Monday, January 30, 2006

Measuring Economic Growth With Sears

Here is an interesting post by an economist named Don Boudreaux where he gives a sense of how much our standard of living has improved in the past 30 years (since 1975).

He does so by comparing the prices in a 1975 Sears catalogue to current prices listed on the Sears.com website. However, the problem, as you know is that you cannot just compare prices between the two years because of the effect of inflation during that time. So instead, Boudreaux uses the common teachnique of measuring how much each good would have cost in hours of labor in 1975 versus hours of labor in 2006 for the average American. This method allows a simple comparison and he explains in the post where he gets the data and the simple calculation he makes.

The most drastic reduction in real prices that he found was for Sears' cheapest answering machine. It cost 20.43 hours of work in 1975 and 1.1 hours of work in 2006.

3 comments:

Anonymous said...

Well it only makes sense that prices decrease as technology increases. I'm sure the most techonlogical advanced answering machine today would cost around the 20 some hours of labor now as it did in 1975. The answering machine in 1975 was advanced for that time so of course it was going to cost alot. For example my dad and I were talking about computer prices and television prices the other day ( yay, i know I'm cool) anyways... and it is crazy how much they used to cost because the techonology was so new! well i can't remember my password so... this is Kristen

Anonymous said...

The comparison of the cost of the answering machine in labor hours is so much lower because those answering machines are now produced on assembly-lines of high-tech industrial equipment, so those companies have pretty much perfected answering machine manufacturing. All of that industrial machinery means that there can be great economies of scale, in which the average total cost of producing goods is very low. This means a company can produce more goods, which means a greater supply on the market, which allows for a drop in price in the long run.
There are just more answering machines being produced at a lower cost. This was the same with computers. I bet whatever computer i had in 1990 had a much higher price than the computer i have today. That is because there have been so many developments in production technology that it is much easier for Dell to make more computers at a lower cost.

David Wyant

Sam Ulrich said...

What about personal computers? I Think it would be interesting to compare the price of the first personal computers to the 200 dollar ones of today. To gauge this measurement though, you would have to measure how many components have been replaced by newer parts and space. I think the switch from vacuum tubes to micro processors would have brought the price down quite a bit. There is also another problem with the hours measurement. The minimum wage has gone up as well as the average revenue per household has so this measurement is only as accurate as the actual price comparison.