Lessons in inflation

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(Host) What did a dollar buy 30 years ago? What does it buy now? Commentator Allen Gilbert thinks there’s an economics lesson in those questions.

(Gilbert) My oldest son is taking an economics course as a senior in high school. It’s his first economics course, and he’s loving it. His teacher is great; the kids are involved. At home, discussion about the course has steered a number of family dinner conversations to economics issues.

The area that seems easiest for all of us to relate to is inflation. Even my younger son perks up when I start talking about nickel candy bars and 10-cent ice cream cones. Behind every such “When I was a kid” price comparison is an economics lesson. The lesson is not always easy to tease out, even for professionals. But if you can get actual prices from, say, 30 years ago; then adjust them for inflation; and then see what today’s prices are, the differences say a lot.

Money magazine did just that sort of comparison last year. The magazine was celebrating its 30th anniversary, and it wanted an entertaining and interesting way to look back over those years. So, it took an eclectic market basket of goods and services, and showed prices for 1972 and 2002. Then it showed what the 2002 price would be if the 1972 price were adjusted for inflation – a “constant” price, in other words, over the years.

There are surprises, in both directions. Some things have become much more expensive over the years, while other things have become cheaper.

A gallon of milk cost $1.20 in 1972. Adjusted for inflation, that same gallon should have cost just over five bucks 30 years later. Instead, the average price nationally for a gallon of milk in 2002 was $2.75. Consumers are getting a bargain.

College education is a different story. Average annual tuition at a private university in 1972 was about $1,900. Adjusted for inflation, tuition now should be around $8,000. Instead, it’s over $17,000. Families are paying a fortune.

Among other items that today cost more than they should: a Chevrolet Corvette and a postage stamp. Among items that today are comparatively cheaper: gasoline, new homes, a visit to a doctor’s office, and air travel. Why is college so much more expensive today? Why is gasoline cheaper? While we may intuitively feel that college costs are astronomical, why do we also think gasoline is expensive? It’s all perception, of course, rather than science.

And that’s where economics comes in – it tries to analyze issues and answer questions using a scientific approach. Define the issue. Gather the data. Crunch the numbers, and draw a conclusion from the evidence. It’s work, but it’s rewarding – which is why I think the economics class is popular at my son’s high school.

A final price comparison – and it reveals today’s biggest bargain: computer power. One megahertz cost $2,825 in 1972. Adjusted for inflation, that same megahertz should have cost about $11,500 in 2002. Instead, it cost about 50 cents.

This is Allen Gilbert.

Allen Gilbert of Worcester is a writer and parent who is active in education issues.

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