, or the price of gold would be
| artificially inflated far above its current free market
| valuation.
|
| Not to say that the deficit isn't a ticking time bomb, but we
| need another solution for politically expedient overspending.
| insert_coin wrote:
| In a gold standard the price of gold would not be 'above
| its free market valuation' but it would _be_ the market
| valuation, taking into account its rediscovered monetary
| role.
|
| In a gold standard the currency used would still be the
| dollar, just backed by gold, so the FED would be able to
| print it into the dust just the same. The money supply
| could still expand just as it does now to accommodate for
| growth, but the main difference is the rest of the world
| wouldn't be subsidizing the US any longer.
| jpadkins wrote:
| > However, today, we have more economic activity than we
| have gold.
|
| Don't want to engage in the broader debate, but you do
| realize that gold is fungible and able to broken down into
| very small pieces? Are you familiar with the term reserve
| banking? The gold standard doesn't mean you make
| transactions with actual physical pieces of gold. It means
| financial institutions have to hold physical gold reserves
| relative to the money they issue. Also that the base money
| supply (MO) is a very small fraction of the money used in
| the economy. https://en.wikipedia.org/wiki/Money_supply
| FredPret wrote:
| Whether we exchange gold or certificates representing
| gold is immaterial.
|
| Some quick googling tells me the total value of all gold
| on the planet is 187000 tons x 35273 fine ounces per ton
| x USD 1897.93 per fine ounce = 12.5e12, ie, USD 12000 Bn.
| Sounds great, that's a lot of money. But it's not annual
| production, it's total amount mined so far in human
| history.
|
| However, according to [1] the global GDP last year was
| USD 84537 Bn. That's annual economic activity.
|
| So there's no hope in hell that we could produce enough
| gold every year to represent all the economic activity.
|
| [1] https://www.statista.com/statistics/268750/global-
| gross-dome...
| jpadkins wrote:
| Did you read the link on money supply? Base money is not
| used in all transactions.
| https://en.wikipedia.org/wiki/Money_multiplier is used to
| facilitate commercial transactions
|
| Your example of GDP is a flow. Gold in tons is a stock.
| Never compare a flow to a stock
| https://en.wikipedia.org/wiki/Stock_and_flow
|
| The next concept to learn is velocity of money.
| https://en.wikipedia.org/wiki/Velocity_of_money
|
| Your base gold supply + your extended money via credit
| can circulate an unlimited amount of times to support the
| transaction volume needs of the global economy.
| FredPret wrote:
| The whole concept of a gold standard is that you can
| trade your paper money in for real metal at any time.
|
| What you describe, base gold supply + credit, implies
| fractional reserve banking. As soon as you have a
| fractional reserve, the gold standard promise no longer
| holds. The question becomes - what level of fractionality
| is acceptable? And who decides that, the government? What
| stops them from decreeing that one ounce of gold now
| represents a billion dollars and letting the printing
| press fly?
|
| (In fact, this is precisely what did happen. Look up the
| historic value of the British Pound. Gradually got
| watered down over the centuries as I described.)
|
| If the government can make up the fraction they want to
| use, let's just skip the extra steps and let them make up
| the amount of money they want to print directly.
|
| Ultimately you can't get away from the fact that we're
| creating a hell of a lot of economic value every year and
| we'll never dig up gold at the same rate, probably ever.
| cronix wrote:
| But what happens to the price of a _finite resource_ when
| demand rises? That 's not an artificial increase...that
| _is_ the free market valuation. It 's not really different
| than the price of the finite pool of bitcoin. Demand soars
| and so does the price and the opposite happens when demand
| is reduced.
| FredPret wrote:
| Yes but this newfound demand for gold will be based
| entirely on a government regulation, making it
| artificial. If the market naturally desired enough gold
| to back every transaction, the price would skyrocket
| right now
| ClumsyPilot wrote:
| The lack of demand for gold is based on artificial trust
| in artificial dollar.
|
| We still had private currencies in 1900's, where the
| issing bank would go bust and the paper woupd become
| worthless.
| FredPret wrote:
| Billions of people going about their day in a world
| denominated in fiat Dollars for five decades now doesn't
| scream "artificial trust" to me. Sure, one day it'll all
| go to hell, but then so did the gold standard.
|
| If you want to stop politicians from overspending, then
| stop politicians from overspending. Don't insist on using
| an arbitrary element as the reference point for all
| value.
|
| You might as well have a currency backed by CPU hours or
| bowls of petunias or live Gregorian choir performance
| tickets.
| [deleted]
| shadowgovt wrote:
| > No country that has gone to a fiat currency system at any
| time in world history has lasted.
|
| I think this is one of those correlation-and-causation
| issues.
|
| An awful lot of countries on commodity-based currency also
| didn't last. Most of them, in fact.
| donn83 wrote:
| Interesting to consider the possible effect of the establishment
| of the Federal Reserve in 1913.
| gshubert17 wrote:
| And also the devaluation of the dollar against gold in 1933.
| https://en.wikipedia.org/wiki/Executive_Order_6102
|
| Although the graph doesn't slow much loss of purchasing power
| until the U.S. entered World War 2.
| cliftonk wrote:
| Up until the GFC, buying and reinvesting short-term rates (e.g.
| treasury 3 month bills), have more than compensated for
| inflation. Long-term rates from 1985 up until last year have had
| even better risk-adjusted-returns than equities.
|
| The "all currencies die or devalue" thesis is technically correct
| if you're holding cash under your mattress, but it's also
| misleading since real rates have been historically positive...
| k_ wrote:
| Anyone got a similar study with purchasing power for 1 hour of
| work on minimum wage?
| edejong wrote:
| One of those graphs that'd benefit from a logarithmic scale.
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