Attention Paul Krugman

You really ought to read this. It might actually teach you something.

  1. Guruforhire

    I don’t particularily like that analysis.  I dont think its reasonable to measure a good whose cost shrinks.  Its like comparing a CD player in the late 80s to a CD player now its not a reasonable measurement.

    You need to compare similarly situated goods.

    For instance how many hours does the average person need to work to buy the average entry level luxury sedan then and now?

  2. John Peabody

    The writer tossed off the comparison in quality (“they make them better“). While modern appliances may have more features, I believe that the quality of materials may have been better in the past. A study of service-life would be needed to make a complete comparison.

    That said, I totally agree that durable goods are far cheaper than in the 1950s.

  3. ConservativeWanderer

    Pejman, you should know better.

    Krugman will never read anything that hasn’t been approved by Minitrue.

  4. raycon and lindacon

    When I was a kid I learned that the hours to buy durable home appliances was the true measure of value.  We all get 24/7/52/? in our lives.  Value is measured by what we do with those hours.  The reason household appliances are the best measure is that they are common to all households, and not an emotion laden purchase.  We do not buy cars, or even our houses themselves without many emotional and practical variables going in to the decision.

    By using a lower cost consumer durable product like a refrigerator, you are looking at an item with relatively few decision variables.  Hence, the price tells us how the buyer values his time.

    This has been a standard economic valuation model for over 6 decades.

  5. david foster

    Just about anything that can be (a)built in a factory, especially anything that can be (b)shipped internationally in a shipping container, has gotten cheaper, and usually has gotten cheaper with improved quality.

    This does not, however, say anything about the cost of those things…including services…that don’t fit the above criteria. A decent K-12 education, for example, has gotten much more expensive: there is the tax component, and then there is the fact that after paying the taxes many families need to either pay for private school or move to a more expensive neighborhood in order to avoid completely dysfunctional public schools.

    The problems with education, of course, are largely government-driven. But even if you look at truly private services, you usually won’t see real-cost reductions on a level with those in manufactured and shippable products. Have haircuts, for example, gotten cheaper in terms of labor hours to purchase? Have restaurant meals?

  6. FloppyDisk90

    @guruforhire,

    I was actually expecting this would hold true for cars as well but you actually have a point (at least with regards to Cadillacs).  Here’s the data I found:

    “In 1958, Cadillac introduced the rare, top of the line Series 70 Fleetwood Eldorado Brougham with a hefty price tag of $13,074 (the average Cadillac cost around $5000!).”

    Price of a Cadillac CTS with standard options:  $50,000.  Kelly Blue Book

    http://www.cadillacforums.com/cadillac-history.html

    So:

    5000 / 1.89  = about 2500 hours

    50000 / 19 = about 2500 hours

    At least according this data nothing has changed.  Of course, a person today could get a loaded Malibu that would go faster, get better gas mileage, handle better, be safer, pollute far less and require less maintenance for around $25,000 then a comparable 1956 Cadillac.  Old cars are fun to drive but they’re objectively far less capable then cars today. 

  7. genferei
    david foster:  Have haircuts, for example, gotten cheaper in terms of labor hours to purchase?

    Probably. See No so cut and dried.

  8. Guruforhire
    FloppyDisk90: @guruforhire,

    I was actually expecting this would hold true for cars as well but you actually have a point (at least with regards to Cadillacs).  Here’s the data I found:

    “In 1958, Cadillac introduced the rare, top of the line Series 70 Fleetwood Eldorado Brougham with a hefty price tag of $13,074 (the average Cadillac cost around $5000!).”

    Price of a Cadillac CTS with standard options:  $50,000.  Kelly Blue Book

    http://www.cadillacforums.com/cadillac-history.html

    So:

    5000 / 1.89  = about 2500 hours

    50000 / 19 = about 2500 hours

    At least according this data nothing has changed.  Of course, a person today could get a loaded Malibu that would go faster, get better gas mileage, handle better, be safer, pollute far less and require less maintenance for around $25,000 then a comparable 1956 Cadillac.  Old cars are fun to drive but they’re objectively far less capable then cars today.  · 8 minutes ago

    Kind of what I thought, the average fella is the same average fella now as he was then.

  9. david foster

    Genferei…unless I’m misreading it, the New Zealand CPI data shows that haircuts tracked the CPI until about 1994, then started growing faster than the CPI.

  10. Joseph Eagar

    I don’t think Krugman disagrees that manufacturing productivity is much, much higher.  What he means (at least as far as I can tell from reading between the lines of his writings), is that the distribution of productivity gains (not the distribution of the income generated by those gains, but the distribution of the gains themselves) was more widely shared in the 50s than today.

    His theory (I think) is that government-created wage inflation coupled with very progressive tax rates drove productivity gains.  I’m not sure why he throws in progressive taxation, since generally you need higher taxes on the lower class if you want to aggressively drive productivity through the tax code.

    He might be right about the value of wage inflation for pushing productivity (some conservatives are cooling to the minimum wage for this reason), but no one really knows how to safely inflate wages to begin with (the number of countries that have successfully done so without creating permanent unemployment can probably be counted on one hand).

  11. genferei
    david foster: Genferei…unless I’m misreading it, the New Zealand CPI data shows that haircuts tracked the CPI until about 1994, then started growing faster than the CPI. · 54 minutes ago

    Yes. I’m assuming wage rates rose faster than CPI, for some reason.

  12. BlueAnt
    Joseph Eagar:  but no one really knows how to safely inflate wages to begin with (the number of countries that have successfully done so without creating permanent unemployment can probably be counted on one hand)

    They “knew” how to do that back in the 1950s, with a little thing called the Phillips Curve.  It worked, suggesting perfect government control over inflationary effects… until it dramatically didn’t work in the 1970s stagflation era.

    Just like Krugman “knows” how to jump start the economy now, with extra spending and higher taxes.  I bet the same blind spot that derailed 1970s Keynesian spending theory–misunderstanding inflation expectations–is the same error made in Krugman’s dismissal of the “bond vigilantes”, and his repeated claims that there is no inflation to be seen from QE.

  13. Joseph Eagar
    BlueAnt

    Joseph Eagar:  but no one really knows how to safely inflate wages to begin with (the number of countries that have successfully done so without creating permanent unemployment can probably be counted on one hand)

    They “knew” how to do that back in the 1950s, with a little thing called the Phillips Curve.  It worked, suggesting perfect government control over inflationary effects… until it dramatically didn’t work in the 1970s stagflation era.

    Just like Krugman “knows” how to jump start the economy now, with extra spending and higher taxes.  I bet the same blind spot that derailed 1970s Keynesian spending theory–misunderstanding inflation expectations–is the same error made in Krugman’s dismissal of the “bond vigilantes”, and his repeated claims that there is noinflation to be seen from QE. · 5 hours ago

    You’re right, of course; this has been tried before, and it didn’t work.

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