Technological Improvements and the Cost of Living

Dan Drezner reflects on the fact that Burger King gives away free radios with cheap kid’s meals: “Thirty years ago, when I was a child, this would have been a $20 ($68.71 in 2006 dollars) birthday gift that would have made me the coolest kid on the block. It is now an afterthought, a free, promotional gift as part of a $4.00 kids meal that is affordable to 99% of all American households.” Extrapolating, he predicts, “by the time my son is my age, Burger King will include the equivalent of an IPod Nano in every kids meal.”

He and his commenters come up with other examples of things that were luxury items twenty or thirty years ago: scientific calculators, waterproof cameras, cellular telephones, photocopying, and newspaper content. Megan McArdle adds her own list:

    1) air travel
    2) air conditioning
    3) healthcare technology
    4) power wheelchairs/scooters
    5) second cars
    6) affordable long distance calling
    7) flash frozen fish

Drezner notes, correctly, I think, that the Consumer Price Index does a poor job of factoring in such technologically generated changes in the way we live in figuring the cost of living. It’s certainly true, though, that the working poor and lower middle class of our day have higher standards of living than their 1972 counterparts. Indeed, even Brad DeLong seems to agree that this is the case; he merely argues that, given the size of the pie, those people ought get a bigger slice.

Update (Steve Verdon): Just thought I’d point out that while James’ observations about the CPI and technological advances are basically correct, there is one tiny wrinkle here: the CPI is not a Cost of Living Index (COLI). The CPI is a price index (hence the name Consumer Price Index). A true Cost of Living Index is basically impossible to calculate as it requires knowing the consumer’s underlying preferences, and even if we have just one consumer, this is impossible. Nobody can articulate this kind of information in a way that an economist could use to calculate a COLI. Basically, while this bias exists, it is outside the scope of the Bureau of Labor Statistics (BLS) to deal with, and when pressed the BLS has always treated the issue as a political one, and tossed it right back at Congress.

As for Brad DeLong’s closing comment about lion’s share vs. the Tyrannosaurus’ share, well that might be considered a bad analogy in some circles and if your talking about Tyrannosaurus rex.

Update (James Joyner): Steve’s right that CPI doesn’t claim to measure cost of living but merely the fluctuation of the cost of a market basket of goods. The public policy debate around CPI, though, has everything to do with the former. Indeed, the primary purpose to which it’s put it to make cost of living adjustments to government paychecks, benefits, and the like.

That people are using an imperfect measure of price fluctuation as a proxy for cost of living is unfortunate but true. If we’re going to raise people’s pay based on CPI, we ought at least factor in the degree to which CPI’s market basket doesn’t correspond to the actual cost of living. Or perhaps come up with a better statistic for this.

Steve’s also right when he says that calculating a COLI would require figuring out preferences; I’m less sure that we can’t figure that out in some aggregate measure. The fact that I don’t personally buy a lot of flash frozen fish and have, to date, purchased zero wheelchairs/scooters can presumably be extrapolated onto an index along with data taken across the board.

FILED UNDER: Economics and Business, ,
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Two examples come to mind (that also show my age).

    A co-worker, long years ago, was one of those who had to have the newest, latest technology. He purchased one of the first digital led watches. If you are old enough you’ll remember that they had one function – telling the time. You had to cup your hand around the face to see it in daylight. He paid nearly $100 for it. He said that him made him mad every time he saw a cheaper, better watch hanging on a blister card at the Wal-Mart check out.

    I have also been guilty of jumping ahead of the price curve on technology. I bought one of the very first Curtis-Mathis VCRs. It had analog tuning presets that you had to adjust with a tiny screw driver. The remote was hard-wired and could only start, stop, and pause. This particular model did come with a camera, but the entire thing cost about $1500. Luckily it came with a blank tape as they were running about $29/ea. at the time.

  2. just me says:

    I was also thinking about watches.

    I remember when my husband and I went on our honeymoon in Mexico and went to Chichen Itza he traded his cheap $5 digital watch for a very nice carved chess set. Apparantly digital watches are luxeries in some areas. We always joked if we ever went back we were going to hit the dollar store and buy a bunch of digital watches to use as barter.

    CD and DVD players used to be very expensive, now you can get them for $20-$30 bucks, and the very expensive CD player I got in high school for Christmas has fewer bells and whistles than the cheapest models do right now.

  3. For most of human history, most people lived very much as their grandfathers did. There were macro events (e.g. war, pestilence, the characteristics of who was in charge, etc) that might have made one individuals life different from another, but those were more if they happened, not “new” events. My knowledge of the ancient world is far from perfect, but I can’t think of any time that there would have been so much change in 100 years than the last 100 years (1906 to 2006). The previous 100 years (1806 to 1906) would have been the next closest, but still not as much change as the last 100 years. Each 100 years until the Renaissance would each have more changes than the previous 100 years, but less than the succeeding 100 years.

    The rise or decline of the roman empire would have been periods of change, but not as great of change as the last 100 years.

    So given that the pace of change is accelerating, it makes sense that a better method for understanding the impact of the change would be useful. Some people have talked about a “servant” model. How many servants would an emperor of Rome needed to live as well as a poor person today. So radio would presuppose a certain number of people ready to entertain the emperor. TV would have been a similar number of people to entertain, but now more to provide scenery and costumes. Standard TV to cable would have been even more entertainers, set designers and costumers. The remote would have been the ability to “turn the stage” to go from one play/set to another with out getting up. You could use this to say that a person living with a certain level of technology would be how much better off than the mightiest of Roman emperors. Choose your technology to represent the top 10%, median point or bottom 10% point.

    The problem with this analogy is that somethings can’t be measured in servants. I have the means to fly to Australia (in fact I have been there). No matter how much gold/people an emperor of Rome would have thrown at the problem, he couldn’t have done it. But maybe those things can be judged as part of time. Assuming the transport of the day, if he could have made it, how long would it take. 2 years? I don’t know. But say it was 2 years, then you add two years on to the life. Likewise for life expectancy.

    So in the end you can say that a given person would have X number of resources more than a given emperor of Rome and have lived Y times as long. But then that wouldn’t account for the ability to have a comely slave tickle my fancy while I had those who displeased me put to death.

  4. floyd says:

    it is really not the things of choice that make up the “cost of living”. working people have to get past the necessities before they get to their first gadget. it seems to be getting to the point where you can buy the car, but can’t afford to run it. you can buy the house,but can’t afford to heat it. and you can get a “free” phone, but you can’t pay the bill to use it.necessary”survival” cost is much higher today,in my opinion a family of four gets it’s first discretionary dollar at around the thirty-thousandth one.after that life improves.this is admittedly anecdotal but it explains a perspective that is not shown by numbers alone.

  5. Floyd,

    I suppose this would be based on what you term “survivor level”. Is a TV survivor level? 95% of people below the poverty level have a TV (1997 American housing survey)

    94.2% of us live in dwellings with 1 or fewer people per room (2000 census). Is this survivor level?

    89.7% have a vehicle (2000 census), is this survivor level? And if it is, then why are we bothering to pump millions into public transportation.

    My father’s house didn’t have electricity, flush toilet or a refrigerator until he was in high school. He survived and now 99% of those below the poverty level have those things. As recently as 1950, only 76% of all US households had flush toilets.

    Looking at other countries, having a flush toilet in you apartment (as opposed to one for the floor or building) is not uncommon.

    I couldn’t find the numbers on cable, cell phones, etc. but I would argue they are not strictly survivor levels.

    I am not saying I would want to live without these modern conveniences, but could I survive without them?

    I think a big part of the equation also has to do with budgeting. I know a family making over $100K and they keep going deeper in debt because they don’t budget. Since they keep having financial trouble, are they “poor”?

  6. floyd says:

    yetanotherjohn; in most of this country, if you lived in a place without plumbing , electricity, or refrigeration today, the state would confiscate your children.that makes it survivor level.BTW i was six when we moved into town and got elctricity & plumbing.. refrigeration & central heat came later. the primary thrust of my comment was to say that electronics do not equal properity.i was not saying that a car and cell phone were survivor level. instead i was saying that basics require unprecedented cash flow today. for instance; i now pay the purchase price of my house every four years just for taxes,and it is now against the law for me to build a smaller or lesser house. i can buy a$39 dvd player,but that same $39 will buy only ten days of the minimum waterbill, or for three months of having a gas meter[no gas] or three months of having an electric meter[no electricity]. it now costs an average of thirty cents per flush for my $45 toilet. the mandatory or essential expenses are a much larger piece of the pie than in the past. to answer your last interogative, no, but you really don’t start to budget until discretionary income becomes reality. i still maintain that that family of four starts to emerge from poverty at or about the 25-30 thousand dollar mark and that is WITH careful budgeting.