This post is for all the Austrian, gold hugging, inflation fearing bears who have no idea how or why capitalism continues to increase our standard of living.
Below is a photo I borrowed from Carpe Diem of a nice color TV set taken from the 1964 Sears catalog. The price of the top two TV sets were $750 in 1964 which equates to $5300 in 2010 dollars. The bottom TV set was $800 in 1964 which equates to $5650 in 2010 dollars.
So, what can you buy with the same purchasing power today? Well, to put it in perspective this is what you can purchase with $5300 in today's dollars.
Since I can’t say it any better, I am going to quote Prof. Mark Perry,
"Bottom Line: For a consumer or household spending $750 in 1964, all they would have been able to afford was a console color TV from the Sears Christmas catalog. A consumer or household spending that same amount of inflation-adjusted dollars today (about $5,500) would be able to furnish their entire kitchen with 8 brand-new appliances (refrigerator, freezer, dishwasher, range, washer, dryer, microwave and blender) and buy 9 state-of-the-art electronic items (laptop, GPS, camera, home theater, plasma HDTV, iPod Touch, Blu-ray player, 300-CD changer and a Tivo recorder). And of course, even a billionaire in 1964 wouldn't have been able to purchase many of the items that even a teenager can afford today, e.g. laptop, GPS, digital camera.
As much as we might complain about high unemployment, a sub-par recovery, a dysfunctional Congress and a huge deficit, we have a lot to be thankful for, and we've made a lot of economic progress since the 1960s as the example above illustrates, thanks to the "magic of the marketplace."
Now I’m not saying we couldn't be doing even better with lower inflation but seriously, we live better today than ever before. At the end of the day does it matter if we only pay income taxes or a combination of income taxes and inflation?
For those unaware, inflation is simply a reduction in the purchasing power of a dollar via theft by the government. The cost of goods and services rise because the value of our money decreases. Think of it this way, if the government deposited one million dollars into every persons bank account overnight would we be any richer? Perhaps the first guy to the store would benefit but that would be about it. Because we haven't increased our physical production of goods and services the prices would rise to reach a new equilibrium. These higher prices are what we call inflation. The government does this every year a little at a time because they own a printing press and dilute the purchasing power of your money every year.
Real wealth comes from production or as economists call it supply side economics. We are a wealthy country not because of money, banks, stock markets or anything of the sort. Those things are byproducts of a free market economy. We are wealthy because we produce a lot of stuff. We can do far more work with a track hoe or wheel loader than with a shovel & wheelbarrow. We can move far more goods with a train than with a horse. These things (capital goods) aren't going away anytime soon. Every year companies seek to become better, faster and to produce more goods and services with less cost. If you have ever watched the TV show "How It's Made" you will understand what this looks like.
So the next time you hear some gloomy news, you can just smile and say life will go on.
Please allow me to stop here for a little rant to explain what I mean. US Retail sales numbers for December were just announced on Thursday. If you simply read the headline at the Globe & Mail you would have gone away with the impression that December was a total disaster. It said something like "Retail Sales gains slowed in December... missing analyst expectations."
The reality is retail sales were up, despite what some twenty something analyst in New York feels the number should be. Secondly, retail sales (the largest part of US GDP) have been up 17 of the last 18 months. This point shouldn't be taken lightly. Retail sales typically fall three to four times a year, even when the economy is health and growing. Lastly, retail sales for October/November were revised upward by 0.2%.
So despite what the pouting pessimist pundits may say, the economy is on the mend. Now it may not be as fast as some would like it to be but does it really matter what the artificial "target" is. The truth is we will live better ten, twenty and thirty years from now because of capitalism (or "the miracle of the marketplace").
Click here to read the full post at Carpe Diem