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:
- The US economy has a natural state of growth, finding the best use for various resources.
- The US economy rewards innovation and therefore generates productivity improvements.
- The price of many goods has decreased over time.
- 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!
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.
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….
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.