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Making sense of modern prices

Marketplace Staff Mar 14, 2008

Making sense of modern prices

Marketplace Staff Mar 14, 2008


Tess Vigeland: The government may insist on removing food and energy from the equation, but we all know that prices for just about everything are going up.

Or are they? Turns out some of the stuff we buy is actually just as cheap or even cheaper than it was a generation ago.

Peter Hong is a business writer for the Los Angeles Times and a few days ago he wrote about the reality of our expenses. He joins us in the studio:

Vigeland: Welcome, Peter.

Peter Hong: Thanks. Good to be here.

Vigeland: Your story starts out with you, I think trying to convince people that stuff isn’t as expensive as we might think it is. You say “Stuff is cheap. Really.”

Hong: Yeah, stuff really is cheap — stuff in kind of the George Carlin sense of stuff, consumer products — and I think in the story you saw that I refer to an ad from our newspaper in 1978 for Sears…

Vigeland: For the Los Angeles Times?

Hong: Yeah.

Vigeland: And you have that with you here?

Hong: Yeah, I have that with me.

Vigeland: You have a picture here — I’m actually looking at the ad — and you have a bicycle here from Sears and I think you also have… this is the same or very similar bike and it was $99.99 back in ’78 and now it’s $89. What does that tell us?

Hong: Well, I think it tells us that production costs are lower. You know, the washing machine, the clothes washing machine that was $319.95 in 1978 and that’s now $319.99 today’s probably built in Mexico or maybe China or somewhere and not by some highly-paid people in Amana, Iowa or somewhere like that.

Vigeland: So why is it that we feel like things are so much more expensive? Certainly, when we go the gas station these days and we’re looking at $4 a gallon gas. That feels a whole lot more expensive, even than it was six or seven years ago.

Hong: Well, you know, gasoline prices in particular were low for a very long time. At the beginning of 2007, they were really at 1970’s levels and even until a few weeks ago they were at 1980-81 levels.

Vigeland: Really? They were still that relatively cheap, though?

Hong: When you adjust for inflation, right, but we use a lot more gas. You know, a Honda Accord now, the current model with a V6 engine, gets about 19 miles per gallon in the city and it has more horsepower than a 1990 Porsche 911.

Vigeland: Wow.

Hong: So, if you wanted a Porsche in 1990, you sort of have one now in the Honda Accord in some ways, but we’re using that much more gas. We do consume a lot more. We use a lot more energy and we live in much bigger houses.

Vigeland: Yeah, you had some really startling statistics on what kinds of houses we are buying. We think that housing is so expensive these days and it certainly was during the boom, but part of it is because we’re not living in the same kind of houses as we were decades ago.

Hong: Not at all. If you look at newly constructed houses, in 1970, 74 percent of houses were one story. Now, 55 percent of them are two story houses.

Vigeland: So, in general, things are more expensive because we want them to be bigger and better?

Hong: But, what goes along with that is that we’re cheaper as well in that the average we pay for a private sector employee peaked in 1972 and is now 15 percent below what it was then.

Vigeland: And this is the whole idea that wages are not keeping up with the cost of living?

Hong: No. By and large, wages are going down and expenses for other things — the share we pay for health insurance or our retirement savings for instance — are often times dramatically more than they were in the ’70’s. So all the stuff is cheap, but the stuff that really sustains us really isn’t.

Vigeland: So it’s the things we really need that are more expensive and things we don’t need that are still relatively cheap?

Hong: Well, I think a lot of us insist that we need a three-car garage and three bathrooms. There’s a perception of what we need, but if you want to have a comfortable retirement, if you want to pay for your own or a child’s education, those things really are a lot more expensive than they used to be.

Vigeland: Peter Hong is a business writer for the Los Angeles Times. Thanks for coming in and giving us some perspective.

Hong: Thank you Tess.

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