CHART OF THE DAY ... OR CENTURY / SEEKING ALPHA

Chart Of The Day... Or Century?

by: Mark J. Perry

 

Summary

- During the most recent 21-year period from January 1998 to December 2018, the CPI for All Items increased by exactly 56.0% and the chart displays the relative price increases over that time period for 14 selected consumer goods and services, and for average hourly earnings (wages).

- Various observations that have been made about the huge divergence in price patterns over the last several decades include:

- The greater (lower) the degree of government involvement in the provision of a good or service, the greater (lower) the price increases (decreases) over time.

- Prices for manufactured goods have experienced large price declines over time relative to overall inflation, wages, and prices for services.

- The greater the degree of international competition for tradeable goods, the greater the decline in prices over time.
 

 

As I wrote last summer on CD, I've probably created and posted more than 3,000 graphics on CD, Twitter, and Facebook including charts/graphs, tables, figures, maps and Venn diagrams over the last 12 years. Of all of those graphics, I don't think any single one has ever gotten more attention, links, re-Tweets, re-posts, and mentions than the one above (and previous versions), which has been referred to as "the Chart of the Century." Here are some examples of those mentions from last year for the version of the chart with price data through December 2017.

• MarketWatch has featured the chart twice here and here and made this comment "When this chart's creator, econ professor Mark Perry and the man behind the Carpe Diem blog, first posted it on Twitter, it was hailed as "stunning" and "one of the most important charts about the economy this century."
• Barry Ritholz has featured various versions of the chart three times on his Big Picture Blog here, here and here.
• Bloomberg published an article last July titled "Chart of Century Gives Powell Gloomy Glimpse of Trade-War World," with this opening:

A multi-colored graphic that's made the rounds at the Federal Reserve hints at what Chairman Jerome Powell could face if President Donald Trump succeeds in throwing globalization into reverse: Higher prices for many goods and potentially faster inflation. 

Plugged as possibly the chart of the century by economist and originator Mark Perry, it shows that prices of goods subject to foreign competition - think toys and television sets - have tumbled over the past two decades as trade barriers have come down around the world. Prices of so-called non-tradeables - hospital stays and college tuition, to name two - have surged.

• That report was followed in July with a CBS MoneyWatch article "Inflation risks, trade war costs, make Fed's job much harder."

A chart that has been making the rounds at the Fed from economist Mark Perry shows how falling prices for trade-sensitive things like TV sets and toys have helped offset rising costs for things like medical services, housing and education.

Based on today's BLS report for CPI price data through December, I've updated the chart above with price changes through 2018. During the most recent 21-year period from January 1998 to December 2018, the CPI for All Items increased by exactly 56.0% and the chart displays the relative price increases over that time period for 14 selected consumer goods and services, and for average hourly earnings (wages). Seven of those goods and services have increased more than average inflation, led by hospital services (+211%), college tuition (+183.8%), and college textbooks (+183.6%). Average wages have also increased more than average inflation since January 1998, by 80.2%, indicating an increase in real wages over the last several decades.

 

The other seven price series have declined since January 1998, led by TVs (-97%), toys (-74%), software (-68%) and cell phone service (-53%). The CPI series for new cars, household furnishings (furniture, appliances, window coverings, lamps, dishes, etc.) and clothing have remained relatively flat for the last 21 years while average prices have increased by 56% and wages increased 80.2%.

 

Various observations that have been made about the huge divergence in price patterns over the last several decades include:

a. The greater (lower) the degree of government involvement in the provision of a good or service, the greater (lower) the price increases (decreases) over time, e.g., hospital and medical costs, college tuition, childcare with both large degrees of government funding/regulation and large price increases vs. software, electronics, toys, cars and clothing with both relatively less government funding/regulation and falling prices. As somebody on Twitter commented:

Blue lines = prices subject to free market forces. Red lines = prices subject to regulatory capture by government. Food and drink is debatable either way.  

Conclusion: remind me why socialism is so great again.

b. Prices for manufactured goods (cars, clothing, appliances, furniture, electronic goods, toys) have experienced large price declines over time relative to overall inflation, wages, and prices for services (education, medical care, and childcare).

 

c. The greater the degree of international competition for tradeable goods, the greater the decline in prices over time, e.g., toys, clothing, TVs, appliances, furniture, footwear, etc.