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Originally Posted by liamona  It seems incredible, doesn't it? But go to the Fed's Minneapolis page, and go look for yourself. The calculator is on the right. One 2008 dollar buys five cents of 1913 money. Heck, it only buys 80 year 2000 cents! The Federal Reserve Bank of Minneapolis
However, I'm open to discussions on how different ways of computing purchasing power can come up with different results. |
Aaaahh. I followed the link and I see what you're looking at -- that's a CPI (consumer price index) calculator. It tells you about inflation -- but inflation and purchasing power, while related, are not the same thing, at all. What that is telling you is that something that cost 5 cents in 1913 costs 1.00 today, or conversely something that cost 1.00 today would cost 5 cents in 1913.
But that doesn't tell you anything about purchasing power, by itself.
To see why the two aren't necessarily related, lets freeze-frame everything. Then, lets say prices go up 10% (inflation), but lets also say your wages go up by 10%. In that case, your purchasing power remains unchanged -- you can still buy the same amount of stuff.
To get at purchasing power, you actually have to first adjust average wages in 1913 to average wages in 2009 -- then see how much stuff you can buy. And, you have to decide what all the stuff is "worth", what we call a market basket. OR, you can go the other way, and pretend only the goods available in 1913 are around in 2009, adjust backwards, and see how much stuff you can buy, adjusting wages the other way, to 1913 wages. Trust me, either way you go, we buy a lot more stuff on average wages today than we did in 1913.
But, don't get me wrong -- you are right, its a question of scale. These past two years are the first time our purchasing power has decreased, outside of the great depression. Mainly, its energy (oil) and food (because of oil price increases), and downward pressure on wages. BUT, it hasn't slipped that much. Keep in mind, this is all on average, individual stories may vary, and unemployment is factored out (effective purchasing power zero).
I agree with where everyone is coming from -- the financial sector needs major reforms, but they won't happen, because people aren't really educated about Economics and Finance.