We hear a lot of misguiding information about inflation, cost of living, and a host of other myths that cloud the ongoing discussion.
If any of what people propose was true, standards of living would be heading down. The reality is that, over time, they only increase. In fact, today the average person is "wealthier" than JD Rockefeller, considered by many to be the richest man of all time.
It is a simple fact that the middle class is much better off in 2022 than the upper echelon was in 1922. The reason for this is the amount of innovation over the last 100 years.
So if this is the case, why do people miss it completely?
The answer to this lies in the fact that most do not see the incremental gains. Progress comes in the form of non-essential improvements that add up over time.
Many want to focus upon cost. This is a basis of the entire inflation discussion. People believe their purchasing power goes down over time. While this is true in certain areas, in the medium term, over the decades, the exact opposite happens. Real costs end up declining.
Before going into this, let me ask: what happen to the cost of can openers? Have they gone up or down?
The answer is close to the point where it doesn't matter. Here we see a discussion that is pointless. For a parallel that many are familiar with, you can think of CD or DVD players.
While the price of can openers might have risen, the real cost is in decline. There was an innovation that started to appear of late that will become the norm in the next 5 years. That is the tabs now placed on canned goods. Basically, many canned products like tuna fish and soups come with tops that can be peeled off.
Hence, there is no need for a can opener. This is an economic principle that is part of the CPI weighting that using substitution. So while people can bitch about the cost of can openers going through the roof, the reality is they will not be needed in a few years.
After all, how often do we need bottle openers. Before twist tops, this was the norm.
Could the world have gotten by without these new tops? Of course. Were they major technological advancements? Not in the least. Yet here we see how society is changing because of this.
Now multiply this by 10,000 different instances in your home or office.
Small Drops Of Innovation
Donald J. Boudreaux posited this idea in The Prosperity Pool. Basically, we are looking at innovations that go unnoticed.
He uses the idea of Arthur Scott and the paper towel. This was developed in the 1930s. Again, could the world do without them? Yes, it did not alter the course of humanity like the automobile or PC. However, each day, tens of millions of househods in the developed world use this product.
Here is the question: how has the paper towel changed over the years?
Today, we have two and three ply. This is much different than the product Scott rolled out. We also can see that while the pricing increased, the product itself is of much different quality. They are also textured for addition absorbtion. All of this is omitted from conversations pertaining to living standards.
The small drops of innovation are the millions of contributions by smaller entities that do not change the world. On their own, they are rather insignificant. Yet, when we take the totality, we see enormous change in the way we live.
JD Was A Poor Man
JD Rockefeller owned some of the most pritine real estate in the world. He could afford to arrive anywhere he went in style, being driven around in a limosine.
Of course, we have to keep in mind that most of his properties did not have air conditioning so he had no choice but to sweat.
If he wanted to travel to his other residences, the trip would take days, if not weeks. There was no shuttling from NY to LA in 6 or 8 hours. Air travel was not a common practice for much of his later life. Also, if he chose to drive, the interstate highway system was not built until the 1950s. Thus, the way to travel from NY to Washington, as an example, was by train. Naturally, this was not a bullet train (high speed rail) since that wasn't invented yet.
Leaving the major technological advancements aside, what was plumbing like in the 1910s? How about sewage systems? Did he have the ability to have the light turn on and off without him there? What about setting an alarm to wake up? Did he have to do it each night or could he simply put it on repeat?
We know the answers to these questions.
While Rockefeller was the wealthiest man in the world, he lacked what the most basic household in the developed world has. And we are not even entertaining the idea of a laptop, smartphone, or Internet.
Keep all this in mind the next time you hear someone espousing about the decline in purchasing power.
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