NOTHING COSTS MORE THAN IT USED TO (via Pepys):

The $10,000 Light Bulb …: Or, why it's so hard to measure inflation (Tim Harford, May 27, 2006, Slate)

Flipping through the Montgomery Ward mail-order catalog, which began publication in 1893, economic historian J. Bradford DeLong calculates that a simple bicycle cost 260 hours' wages for the typical worker in 1895 and just 7.2 hours' wages in 2000. But silver spoons actually cost more hours of labor today than in 1895. Your personal inflation rate depends on whether you are spending your money on bicycles or spoons. [...]

In recent years, received wisdom among economists has been that the inflation rate has been overstated because of unmeasured improvements in quality. Home computers have not only become cheaper but dramatically better, and failure to fully adjust for the quality improvements would overestimate the inflation rate and underestimate how much better off we are compared with previous generations.

A highly influential paper by Yale economist William Nordhaus made the point forcefully. He studied not commodities like bicycles or spoons but a service: light. By tracking lighting technology from campfires to oil lamps to today's energy-saving light bulbs, he estimated that the real price of light had fallen 10,000-fold in 100 years. Partly because of Nordhaus' work, many economists believe that the official statistics on wages underestimate how much richer we have become.

Note that in the reference to silver spoons and later in the discussion of women's clothing they depend on people not substituting items of equal quality at lower prices.

Posted by Orrin Judd at May 27, 2006 8:05 PM