Comparing the cost of living between 1975 and 2015: You are being lied and fooled when it comes to inflation data and the cost of living.

Inflation is widely misunderstood by the public. Even economists tend to have a hard time coming to a general agreement to the true definition of inflation.  When you ask the person on the street what inflation is they usually respond by saying the “price of things going up” which is more of a consequence of inflation, rather than the cause.  Inflation is like a new car that lacks maintenance. At first, there is little notice of the issue but overtime major problems start occurring and eventually the car breaks down.  If you want to see inflation out of control just look at Venezuela right now where people are swarming stores for basic food items.  In the US inflation has occurred primarily because of the Federal Reserve’s banking policy.  Too much cash (or debt in this case) chasing the same amount of goods.  Only when we look at longer periods of time do we see the insidious nature of inflation.  Yet somehow, the data used to measure inflation misses much of what is happening because it uses derivative like measures.  For example, we use the owners’ equivalent of rent (OER) instead of the true monthly cost of owning a home.  Let us take a look at some data between 1975 and 2015.

The cost of living shuffle

We continually hear about the middle class shrinking.  But where are they shrinking to?  Much of the disappearing act has come at the hands of inflation.  That is, their income is no longer sufficient to support the items that we once categorized as part of the middle class: a car, a home, college education for the kids, and basic healthcare.  For many Americans, these items are all getting out of reach.  And for those that purchase them, they are required to go into massive debt with banks.

There is an interesting chart looking at the cost of items in 1975 versus today:

cost of living chart

Source:  David Stockman

This is a very telling chart.  First, let us look at the biggest line item with housing.  A new home today costs $270,200.  That 1975 home adjusting for inflation would cost $209,417.  This is a “real” increase of 29 percent.  A new car costs $31,252 while that 1975 car adjusting for inflation would cost $16,578.  This is a true doubling of cost here.  Public college costs are up over 150% while private college costs are up over 160%.  And you wonder why we have over $1.3 trillion in student debt outstanding.

What is more affordable relative to inflation?  Milk, eggs, and a postage stamp.  Unfortunately these are tiny line items on your household budget.

What you need to look at is the median income here.  US households overall are simply poorer.  They have less to spend relative to the cost of goods and services.  Money is only as good as what it can purchase.  You can’t eat hundred dollar bills.  This is part of the reason why many people feel like they are poorer.  It is also a big reason as to why the homeownership rate continues to fall.

The Fed uses the Consumer Price Index (CPI) to gauge if inflation is within range.  Take a look:

cpi data

According to recent data, we have nearly no inflation!  How about that.  Well look at the above chart.  We have some major inflation going on but recent policy is dictated by recent changes in inflation.  And you are also missing out on bigger changes like many young Americans having most of their debt and spending being consumed by college.  The CPI gives only a tiny portion allocation to college education.  Keep in mind the CPI is a weighted basket.  So this misses out on a large cost for millions of Americans.

But look at even more recent data:

2000 to present

This is looking at price changes since 2000 and goes out to 2014.  A barrel of oil has plunged since this chart was made (still up 100 percent from 2000).  Ironically the savings aren’t passed to consumers since a gallon of gas is still expensive.  The average home price is up more than 50 percent.  Average monthly rent is up more than 40 percent.  That new car is up more than 55 percent.  Healthcare spending is up 100 percent. Yet the overall CPI rate is up 39 percent.  You see how this misses out on the true changes in the market?

Gradual change is the name of the game with inflation.  Slowly the nation is being owned by massive amounts of debt (meaning banks have full control over the public if they wish to buy a home, car, or even go to college).  Credit card debt is once again surging.  That is a lot of power to those controlling debt and given the rising cost of goods and stagnant incomes, people need debt to purchase the artifacts of what was once middle class living.

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19 Comments on this post

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  1. Ame said:

    It would be interesting to see a cost of clothes and shoes comparison to the 1970’s. Also, toys and restaurant meals.

    Growing up in the 70’s we had so much less. Shoes, for instance. We had a pair of “school shoes”. ONE Pair. Sometimes we wore a pair that our toes bumped inside for a few months before mom and dad could spring for a (too big) new pair. We had ONE pair of play shoes for after school (often the cast-off of a sibling’s) and weekends (if we weren’t barefoot) and Sunday School shoes (aka dress shoes). That is IF we were the lucky ones. We wore the same outfits week after week until our ankles and wrists stuck out the ends and even if they had stains and holes! Can you imagine the REVOLT from kids today?

    Going out to eat was an “occasion” to be celebrated, not just because it’s dinnertime.

    Toys were given on birthdays and Christmas. Often only one toy for each and the rest was things like p.j.’s and robes that were two sizes too big (to grow into) and stuff like new brushes and hair ribbons.

    Practically nobody had new cars. Even in Middle Class neighborhoods like I grew up in. They said you were “uppity” if you “put on the ritz” with flashy clothes and jewelry, so everyone was conservative.

    Things go in full circle. Perhaps that is where America is returning? It’s maybe not such a bad place to be. People actually looked at a person’s actions instead of their stuff and made a decision on whether or not they were “good people” to know.

    August 4th, 2015 at 5:25 pm
  2. Beano said:

    Money is just printed now. Not based on anything but how much to cover debt per year which uhh, raised the debt.

    Is something about to implode? Inflation seems to tell us that overtime.

    August 4th, 2015 at 9:13 pm
  3. RKae said:

    I recently saw some my old comic books in a box. When I started reading them in the late ’60s they were 12 cents. That’s a 2 cent rise since WWII.

    Then in the ’70s they went up steeply every year that I read them to the point where 50 cents seemed ridiculous, and I gave up the habit.

    Now they’re 4 bucks! And they’re thinner! AND they have major advertisers! (Back in the dim past, it was cheap gimmicks like X-ray specs, Charles Atlas, and “Sell seeds and win a 10-speed bike!” Now it’s huge video game corporations! So why would the cost of the comic be higher if they have bigger sponsors?)

    August 4th, 2015 at 10:01 pm
  4. SnowiGeorgie said:

    I hate hate hate to agree with US Government bureaucrats on anything they do – – – – but I MUST SAY THIS : I bought a brand new car in 1971 ( a Ford ) and I was tickled to get Radial Tires and front disc brakes. No A/C for sure. And no FM or stereo or cassette player either. ( NO FM ! ! ! Can you believe it ? )

    There is merit to HEDONIC ADJUSTMENT ! I bought a brand new Subaru in 2012, and besides A/C and 4 wheel disc brakes, THERE ARE TOO MANY IMPROVeMENTS ON THIS VEHICLE ( over the Ford ) TO LIST IN THIS COMMENT.

    Too numerous to list ! ! Well, there’s a case to be made for hedonic adjustment when it comes to (i) color TVs or (ii) computers or (iii) Automobiles or (iv) any modern appliance such as micro-wave, refrigerator or air-conditioner.

    I hate to agree with the lying bureaucrats at BLS, but there you have it – – – regarding “hedonic adjustments” – – – the truth is out there if you are willing to honestly assess improvements made.

    SnowieGeorgie

    August 5th, 2015 at 9:29 am
  5. Andy said:

    I would argue (with no evidence to back it up whatsoever) that the cost of living comparison between 1975 and 2015 in 2015 dollars is not terribly indicative of any drastic change in the real worth of the purchasable items in the chart. The increase in the cost of a new home can be accounted for by the fact that homes today are much larger and use more elaborately made fire-resistant materials as required by regulations and law. Has anyone compared the square footage of the average home in 1975 with one in 2015 not to mention the difference in amenities? The increase in cost of a new car can be accounted for by the fact that cars today are much more elaborately made as required by regulations and law for the safety of the passengers as well as restrictive emission and mileage standards. A vehicle made today using 1975 standards would cost much, much less (and probably wouldn’t be legal to drive). I cannot account for the significant difference in the median income. I would suggest that there is a possibility that this is just a reflection of the real market value of the average US citizen. Maybe we just aren’t worth as much to employers as we used to be?

    August 5th, 2015 at 11:13 am
  6. fidalgoman said:

    When I was in High School I worked in a service station doing tune ups, oil changes and pumping gas. I was paid $2.50/hr. That’s approximately equivalent to $25+/hr in todays wages. IMHO watering down peoples savings and buying power is a criminal act of the government and is one of the most nefarious of hidden taxes we face.

    August 5th, 2015 at 12:15 pm
  7. gman said:

    “That is a lot of power to those controlling debt”

    that’s the plan. always was.

    August 5th, 2015 at 12:45 pm
  8. Chad said:

    Nice to see the price comparisons.
    I think health care should be higher, I remember paying $4 out of my paycheck for my single coverage around 1990. This was for excellent insurance!
    This data shows why America will eventually be like Greece. Sad to see, greed and banks are ruining America.

    August 5th, 2015 at 1:37 pm
  9. a said:

    yes, i get the point that cars cost more in 2015, along with food, gas, clothes and etc.

    BUT………. technology costs weren’t included in 1975 prices, i.e. heated seats and curb finders and on line banking with a movie and wet bar I know it is all convoluted, that sucks.

    August 6th, 2015 at 2:44 pm
  10. Spartacus Rex said:
    August 8th, 2015 at 2:46 am
  11. Jim Martin said:

    Regarding ‘median income’, I believe that what you are referring to is actually median household income. In 1975, the typical household in the U.S. had only one wage earner. Today it takes two full-time workers to earn the equivalent gross income of one full-time wage earner in 1975. However, due to the fact that total taxes of all sorts are much higher today than they were in 1975, the net effective purchasing power of a two wage earner household today is much less than it was for a one wage earner household in 1975.

    Something has gone terribly wrong over the last 40 years, no?

    August 10th, 2015 at 6:19 am
  12. Jim Martin said:

    Oh, and I forgot to mention this:

    Don’t ever believe that this sad state of affairs in the U.S. all came about by accident. The folks who are in charge of things are not that stupid. They want more for themselves and less for us.

    August 12th, 2015 at 10:07 am
  13. EdoubleU said:

    Mr. Martin’s comment may be true if speaking about the postwar 1940s through the 1950’s. There’s only been a little over a 2% rise in dual employment married couples from 1975 to now. You can’t say costs have risen due to technology either because they were paying for the technology of their day. Costs rise from supply and demand but mainly because of us. It starts from stockholders wanting more return, businesses needing to meet stockholder demand, employees wanting to make more or at least be paid what they feel they’re worth, in turn having to raise prices to meet all these demands. Along with about a thousand other reasons. So let’s just blame ourselves and not the politicians, who by the way, you elected!

    January 25th, 2016 at 10:43 pm
  14. Sharon said:

    What this fails to take into account are things like car insurance, health insurance, auto maintenance, real estate taxes, doctor and hospital costs. You can make up any numbers you want, but if people don’t have a decent wage to cover their expenses, it doesn’t matter. We used to get TV over our antenna for free. Now it isn’t uncommon to pay $150.00/month for it. How many of us want to give up our internet? Most services charge a minimum of $49.95/month for their slowest service. Should we have to give up our cell phones? It’s hard to get a plan for less than $50.00/month.

    March 11th, 2016 at 7:10 pm
  15. Alexis said:

    Although I agree our buying power isn’t as good as it once was, especially for items like education, we as a nation do have choices.

    For example, Sharon says we no longer have free TV. Yes, we do. Cable (and others) are options. The same is true for Internet and cell phones for many. There was a day when we lived without these things. We choose to have them.

    We live in an environment where people are always competing with the Jones. Many want the most fanciest cars, biggest house, smart phones for their kids, expensive name brand clothes whether they can afford or not because we feel entitled and/or don’t want to feel less than.

    When I was a kid, my parents and grandparents lived within their budget and if we couldn’t afford the fancy stuff, we didn’t get it. If all we could afford was a used car, we got a used car. We got clothes for Christmas and our birthday and we’re thankful.

    I am not judging anyone as I, too, bought the lie. It wasn’t until I was in debt that I figured out that we are constantly being told to buy all these things because we deserve it or need it. We lost the difference between want and need. We need a car, but we don’t need the $40000 car.

    Again, I’m not saying all is perfect, but when are we going to take responsibility for our actions as well. This is both greed of us and business, and businesses are doing what they’re supposed to do–make money. Otherwise, why would any business be in business.

    April 1st, 2016 at 1:26 pm
  16. Julie S. said:

    To the guy griping about cost of comics being $4 each? Guess you forgot the Cost of Living for the Writer & Artists are paid for, out of that meager $4 a book! As a Professional comic book artist & writer for 30 years, I’m amazed at how many people think we should draw for free, do it for the love. We do – and love to pay our bills, so we can meet our fans at the conventions in person. Nobody works for free.

    May 15th, 2016 at 11:39 pm
  17. Samantha said:

    After looking at some items that have overshot normal inflation, they all have one thing in common. They use credit to buy. Housing, medicine, cars, and education. All four require loans, and because of this, they are allowed to be at a much higher price than they actually cost.

    If you want the economy to normalize, stop using credit cards for loan.

    May 19th, 2016 at 7:45 am
  18. Samantha said:

    Regarding ‘median income’, I believe that what you are referring to is actually median household income. In 1975, the typical household in the U.S. had only one wage earner. Today it takes two full-time workers to earn the equivalent gross income of one full-time wage earner in 1975. However, due to the fact that total taxes of all sorts are much higher today than they were in 1975, the net effective purchasing power of a two wage earner household today is much less than it was for a one wage earner household in 1975.

    Something has gone terribly wrong over the last 40 years, no?”

    Yeah. It’s called the government selling us out. “Equal rights” they promised. But they meant we will treat you equally bad, not that they would raise women up.

    May 19th, 2016 at 7:48 am
  19. Samantha said:

    “Again, I’m not saying all is perfect, but when are we going to take responsibility for our actions as well. This is both greed of us and business, and businesses are doing what they’re supposed to do–make money. Otherwise, why would any business be in business.”

    A business can make money without screwing over their customers. In fact, they should. In the short run, you can get a high priced product that routinely breaks down, forcing you to get a repair at the shop. But eventually, you stop patronizing that shop if they don’t really fix it. Customer service means doing good, not just passable, business. That means that you are concerned for the customer.

    If you are charging $40k for shoddy cars, you should get competition from motorcycles or cheaper alternatives. And if college doesn’t cut it, people should stop sending their kids, and teach them at the library past high school.

    And sooner or later, I hope people all figure out how to leech internet for free. $45 for these services is criminal.

    May 19th, 2016 at 7:56 am

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