Good Ol’ Days, Maybe, but Not Too Cheap

WASHINGTON — Remember the good old days when a typical American home sold for $14,500, a haircut went for $1.50 and gasoline was about 30 cents a gallon?

Well, forget all that, because all those things actually are cheaper now than they were a generation ago during the fabulous ‘50s--and so are most other items that American consumers buy.

A new study by a regional Federal Reserve Bank chronicles the cost of houses and consumer goods based on how many hours a typical American would have to work to pay for each item, and it comes out with a startling conclusion:

The real cost of living in America has declined sharply.

The bargains may not be apparent in the face of today’s higher price tags. But Americans also earned far less back then. With the 1990s’ higher wage levels entered into the equation, we are far better able to afford these goods and services today.

For example, it took the average worker 6.5 hours to earn enough money to pay for each square foot of the $14,500 home that was typical in the 1950s. Last year the median price of a house was $140,000, but it required just 5.6 hours of work per square foot to finance.

Workers in the 1950s had to spend 63 minutes on the job to be able to pay for that $1.50 haircut, but today’s more expensive version requires only about 46 minutes of work. Buying a gallon of gasoline took 9.4 minutes at work back then. Today it takes only 5.7 minutes.

W. Michael Cox, chief economist of the Federal Reserve Bank of Dallas who compiled the study, says using the required number of hours of work as a benchmark is by far the best way to measure trends in Americans’ living standards.

“In appraising the nation’s cost of living, it’s what the average American can afford that matters,” Cox says. At the same time, he points out, prices of new products such as computers decline so rapidly that ordinary Americans can soon buy what only the rich once could afford.

The wage levels that Cox has used in his calculations are from the Labor Department’s average hourly wage for rank-and-file production workers. In 1950, that figure stood at $1.44 an hour. Last year it hit a record $13.18--not including fringe benefits.

Moreover, the figures don’t take account of tremendous quality improvements that have been made over the last few years in everything from calculators to cars:

New homes are more likely to come with central heat and air-conditioning, full insulation and storm windows, major kitchen appliances, a garage, extra bedrooms and bathrooms and many other amenities.

Today’s refrigerators are much more sophisticated than those of the 1950s, featuring computerized timing and temperature controls, ice makers, frost-free freezers and other gadgets. So are other appliances, from kitchen ranges to washing machines and dryers.

And automobiles--a major purchase for most American families--are vastly better today than they were even a few years ago--more fuel efficient, less likely to need heavy repairs, longer lasting and more comfortable. Tires, too, are safer and last longer.

Even the basic coast-to-coast or long-distance telephone call is sharply improved over what it was in the 1950s. With rare exceptions, you can dial directly and get through any time of day or night. The sound is clear. And the price of each call has dropped sharply.

Cox points out that with relative costs so much lower now, basic living costs are sapping far less than they used to from Americans’ paychecks. In 1950, for example, the average American family spent 54.8% of its income on food, shelter and clothes. Today, it’s 37.7%.

That, in turn, enables Americans to spend more of their money on recreation and leisure, and those costs are going down as well.

Not everything costs less than it used to--even on Cox’s amount-of-work-needed scale. Financing college tuition and medical expenses both require far more of a worker’s time than they did a generation ago. So do movies.

But, thanks partly to technology, medical care is far better than it was in the 1950s, and although educational quality is subject to debate, workers with bachelor’s degrees still earn an average $19,060 a year more than high school graduates--up from a comparable $12,171 in 1958.

Cox is optimistic. Although prices of ordinary consumer goods probably will not decline sharply in coming years, he says, new products--such as computers were in the 1970s--will, and Americans’ incomes will continue to grow. The good old days, he says, are still to come.

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Today’s Prices: How They Compare

Don’t let today’s high price tags fool you: Many items in your family budget actually are far cheaper than they were in the 1950s once the difference in average wages is taken into account. Here is a partial list of such declines in living costs, comparing how many hours an average American had to work in order to buy each item in the 1950s, and how many work hours it takes to buy the same product today:

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Price Hours of during work needed Price Item or Service 1950s to pay for it today Median price $14,500.00 6.5 hrs. $140,000 of home per sq. foot Mid-price auto $3,030.00 1,638.0 hrs. $17,995.00 Color television set $1,000.00 562.0 hrs. $299.00 Kitchen range $420.00 292.0 hrs. $288.00 Air-conditioner $350.00 213.0 hrs. $299.00 Dishwasher $250.00 140.0 hrs. $370.00 Mattress, box spring $159.00 78.0 hrs. $320.00 Coast-to-coast flight $110.00 71.0 hrs. $209.00 Calculator $15.00 9.0 hrs. $10.00 Jeans $5.79 4.0 hrs. $44.00 Market basket of food $5.51 3.0 hrs. $21.35 Electricity [100 kwh] $2.65 1.4 hrs. $8.40 Coast-to-coast call $2.50 1.5 hrs. 90 Dry-cleaning a dress $1.25 70 min. $6.50 Gasoline [per gallon] .29 9.4 min. $1.24 Soft drink [6.5 oz] .07 2.8 min. .33

Hours of work needed Item or Service to pay for it Median price 5.6 hs. of home per sq. foot Mid-price auto 1,365.0 hrs. Color television set 23.0 hrs. Kitchen range 22.0 hrs. Air-conditioner 23.0 hrs. Dishwasher 28.0 hrs. Mattress, box spring 24.0 hrs. Coast-to-coast flight 16.0 hrs. Calculator 46.0 min. Jeans 3.4 hrs. Market basket of food 1.6 hrs. Electricity [100 kwh] 36.0 min. Coast-to-coast call 4.2 min. Dry-cleaning a dress 30.0 min. Gasoline [per gallon] 5.7 min. Soft drink [6.5 oz] 1.5 min.

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Source: Federal Reserve Bank of Dallas