Did you actually know that while goods and services get more expensive over time (inflation), they require us actually to work less to get them today. Nominal prices are expressed in dollars and cents but time prices are measured in hours and minutes. Time prices calculate how long people must work to buy these good and services there and then. For example, if a barrel of oil costs $90 and you earn $15 an hour, the time price is 6 hours but if the cost of oil rises to $100 a barrel and you earn $20 an hour, the time price is 5 hours because you only have to work 5 hours to ern the money to buy the oil. In our example it shows that even though the nominal cost is higher, the time price is lower because you have to work less to purchase the oil. Time prices are an excellent way to measure increases in human well-being over time.
For 50 analysed commodities between 1980 and 2000 including oil, natural gas, wheat, cotton, soybeans, beef, corn, pork and sugar, a blue-collar worker in the US had to work 75% less to afford the same amount of those commodities. we have experienced the same for finished goods. Over the same 40-year period, the time price of a dishwasher declined 62%, a washing machine declined 65%, men’s clothing declined 72%, a bicycle declined 74%, a vacuum cleaner declined 83% and a food processor declined 86%. It’s impossible to measure the 40-year time price decline in products like laptops, smartphones and flat-screen TVs because none of those existed back in 1980. And look at house prices, they always seem very high and especially today. Yet the cost of housing has also declined in time prices. The average price for a square foot in 1970 set us back $15.33, and the U.S. blue-collar hourly compensation rate was $3.93, indicating a time price of 3.9 hours per square foot. In 2019, the average price of a square foot of a home was $88.89 and the blue-collar hourly compensation rate was $32.36, indicating a time price of 2.75 hours per square foot. So, the time price of a house declined by nearly 30%. This does not even consider that today’s houses are more energy efficient, usually contain numerous high-value home appliances, and almost always include modern features like central heating, air conditioning and granite countertops, just to name a few benefits nowadays.
It’s true that consumer prices have risen faster than wages over the last 1 1/2 years. But when looked at the long term development, wages rise faster than prices, allowing to buy more while working less. This is very much contrary to what the mainstream media tells us or makes us believe.
Considering time prices bust the myth of middle-class stagnation. Our life is in fact much better than ages ago when it comes to purchasing power when time is money! So, there is a lot of hope that the all about doom-mongers will be wrong about the future again. Just as they have always been wrong about the past.
Sven Franssen