Thursday, October 21, 2010
The dollar is NOT being "debased!"
One of the things that we hear all the time is that the dollar is being "de-based."
People blame the Fed or excessive government spending or that we went off the gold standard or who knows what else, but they all say the dollar is losing its value and we are having to pay more and more for things.
Well, the fact is, this is absolutely not true! It's totally wrong!!
When people complain about debasement they usually speak in terms of the nominal price of something. For example, they say that a car used to cost $2500, now it costs $25,000, so we're having to pay more: the dollar buys less.
But that's a totally flawed way of looking at it.
The way to look at it is to calculate the amount of labor that it takes us to earn enough money to buy a car. (We work to earn money so we need to know how much of work is required to earn a certain amount of money.) If we work less nowadays to buy a car than we did back in 1970, then the dollar buys us more, not less.
And that's exactly what the truth is.
Using data from the Bureau of Labor Statistics and the National Automobile Dealers Association I did a little comparison.
Average hourly earnings today are $19.10.
Average hourly earnings back in 1970 were $2.58
The average price of a new car today is $28,500.
The average price of a new car in 1970 was $3,900.
Using these numbers we see that it took 1512 hours of work to be able to afford a new car back in 1970.
However, it takes only 1492 hours of work to afford a new car today. We work less today to be able to afford that new car, therefore, the price of the car in real terms HAS GONE DOWN!!!!
Which means...THE DOLLAR BUYS MORE, NOT LESS!!!!!!
And here's the kicker: back in 1970 all you really got was a basic car. A body with an engine. That's about it.
Today you get a car with an engine that starts every time you turn the key (no small feat back in 1970, especially in winter), air conditioning, power steering, power brakes, airbags, power windows, radio, all standard. You get warranties of up to 100k miles and much, much more. In other words, not only do you have to work less to be able to afford the car, but you get much, much, much, much, more car for your money.
The whole notion of debasement is totally, totally, false!!!
And it's not just about cars, it also applies to homes, clothing, food, medical care...pretty much EVERYTHING. The quality of everything has gone up and their real cost has gone down. That's with the Fed and the government spending and the fiat currency and all the other nonsensical crap that these debasement clowns talk about.
When they say the dollar is being debased, that is their BELIEF, but it is not the truth.
And as any smart person knows, there is a difference between belief and truth!