Understanding Economic Progress

Sometimes investors focus so closely on each economic data release that they completely lose perspective.  This is especially true of those who criticize the measurement of inflation.  Their arguments have a superficial plausibility and earn some undeserved media attention.

The story about the "clueless BLS" is always popular.  No media source does the work to check out the facts.

In fact, the following propositions have proven true over the broad sweep of time:

  1. The US economy has a natural state of growth, finding the best use for various resources.
  2. The US economy rewards innovation and therefore generates productivity improvements.
  3. The price of many goods has decreased over time.
  4. People change their behavior to substitute products that are equally attractive and have lower prices.

If you think about this with an open mind, these propositions have substantial support from history.  I have offered data on this subject in the past, but tonight I want to try a different approach.

Here is a joke, some analysis, and a wonderful educational resource — something for everyone!

The Source

I am enjoying listening to material from The National Jukebox, via the Library of Congress.  When I visited there on a recent DC trip I did not see this as a feature, so a hat tip to Modeled  Behavior, one of our featured sources for today's "tweet" on this subject.

The Joke

Here is a joke from 100 years ago.  It is timeless humor, and it has a great punchline in the last ten seconds.  Having said this, I know that few will have the patience to listen for nearly three minutes.  We are so accustomed to one-liners.  This is like a Bill Cosby story, but 70 years earlier.  I am putting up the entire link.  For the impatient, there are some hogs running around wildly in a field.  An observer is curious and inquires of the farmer.  He is fattening them up, but he has a cold so the normal hog call does not work.  He has trained them to respond to tapping on a tree.

You should listen to the entire segment, but the impatient can skip to the end….



The Lesson

Let us get the facts of this straight.  What value would you place on this joke?  In 1910 or so people paid about $100 for a device to play various records and 75 cents each for the records.

In 2011 dollars this is $17 for the joke and over $2200 for the player.

The price for single songs was similar.

So you would invite friends over.  After dinner you would sit in the parlor and listen for three minutes to hear this joke.


There are many aspects of modern life that we take for granted.  These include inexpensive technology.

Many people highlight increased costs while ignoring quality improvements.  A look at the history of music and recordings might help us to get some balance on this subject.  The BLS has been inartful at best in naming the various adjustments.  That does not mean that they are wrong.

I know that every time I try to explain inflation measurement, most readers will disagree.  I hope that even the critics will enjoy learning about the National Jukebox and exploring some history.  Perhaps a few will find this perspective useful.


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  • Lurker May 17, 2011  

    The problem with CoL indices is that it’s frankly impossible to document the changes in cost of living – AT A GIVEN STANDARD OF LIVING – over time. The standard of living changes too much. Your 1910 joke listener *likely* *didn’t* have air conditioning, indoor plumbing, or an electric refrigerator, traveled on lousy roads with unreliable and slow animal-based transportation, and had no media access other than the printed word on paper. This isn’t a statement about the *invention* *date* of various improvements, but about their lack of ubiquity in the households of 1910.
    That said, it’s also inaccurate to document a simple cost of living, perhaps as a ratio to income, for some “median societal member” over time whilst ignoring the changes in that person’s standard of living.
    Could BLS do a better job? Certainly. One of my main disagreements about their use of hedonics is their inconsistency of application, which goes back to the dilemma above (CoL at constant standard Vs. ignoring standard changes).
    Does BLS do a better job than most people think they do? Yep. But most people aren’t even aware that they publish their techniques, and few have read anything they’ve written.

  • Proteus May 17, 2011  

    No TV, no radio. $17 for a cylinder, and worth every penny. Otherwise, if you wanted music, you either went out or the musicians came to you. What a concept – music on demand. It must have seemed like magic. A relative has a player and a box of cylinders; that it works at all is amazing.
    When my grandparents bought their house in the early 1900’s (it’s still in the family), it was plumbed for gas. My grandfather put in the electric wiring. There was an icebox. The stove needed coal, as did the furnace. Every morning someone had to go down to the basement and shovel coal into it. It was a big improvement when the furnace could pull coal from the bin by itself. But you still had to take out two garbage cans full of clinkers once a week.
    As you say, we take much for granted.
    I have been trying to estimate some very long term inflation rates using historical references (people living on five pound a year pensions in old England, Roman military pay rates, etc) but the data is very sparse, and life has changed a lot.

  • middyfeek May 17, 2011  

    Yes, the price of some things have gone down. But the price of more things have gone up…way up.
    As to hedonics and substitution, even if you buy into these dubious concepts, the idea that they could be quantified with any degree of accuracy is laughable.

  • wfs May 17, 2011  

    Our country for now is suffering from high price commodities due to oil/fuel price hike. Our country now is tilting.