September 21, 1998
The Wealth Of Time
As consumers, we all experience "sticker shock". In the supermarket, the department store or any one of the thousands of other outlets that compete for our dollars, a familiar chill creeps into the pits of our stomachs as we ask: Didn't this use to cost a lot less?
Surprisingly, the answer is no. It just seems that way.
The authors of a book to be released in January Michael Cox and Richard Alm, whose The Myth of Rich and Poor will be published by Basic Books in January, look at consumer prices in a unique and instructive way. They track real costs by figuring how much working time it takes to purchase several common modern household items.
Most people know that rising nominal prices don't reflect true values. Statisticians use phrases like "constant dollars" or "adjusted for inflation" to account for the difference. If, over time, central banks expand money and credit faster than the economy increases the production of goods and services, more dollars chase fewer items and prices generally rise. But wages rise too, and most people can cope unless the government goes hog-wild at its printing presses.
But the Cox and Alm look at prices from another angle. They calculate how much of the average worker's productive day must be set aside to make a particular purchase, and then they compare the results with the hours past generations had to put in. The exercise exposes phenomenal economic progress.
The following examples are expressed in American dollars, but there is ample evidence to assume that the same thing has happened in Canada:
The prices of most purchases mirror the trend, but there are exceptions. After decades of decline, the work-per-square-foot cost of housing rose by more than one half-hour between 1970 and 1996. But when you factor in higher quality and the decline in average family size, which means more space per person, even this item is actually 6% cheaper.
Is this way of looking at prices legitimate? As the authors say, "The majority of us aren't born with big bank accounts, but we are born with time. Time is the real currency of life, and the value of our time-what we can acquire for its exchange-is our most important asset."
The lesson of the analysis is clear. The market economy based on competing sellers has raised our standard of living to a height that would have seemed miraculous to past generations.
Now consider our health care, education and pension systems. They are produced through monopoly frameworks in which a single supplier per political jurisdiction provides the service. If calculated using the same formula, what do you suppose we would find?
The Frontier Centre for Public Policy
is an independent public policy think tank whose mission is "to broaden the debate on our future through public policy research and education and to explore positive changes within our public institutions that support economic growth and opportunity."