The Declining Cost of Living
by

Every summer I promise myself I'll get to the bottom of my huge pile of things to read. This year, I've made a sizeable dent in it, but there's still more pile left than summer.

One of the things in the pile was the 1997 annual report of the Federal Reserve Bank of Dallas. It contained a study I wanted to read by W. Michael Cox, vice president and economic advisor of the Dallas Fed and Richard Alm called "Time Well Spent: The Declining Real Cost of Living in America"

The study contradicts the conventional wisdom that the cost of living is increasing. Sure, prices have gone up leaving penny candy and five and dime stores just figures of speech.

But the authors claim the real cost of living shouldn't be measured in dollars and cents since money is an imperfect standard. Even inflation adjusted dollars miss the mark since they don't account for increases in productivity.

The study argues that what really matters isn't what something costs in money. Money prices by themselves don't mean a whole lot. What matters is what it costs in time. In other words, time is money.

A hundred years ago, you could buy a pair of stockings for 25 cents. That sounds cheap until you realize the average worker only earned 14.8 cents an hour. It took 1 hour and 41 minutes worth of work just to buy one hot, itchy pair. Today, you can buy a much better pair for 18 minutes of work.

And so our economy goes. The prices of band new products usually put you in sticker-shock. Before long though, prices fall and what used to be a luxury worthy of "Lifestyles of the Rich and Famous" becomes a part of the average household.