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Inflation Doesn’t Tell The Entire Story

Here’s an interesting question [3] – would you rather have $70,000 in 1900 or $70,000 now?

Those who are familiar with the idea of inflation are probably aware that $70,000 in 1900 is worth a lot more than $70,000 today. In fact, according to the BLS, $70,000 in 1913 (as far back as their calculator [4] goes) is worth over $1.5 million today.

The bigger question, and the point of Tim Harford’s post, is that while you might have $1.5 million a year back in 1900, your quality of life wouldn’t be as good as it is now. With the advances in a variety of fields, there are things that exist today that people couldn’t dream of in 1900. For example, the life expectancy [5] of a male born between 1900-1902 was a mere 47.9 years (women could expect to live to 50.7). In 2003, that rose to 74.8 years for men and 80.1 years for women. As a man, you might make $1.5 million a year but you could enjoy that for 26.9 fewer years without air conditioning, a car (Ford would manufacture its first Model T in 1908), planes, or the Internet.

So while you might have more money, you wouldn’t have enough to buy many of the comforts we’re used to today. Personally, I’d rather have $70,000 today, sit in my nice warm house with my beagle Tobey, and typing away on my computer reading thought provoking articles written by the world’s smartest minds.

As an aside, I was first introduced to the work of Tim Harford after discovering his book, The Undercover Economist [6], a few years back. If you are a fan of “real life” economics (not necessarily of interpreting supply and demand charts), his book is a very entertaining read. His second book, The Logic of Life [7] is pretty good too.