It's a Wonderful Time to Be Alive

In his book The Rational Optimist, Matt Ridley writes that "Life is getting better -- and at an accelerating rate." There are ups and downs, recessions and wars, famines and floods. But for most people most of the time, things get better. "Food availability, income, and life span are up," he explains, "disease, child mortality, and violence are down -- all across the globe."

How many of us notice it? Few, as Ridley points out. The pessimists get the most attention. And since we adapt and become accustomed to circumstances around us, progress is overlooked even when it's life-changing.

Last week, Atlantic writer Derek Thompson shared some great information showing just how much the American economy has prospered over the years. "This is our story today," he wrote. "It is a story about how spending on food and clothing went from half the family budget in 1900 to less than a fifth in 2000. It is a story about how a nation that feels poor got so rich."

Using Census Bureau data, Thompson showed how the percentage of income an average American household spends on various goods changed from 1901 to 2003 (the latest year data are available). It's fascinating stuff. I've re-created it here:

Source: Census Bureau.

To me, two things pop out from this chart.

First is the deflation in relation to income of food and apparel (and most consumer goods, for that matter, which aren't broken out here). Yes, there has been inflation over the last century -- so much that any time inflation is discussed someone feels obligated to point out that a dollar has been devalued by well over 90% in the last century. That's true. But inflation has pushed average wages up by a far greater amount, causing the share of income spent on most consumer goods to plunge. The average household spent 43% of their income on food in 1900, 30% in 1950, and 13% in 2003. Similar data from a 2010 Census survey suggest (link opens PDF file) the figure fell to 12.7% in 2010.

Such shifts are often missed when discussing inflation and wealth. At an investment conference two years ago, Berkshire Hathaway (NYSE: BRK-B  ) Vice Chairman Charlie Munger remarked: "I remember the $0.05 hamburger and a $0.40-per-hour minimum wage, so I've seen a tremendous amount of inflation in my lifetime. Did it ruin the investment climate? I think not."

Later that day, a questioner asked Munger about inflation's "devastation" over the past half-century. In 1950, a corned-beef sandwich at a local diner cost $0.55, the questioner noted. Today it's $10. How can a country be anything but a failure when its currency loses 95% of its value to inflation, he wondered.

"If you think the past half-century was bad, you will have serious problems in life," Munger replied. "Despite inflation, we've been a huge success. Real GDP has grown 2% per year per capita. That's fantastic. The period you describe as miserable was a tremendous time for the American economy. You've described success."

Real disposable income per capita -- that's after-tax income adjusted for inflation -- has increased threefold since the early 1950s. Yes, a corned-beef sandwich may have cost $0.55 in 1950, but the average household income back then was just $3,900 a year. Today, the average household earns that much every three weeks.

Inflation has, of course, run faster than average income growth from time to time. Right now is one of those times; average incomes have not kept up with inflation over the past year. Yet as painful as that decline is, it's not hard to make an argument that the average worker is still far better off today than they were for the majority of the 20th century -- a period of economic nostalgia for many these days.

The other part of the chart that sticks out is the three sectors where we spend more of our income today than in the past: housing, education, and health care. There are two ways to look at that. One is that all three sectors are in a bubble, eroding real incomes as prices surge (or surged). That's certainly true to some extent.

But the quality and usefulness of all three have also increased tremendously over the years. Consider:

  • Average life expectancy at birth in America was 49.3 in 1900, 68.1 in 1950, and 78.7 today, according to United Nations data. Advances in medical technology have literally added decades to your life.
  • The average square footage of new homes increased from 1,525 in 1973 to 2,169 in 2010. Americans are spending a higher percentage of income on housing because they're buying much more house.
  • As Thompson writes, in 1900, "a quarter of households have running water. Even fewer own the home they lived in. Fewer still have flush toilets. One-twelfth of households have gas or electric lights, one-twentieth have telephones, one-in-ninety own a car, and nobody owns a television."
  • According to economist Tyler Cowen, "Thirty years ago, college graduates made 40 percent more than high school graduates, but now the gap is about 83 percent." We're spending more on education because, put simply, it pays.

None of this is meant to belittle the problems we face today, which are real and affect people in often devastating ways. Nor is it an ode to the virtues of inflation, particularly because it affects different people in different amounts. But among average workers, the biggest change in recent decades may be in the perception of prosperity, not the objectiveness of circumstances. "We are all subtle victims of the expectations that 100 years of wealth have bought," Thompson writes. It's a wonderful time to be alive, in other words.

Fool contributor Morgan Housel owns shares of Berkshire Hathaway. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On April 13, 2012, at 12:29 PM, setht23 wrote:

    I've read the book. And I can say it definitely makes you feel better about the world, and not in a rainbows and butterflys way. But in a reasoned analysis of the facts you realize how great our country is and how much progress the world has made in the last century. It's a great break from the doom and gloom that is the mainstream media.

  • Report this Comment On April 13, 2012, at 5:32 PM, DJDynamicNC wrote:

    By just about every quantifiable measure, the people of the world are better off now than they were 10, 20, 50, or a hundred years ago. It's easy to lose sight of that, and pessimism abounds, but the simple fact is that we are making progress.

  • Report this Comment On April 13, 2012, at 5:32 PM, wolfman225 wrote:

    I wish more people could put their current situations into such context. Unfortunately, far too many focus solely on what they lack in contrast with what they perceive to be the over-abundance of someone else. Perspective is everything.

    We all have abundance, if we could only see it so.

  • Report this Comment On April 13, 2012, at 5:37 PM, titus77 wrote:

    I haven't read The Rational Optimist, but it sounds similar to a book by Gregg Easterbrook, The Progress Paradox. Given the daily assault of negative headlines, its good to have some resources out there that help keep things in perspective.

    Thanks for the article.

  • Report this Comment On April 13, 2012, at 6:43 PM, Zombie111 wrote:

    Excellent counterweight to the negativity in the media. As someone who treats a lot of people with depression and trauma, I advise them to not watch tv news, as it is biased towards the sensational and the negative (and there always seems to be the same amount of bad stuff happening all over the world every day, which amazingly fits perfectly into the available time slot!).

    I will be recommending this article to people who complain that the world is in such a terrible state, along with my diatribe that it certainly a better time to be female now than at any other time in history.

  • Report this Comment On April 13, 2012, at 8:49 PM, portefeuille wrote:

    For Germany a more detailed breakdown is given in the table included here ->

    https://www.destatis.de/EN/PressServices/Press/pr/2012/04/PE....

  • Report this Comment On April 13, 2012, at 10:38 PM, irvingfisher wrote:

    30 years ago, most families had only one working parent. Now, most families have two. For people following the baby boom, our standard of living is lower than that of our adult parents, even more so considering that both parents typically work.

  • Report this Comment On April 13, 2012, at 10:59 PM, TMFMorgan wrote:

    ^ Per capita is per person, not per family. Real per capita income is higher today than it was in the 1950s.

  • Report this Comment On April 13, 2012, at 11:52 PM, luckyagain wrote:

    Something is wrong with the graph for 2003 because it shows that healthcare is at 6%. This is absolutely wrong. Currently healthcare is about 17% of the GDP for the US. How in the world could it go from 6% in 2003 to 17% today?

    Ask anyone who has private healthcare insurance and the will tell you that it is definitely not 6% of their income. Ask anyone who is buying health insurance through Cobra and the amount will take you breath away. Per capita health spending in the US is about $7500.

    So if one part of the 2003 graph is so wrong, the whole graph is worthless.

  • Report this Comment On April 14, 2012, at 12:02 AM, xetn wrote:

    Wow! I guess everyone is donning their rose colored glasses and singing Kum Ba Yah.

    So, we can just forget about the huge numbers of unemployed/underemployed people, the record world levels of debt that threatens every economy, the endless wars against "drugs, terror, etc" and the vanishing value of all fiat currencies in terms of purchasing power (price inflation).

    Morgan: Check and comment on the the following charts:

    http://www.inflation.us/images/networth.png

    http://www.inflation.us/images/hourlyearnings.png

    http://www.inflation.us/images/medianincome.png

  • Report this Comment On April 14, 2012, at 12:54 AM, Sunny7039 wrote:

    Well, if you are talking about "most people," you do have to keep in mind that the entire U.S. population is about 5% of the total (by "total," of course I'm referring to "people;" i.e., all people). And if you consider reliable sources, such as the Federal Reserve Board's survey of U.S. household finances, you must concede that the bottom two quintiles -- and lately, the bottom three or four -- are not doing particularly well at all. But you will probably never meet the Americans from the bottom 40%, or even the bottom 60%, so I guess we can safely ignore them the same way we're ignoring 95% of humanity for purposes of most of this article.

    The one statistic that always bugs me, though, is this business about life expectancy. Life expectancy is NOT a normal curve, and never has been; hence, average (or "mean") life expectancy doesn't tell you very much about how long you were likely to live. This is why affluent societies throughout history had many very old people -- if you survived infancy and childbirth, and you didn't suffer the misfortune of dying during an epidemic, your chances of reaching 90 were almost as good as they are today. "Advances in medical technology have literally added decades to your life," is quite literally false. Advances in sanitation have done far more.

    I'm not surprised that Americans spend less of their income on food. They also spend less time cooking and more time in fast food joints, inhaling the kind of very cheap eats that lead to obesity. I suppose that counts as an improvement in standard of living, but it is not an improvement in quality of life.

    Anyone with the time and inclination could take this feel-good silliness apart point by point, but I have a hard time believing any astute person falls for it in the first place. These books are written to make money for their authors. For this, they are very useful. If you are trying to understand trends, however, and protect yourself and your finances from real risks, they are of no value at all. This is exactly the kind of stuff people believed in 2004, 2005, and 2006 when they took out an ARM to buy a big, new house, or a second mortgage to buy consumer junk that depreciated the moment they brought it home. Or in 1998 and '99, when they put a big chunk of their savings into the dot.cons. And then took out a new credit card and maxed it, because they looked at their portfolios and felt rich.

    Most of the articles I've been reading tonight talk about the real risks that confront the global economy, and I find that I have to keep reminding myself and reminding myself that these risks ARE real, because like most people, I have an optimistic bias. I expect my stocks to go up, I expect my savings to cover me, I expect to have a better job in a year or so than I do today. I expect my expertise to be recognized and rewarded. In fact, I don't expect to be sick very much until I'm old. Is that realistic? Maybe not. One thing I don't need is more feel-good happy talk that deals in bland generalities and blinds me to the risks I should be aware of right now, when I can still do something about them.

    The best time to save for a rainy day is when the sun is shining. And if it's cloudy but dry, better get busy.

    Whoever tries to divert you from recognizing that fact does not have your best interests at heart.

  • Report this Comment On April 14, 2012, at 12:57 AM, Sunny7039 wrote:

    N.B. Sarcasm alert for my first paragraph above. I hope everyone saw that, but lately I can't assume so.

  • Report this Comment On April 14, 2012, at 7:22 AM, JackCaps wrote:

    Taxes were excluded from the pie charts. Why?

  • Report this Comment On April 14, 2012, at 9:07 AM, duuude1 wrote:

    You want to know about the 95% rest of the world - check out the data:

    http://www.ted.com/talks/lang/en/hans_rosling_shows_the_best...

    Each of us knows that individually we may be having trouble, and that data point is the most compelling. But we must also be aware that the data over long periods of time are correct - we are all progressing whether we want to believe it or not.

    Best,

    Duuude1

  • Report this Comment On April 14, 2012, at 11:56 AM, Darwood11 wrote:

    Thanks, Morgan.

    I haven't read the book, but I probably will.

    One item that jumped out was the household spending for health care. I assume this does not include insurance for health care.

    In my household, a significant amount of annual income is spent on insurance of all kinds; automobile, homeowners, health care, dental, long term care. I assume that is part of the pie slice called "other."

    Some might argue that spending for insurance is mandatory, but it is discretionary spending. No one is holding a gun to my head and saying "you must have that health insurance policy." In fact, for decades, my health care insurance was what I would call "catastrophic insurance" and I paid the first $5,000 for medical expenses out of pocket. The consequences were wonderful. First, I saved a lot of money and second, there was an incentive to live a healthier life style. Only now in "older" age do I have a policy that is closer to what most people expect.

    I also noted that "entertainment" is up by a modest percentage (only 250% since 1901) but I wonder if it includes the price of internet access and the tools that provide it, such as high speed modems, satellite charges, and personal computers and smart phones? Statistics indicate that in many households "entertainment" is the primary use of these.

  • Report this Comment On April 14, 2012, at 4:42 PM, Merton123 wrote:

    The cost of health care has skyrocketed. The election this year will be a referendum on how to slow down the rising cost of health care.

    I read an article which stated that even if we cured cancer that our average life expectancy would only increase by 3 years. If this is true, then why should the American consumer pay a lot of money to continue funding advances in medicine? Maybe the Western Europeans, Japan, and China have the right idea by having some sort socialized health care for their citizens. We will find out in November if the majority of the voting citizens in USA agree.

  • Report this Comment On April 14, 2012, at 6:18 PM, Sunny7039 wrote:

    To duuude1: Two comments on Rosling

    First, his initial presentation on family size and life expectancy fails to signal the very problem I pointed out: data on "average life expectancy" is misleading if you neglect to note that life expectancy does not ressemble a normal curve. So, mean, median, and mode will be different. So, lots of people dying in infancy and childhood is usually what lowers the mean. Of course, since the AIDS epidemic, that is not always the case in all countries. You have to take a nuanced view and see what is actually happening in each place, and why.

    Second, he gave his talk in February 2006 and made projections that show that "the rich getting richer" is a "myth." Do I have tell you that his "projections" didn't give the slightest hint that anything special might happen in 2008? So much for Rosling. I'll stick to Roubini for now. It feels safer in the long run.

  • Report this Comment On April 14, 2012, at 6:32 PM, Sunny7039 wrote:

    Reminds me of the Frank Zappa song, Call Any Vegetable:

    http://artists.letssingit.com/frank-zappa-lyrics-call-any-ve...

    Warning: This is Frank Zappa. It has bad words.

  • Report this Comment On April 14, 2012, at 7:44 PM, duuude1 wrote:

    Hey Sunny,

    You bring up some great questions on the data! You are absolutely right that "Life expectancy is NOT a normal curve". I believe that the distribution that population survival curves fit very tightly to are called Weibull distributions. And I think I am even happy to agree with your comment that "hence, average (or "mean") life expectancy doesn't tell you very much about how long you were likely to live".

    Your personal life expectancy has much more to do with your genetics, your life choices, and the environment around you. So does that mean that mean life expectancy has no value? I take it from your two comments that you believe it has no value.

    Here I have to disagree with you. If you are comparing how life expectancies vary between countries, or within a country over time, then the mean life expectancy still provides a valuable statistic.

    We always need to remember to separate individual from bulk experiences - and how to make decisions based on statistical data even if individual experiences vary.

    Here's an example that I often run into. When I was looking to purchase a new car, I would always run into people who swore by their Ford or Chevy and dispute my quoting the average maintenance cost or average time to repair. They would say "my Ford lasted twice that long before I had to repair X". He (dudes always made this argument, dudettes never did) may very well be right about his car, and maybe was even telling the truth (very rare when talking about your car or truck). That individual experience in no way invalidates the statistical data - since the data is a compilation of all the vehicles that lasted twice as long as the mean, and those that lasted 1/10 as long as the mean.

    When you make a good decision on a major purchase, like a car or house or a company, you don't go by what an individual's experience was. Just because your friend at a party made a killing on stock Y and Z, do you go buy stock Y and Z?? I hope not. Just because your friend's Chevy truck lasted 100,000 miles, do you go buy a Chevy? No. You go by the statistics, since that represents the likelihood that one make of vehicle is more likely to last longer than another. Does it mean you are guaranteed a longer lasting Toyota than a Chevy? No. Your vehicle is a single data point. But you have a better probability of lasting longer with a Toyota than with a Chevy, for example.

    Rosling and others using statistics to compare populations are NOT saying that you, Sunny, have a better life. Rosling has no idea what trials and tribulations you personally are going through. But when we talk about everyone in the US in 2011 as a whole - are we doing better than the entire US population in 1990,1960, 1930...? The trends are unmistakeable - even with the economic hell we've been through and are still struggling with now.

    Please don't confound individual experiences with making decisions based on population statistics - there is still value to statistical data even if your personal experience does not appear to coincide.

    That said - it is always good to challenge and question data. Data is never perfect.

    Finally, in the short run, it is always better to listen to the pessimists - in the long run I follow the optimists. Based on the long-run data in Jeremy Siegels' book "Stocks for the Long Run" that showed over 100 years of data that stock performed the best over all asset classes including gold and real estate and commodities - I am 100% invested in equities since I have decades to go before tapping into my investments. But if I was planning to use the funds in 10 or 5 years - I would be heeding all the pessimists like Roubini or you or whomever - and keeping cash on hand.

    Good luck!

    Best,

    Duuude1

  • Report this Comment On April 15, 2012, at 1:30 AM, lukem5 wrote:

    "I remember the $0.05 hamburger and a $0.40-per-hour minimum wage"

    Well now a hamburger is 1$ and minimum wage is 7$

    So back then I could buy 8 hamburger per hour of work

    and today I can only buy 7 hamburger per hour of work

    Hmmmm then why has % of income spent on food gone down to 13%?

    Id say I spend more than 13% on food... Gotta love census bureau, even my incredibly simple math beats them.

  • Report this Comment On April 15, 2012, at 2:53 AM, Sunny7039 wrote:

    A wonderful thing just happened on the way to the agora.

    I had completed a nuanced response that talked about statistics, and Roubini, and Nassim Taleb, and Simon Johnson, and about the times when the mean is actually a very misleading number rather than one that should be relied on as a basis for serious decisions (everyone knows this, and if they were left alone to live by their own lights rather than constantly propagandized, they would probably do much better with their money and most other things). And I even talked about my own projects, including one that is pretty unlikely to work but I'm trying it anyway -- and then I thought, gee, this says too much.

    I also thought, why I am doing this when I have better things to do?

    The computer ate my post.

    Hurrah. It was just what I needed.

  • Report this Comment On April 15, 2012, at 10:47 AM, Merton123 wrote:

    Sunny7039 brings up good points about the differences of the individual experiences and the experiences of a group as a whole. Sociology examines human behavior in groups. Psychology examines human behavior from the individual perspective.

    Public Sanitation, better nutrition, vacinations have helped groups achieve the average life expectancy of 70 years. The quality of life of the people living in these societies may be better or worse. The biggest challenge most people have is getting away from their T.V. and/or internet and socializing. People's closes friend many times is their dog. We are living longer, enjoying more conveniences then the people of the past, and socializing face to face a lot less. This lack of direct social interaction is the reason why facebook is doing so well.

  • Report this Comment On April 15, 2012, at 4:50 PM, Darwood11 wrote:

    Morgan;

    I take exception to the title "It's a wonderful time to be alive."

    I won't get into beliefs, etc. but I do think that "being alive" is much better than any of the alternatives, no matter what the time is. Even during the "black plague" and the "great depression" many people had reasonable existences.

    As for your premise, many American's must agree, since it has been reported that five percent of Americans are responsible for a full half of the nation's health care spending. In other words, these people are spending big time to stay alive.

    I don't know whose money they are spending and that's another topic.

    My point? Most people aren't clamoring to die. Yes, there are a lot of complaints. But there is no stampede for the exits!

  • Report this Comment On April 15, 2012, at 7:02 PM, TMFMorgan wrote:
  • Report this Comment On April 15, 2012, at 9:56 PM, CaptainWidget wrote:

    Maybe if I post a short version of my original post, it will actually show up....

    You've attributed a false cause to the greatness of now. It has nothing to do with inflation. Inflation has no redeeming qualities.

    It's because of technological advancement. Roast beef sandwiches, eggs, houses, and cars are all relatively cheaper now because of FREE MARKET advancements in the technological process. Nothing more.

    Inflation is just a silent tax you don't notice because everything is getting better at the same rate your money is getting worse. Inflation doesn't raise wages. Its absolutely impossible for inflation to raise buying power, as it increases prices at the same speed it increases wages. You're not too dumb to understand that. Wages have gone up because productivity has gone up.

    Image....just imagine....if we had technological innovation AND stable currency. Imagine if your money was stable, and $3000 could still buy a car. You'd have a car that was 10X better than a car from half a century ago (due to productivity increases in the auto industry) and it would only cost you a week's wages to buy (due to productivity increases in your own industry).

    You'd have more money to spend on the things you wanted (rather than things you needed) and more time to do what you wished. The keynesians were right, what a nightmare deflation would be for the world *end sarcasm*

  • Report this Comment On April 15, 2012, at 10:08 PM, TMFMorgan wrote:

    Nowhere in this article does it say inflation caused greatness. Just that it's happened despite inflation.

  • Report this Comment On April 15, 2012, at 11:03 PM, kyleleeh wrote:

    <<Image....just imagine....if we had technological innovation AND stable currency. Imagine if your money was stable, and $3000 could still buy a car. You'd have a car that was 10X better than a car from half a century ago (due to productivity increases in the auto industry) and it would only cost you a week's wages to buy (due to productivity increases in your own industry).

    You'd have more money to spend on the things you wanted (rather than things you needed) and more time to do what you wished. The keynesians were right, what a nightmare deflation would be for the world *end sarcasm*>>

    Yes, and with this stable currency that never looses value and products that only keep giving more bang for your buck, people would have a much larger incentive to save instead of spending their money, as it would hold it's value and could buy better goods in the future. Then they wouldn't spend so much on the consumer goods that make up 70% of our economy. Recessions and unemployment never happened prior to going off the gold standard, and deflation never caused anyone to hold out for lower prices before making a purchase.

    Why do Keynesians want an economy based on printing pieces of paper that have no real use and are only valuable because we say they are, when they could have an economy based on who can dig up the most shiny yellow rocks that have no real use and are only valuable because we say they are.

    Could it be because they base their model on the way most humans "actually" behave instead of how they would "like" them to behave?

  • Report this Comment On April 16, 2012, at 12:35 AM, CaptainWidget wrote:

    <<Nowhere in this article does it say inflation caused greatness. Just that it's happened despite inflation.>>

    Yeah...you did....

    <<Yes, there has been inflation over the last century -- so much that any time inflation is discussed someone feels obligated to point out that a dollar has been devalued by well over 90% in the last century. That's true. But inflation has pushed average wages up by a far greater amount, causing the share of income spent on most consumer goods to plunge.>>

    Inflation may have pushed up wages, but it didn't push up purchasing power (as you're implying by this statement). By the mechanism we know as inflation, it's absolutely impossible for inflation to raise wages at an independent rate greater than the independent rate at which it's raising the cost of goods.

    That's....not..what...inflation.....does...

    Productivity drove up purchasing power, inflation drove up costs. Period. There's no correlation between the two. Without inflation, productivity would still decrease the cost of goods, and without productivity, inflation would still increase the cost of goods.

    Greatness did happen despite inflation. Despite....so let's not defend it. Inflation=bad

    <<Why do Keynesians want an economy based on printing pieces of paper that have no real use and are only valuable because we say they are, when they could have an economy based on who can dig up the most shiny yellow rocks that have no real use and are only valuable because we say they are.>>

    You can't be serious, right? Your post was so laced with sarcasm I couldn't tell what real points you were making and what you were being facetious about.

    *Do you really think gold has no intrinsic value?

    *Do you really think saving money is bad?

    *And why are you attacking a gold standard in relation to my post when I made no mention nor defense of it?

    Fiat money is fine. There's lots of acceptable fiat systems in the world. Fiat monopoly money is not.

  • Report this Comment On April 16, 2012, at 1:46 AM, NailThatJello wrote:

    "The average square footage of new homes increased from 1,525 in 1973 to 2,169 in 2010. Americans are spending a higher percentage of income on housing because they're buying much more house."

    That's not a convincing argument. The land is the expensive part of a house. You shoulda argued based on real cost per square foot of plot land. Not sure whether that would support the case, probably not.

  • Report this Comment On April 16, 2012, at 3:20 AM, kyleleeh wrote:

    @Captainwidgit

    As far as do I think gold has no intrinsic value I think Buffet said it best:

    "Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

    Just like paper money gold is only valuable because we say it is. I understand why oil or wheat have value, but with gold I'm with Buffet...it's one of the most useless metals on the planet. In that way it's not unlike Fiat currency in that it's value only comes from central bank decrees to hold it as a reserve...jewelry only uses a tiny fraction of the gold in world.

    As for saving, it's bad for "everyone" to do it, and that's the problem that happens with fixed value currency. The incentive to save causes people to spend less, which in turn causes sellers to lower their prices. After seeing prices come down people hold off on purchases hoping prices will come down farther...then prices drop below the cost of labor and they loose their job. That's how deflation works in reality, it may sound good on paper but it's not a good thing when you factor in human behavior.

    I used the Gold standard as an example because it's the only fixed currency we've used in the last 100+ years.

    What's the difference between fiat money and fiat monopoly money? They both only have value by decree.

  • Report this Comment On April 16, 2012, at 5:34 AM, CaptainWidget wrote:

    <<Just like paper money gold is only valuable because we say it is. I understand why oil or wheat have value, but with gold I'm with Buffet...it's one of the most useless metals on the planet. In that way it's not unlike Fiat currency in that it's value only comes from central bank decrees to hold it as a reserve...jewelry only uses a tiny fraction of the gold in world.>>

    In past times, gold had a massive use in jewelry, "medicine", food, and many industrial uses as a coloring agent or decorative agent due to it's ductility.

    In modern times, gold is coveted because of it's electrical conductivity paired with it's resistance to corrosion. It's basically an impervious electrical connection. It's also used as a deicing agent and as a catalyst.

    In short...it has many uses. Even at 1600 dollars an ounce, there are still acceptable industrial and chemical uses for gold. So...you're wrong.

    <<As for saving, it's bad for "everyone" to do it, and that's the problem that happens with fixed value currency. The incentive to save causes people to spend less, which in turn causes sellers to lower their prices. After seeing prices come down people hold off on purchases hoping prices will come down farther...then prices drop below the cost of labor and they loose their job. That's how deflation works in reality, it may sound good on paper but it's not a good thing when you factor in human behavior.>>

    Do you really believe this? First....what makes you think EVERYONE would save? How would that even be feasible? Would a 19 year old kid trying to start a software business save if a currency were stable? Of course not...his expenses are higher than his income. It would be physically impossible for him to save. He needs to borrow to grow his business. There's no situation in which everyone becomes a saver and no one is a consumer. You NEED to consume on a daily basis or you die. Do you understand that? If you don't buy food, drink water, rent a house, and spend some cash on leisure, you'll keel over dead and/or go insane. These are NECESSITIES. No government proclamation needs to be made to convince people to spend.

    Secondly....savings goes into banks. Which makes it easier to secure a loan, which makes it easier for goods to be made at cheaper costs. Your "savings" is only someone elses spending. The idea that no one will spend if the incentives aren't there is as ridiculous as saying that no one will have sex if the incentives aren't there....it's human nature......people don't need your policies to spend money....they like doing it. The paradox of thrift was destroyed as an ideology before I was born. Hell, it's been destroyed in PRACTICE. When the fed funds rate was 18%, did "everyone" save? Of course not. Lots of businesses needed to borrow or go under. There's no realistic cost of money that could encourage everyone to save and no one to borrow. So don't be absurd.

    <<What's the difference between fiat money and fiat monopoly money? They both only have value by decree.>>

    The simple difference between decree value of greenback vs something like gold is that one person can hit one button and deflate all dollars, stealing money straight out of my bank account. No one person can control the supply of gold.

    Again, Fiat currencies aren't necessarily evil, as long as people are free not to use that currency. If someone tries to inflate currency I CHOOSE to hold, I can choose to hold another currency. If they inflate currency i'm FORCED to hold, then I have no choice as they suck my savings out of my bank account.

  • Report this Comment On April 16, 2012, at 10:27 AM, DJDynamicNC wrote:

    "Id say I spend more than 13% on food... Gotta love census bureau, even my incredibly simple math beats them."

    That's not how statistics work.

    I spend well under 10% of my income on food. That doesn't mean the census is wrong. It just means that they are providing an average. Your math isn't "beating" the census.

    The plural of "anecdote" is not "data."

  • Report this Comment On April 16, 2012, at 10:39 AM, DJDynamicNC wrote:

    ---> "In past times, gold had a massive use in jewelry, "medicine", food, and many industrial uses as a coloring agent or decorative agent due to it's ductility.

    In modern times, gold is coveted because of it's electrical conductivity paired with it's resistance to corrosion. It's basically an impervious electrical connection. It's also used as a deicing agent and as a catalyst.

    In short...it has many uses. Even at 1600 dollars an ounce, there are still acceptable industrial and chemical uses for gold. So...you're wrong." <---

    In past times, wood pulp and coloured ink had massive use in decoration, "medicine," record keeping, and many industrial uses.

    In mordern times, wood pulp and coloured ink are coveted because of its utility in mass reproduction of hard copy data, and in fact, it remains one of the most widely used sets of products on the planet.

    In short, it has many uses. But when used as money, it also acquires a use as a store of value - much as gold, when minted as money, acquires a use as a store of value in a system of accounting. This gives it an additional complicating factor when determining the value of any given unit of the substance in question, whether it be wood pulp and coloured ink or gold or silver or binary digits, each of which have a certain degree of intrinsic value and varying degrees of utility.

    But your conflation of these two concepts into one flat assertion that gold "has value" and paper and coloured ink (despite being in exceptionally wide use around the globe for millenia) do not is, perhaps, flawed.

    "If someone tries to inflate currency I CHOOSE to hold, I can choose to hold another currency."

    Do you lack access to foreign currency, gold, treasury bills, and other forms of value stores? I do not. In which nation do you reside that your choices are so restricted?

    ---> "No one person can control the supply of gold." <---

    Man, I have heard some pretty entertaining conspiracy theories to the contrary. :lol:

  • Report this Comment On April 16, 2012, at 11:37 AM, troym72 wrote:

    I would like to see the "transportation" costs broken out here. I'd be willing to bet a huge part of that "OTHER" category is automobile and/or transportation expenses. Yes, we pay less for food, but we pay $4.00 for a gallong of gas compared to $0.20 in 1950. That's a 2000% increase in the price of transportation when you just take into account fuel. That doesn't account for how much more a car costs because of all the government required features that have driven the cost to own a car up much faster than inflation.

  • Report this Comment On April 16, 2012, at 12:22 PM, DJDynamicNC wrote:

    ^^^ And a gallon of gas gets you quite a bit further.

    Additionally, gasoline is a perfectly optional expense. I spend about 40 a month bus fare commuting to work and back, and bus fares where I live actually got cheaper a few years ago, from $1.25 down to a dollar.

  • Report this Comment On April 16, 2012, at 2:37 PM, kyleleeh wrote:

    <<In modern times, gold is coveted because of it's electrical conductivity paired with it's resistance to corrosion. It's basically an impervious electrical connection. It's also used as a deicing agent and as a catalyst.

    In short...it has many uses. Even at 1600 dollars an ounce, there are still acceptable industrial and chemical uses for gold. So...you're wrong.>>

    Only 12% of gold is used in industrial applications while about 45% of silver is used in industrial application, if your argument was true silver would cost more then gold because the supply and demand balance is tighter. The reason it doesn't is because over 30k tons of gold is being sat on in reserve banks. Golds value is purely fiat, there would be glut of gold in the world if it was not being held as a currency.

    Buffet got it right on gold...we just dig it out of one hole and then bury it in another. It's current value is purly psycological and fiat, it's intrinsic value would baraly even qualify it as a "precious metal" . So...your wrong.

    <<The simple difference between decree value of greenback vs something like gold is that one person can hit one button and deflate all dollars, stealing money straight out of my bank account. No one person can control the supply of gold. >>

    South Africa can manipulate the value of gold through productions quotas in the same way OPEC can manipulate the price of oil. Reserve banks can also release some of the 30k tons of gold they have the same way they inflate the paper money supply. The gold supply is already manipulated through uneven dispersal and hoarding.

  • Report this Comment On April 16, 2012, at 4:36 PM, DJDynamicNC wrote:

    Just to get back on topic briefly, I would like to point out that it really, truly is a pretty wonderful time to be alive.

  • Report this Comment On April 16, 2012, at 4:43 PM, IRunMan wrote:

    The MF Home Page has "The Motley Fool vs the S&P 500. Then there is a listing of each of the different MF portfolios and their respective performance. I equate the chart to a list of children's names and their heights. If you don't include the age of the children, you can't tell by the height alone "how healthy" the children are growing.

    I think TMF should list an inception date for each portfolio. If I told you my stock portfolio had returned 85% but didn't tell you how long I held the portfolio, would my information be valuable? Depending on the timeframe, the performance of my portfolio could be very good, average or poor.

  • Report this Comment On April 16, 2012, at 4:50 PM, DJDynamicNC wrote:

    ^^ That's a pretty good suggestion.

  • Report this Comment On April 16, 2012, at 6:43 PM, CaptainWidget wrote:

    <<In past times, wood pulp and coloured ink had massive use in decoration, "medicine," record keeping, and many industrial uses.>>

    I was very careful to state the price of gold at the end of that spiel. Gold at 1600 dollars an ounce still has real world value, not fiat value. Wood pulp at $1 per 454 grams is absolutely valueless without fiat. Talk about conflation of arguments....

    <<Do you lack access to foreign currency, gold, treasury bills, and other forms of value stores? I do not. In which nation do you reside that your choices are so restricted?

    >>

    The government mandates you use their notes. Try paying your federal income taxes with RNB, see how well the IRS takes to that. When the most important purchases you do in an average day (local, state, federal taxes at the threat of imprisonment) are demanded to to come in federal currency, yes...that's a mandate. You pay taxes everyday...and they need to be in greenbacks....so how free are you to hold your cash reserves in something other than greenbacks? The answer is pretty obvious.

    <<Man, I have heard some pretty entertaining conspiracy theories to the contrary. :lol:>>

    Yes, they're just that.

  • Report this Comment On April 17, 2012, at 4:22 AM, taipeir2001 wrote:

    Let's see housing prices versus credit growth for housing. In my recollection the biggest driver of housing prices worldwide is cheap and available credit.

    I don't really buy into the houses getting bigger argument. It seems like a poor choice.

  • Report this Comment On April 17, 2012, at 9:40 AM, DJDynamicNC wrote:

    ---> "Gold at 1600 dollars an ounce still has real world value, not fiat value. Wood pulp at $1 per 454 grams is absolutely valueless without fiat." <---

    That's simply false. You just put a value on wood pulp and then said it's absolutely valueless. Is gold more valuable on a unit for unit basis? Obviously yes. But wood pulp remains in far higher demand (with commensurately higher supply, hence the lower dollar value).

    If you want to measure the value of wood pulp relative to gold on the basis of utility in day to day life, wood pulp takes the cake and then some.

    ---> "The government mandates you use their notes." <---

    Ahh, I see what you mean. Fair enough, I'll give you that one.

  • Report this Comment On April 17, 2012, at 1:43 PM, CaptainWidget wrote:

    <<That's simply false. You just put a value on wood pulp and then said it's absolutely valueless. Is gold more valuable on a unit for unit basis?>>

    For the record, that's the weight of one notes worth of wood pulp and the lowest US denomination of currency. Sorry if that wasn't obvious.

    Wood pulp at free market prices probably does have greater aggregate demand, but if the government decree that ALL wood pulp cost $1, that would plummet.

    And for the record, this this isn't theoretical. I'm in the publishing business. If the mandate value of wood pulp in paper money was pushed onto all wood pulp, you'd see the cost of printing a book increase roughly X100 times and you'd never see another book.

    The same is obviously not true with gold, which is still being used industrially at currency "fiat money" prices. It's hard to argue that something only has "decree value" when that decree value is still less than the marginal utility for that good in industrial applications.

  • Report this Comment On April 17, 2012, at 4:12 PM, DJDynamicNC wrote:

    " It's hard to argue that something only has "decree value" when that decree value is still less than the marginal utility for that good in industrial applications. "

    Right, but that was never my claim. To be fair, I do believe that claim has been made in this thread, but I never have.

  • Report this Comment On April 20, 2012, at 10:20 AM, decbutt wrote:

    Ah, you have woken the inflatotards and those who believe in the absolute value of $1.

    They are cultsists. By all means illustrate ways in which their logic is not only flawed, but dangerous. But do not expect them to change their religion.

    When the backside finally falls out of the gold price, they will have to find someone else to blame. Whoever it is, it will not be them, nor their inflexible and over-simplistic interpretations of complex concepts that is at fault.

  • Report this Comment On April 20, 2012, at 6:09 PM, hbofbyu wrote:

    In light of Warren Buffet's comments about gold, I would like to repeat his argument but substitute the word "Insurance" for "gold" (being the Berkshire owns multiple insurance companies).

    If gold has no utility then insurance has no utility. Even worse, insurance has no substance and by definition cannot increase the overall wealth of an economy. It spreads money from one place to another, employing millions who skim from it, yet no wealth is created. If you think gold is worthless, there is 6,000 years of human history that says otherwise.

    You may argue that both are a repository for easily holding and transfering wealth and therefore have utility. But then again Warren Buffet says whatever the hell he wants and everyone just nods in agreement - including the president of the United States.

  • Report this Comment On April 23, 2012, at 10:48 AM, DJDynamicNC wrote:

    @hbofbyu: That's a pretty strained analogy.

    I take it you don't bother with health insurance, since by your own claim, it has no utility or value. Right?

  • Report this Comment On June 27, 2012, at 6:33 PM, ChristianMagoon wrote:

    WIth the U.S. Dollar losing about a third of its value in the last 10 years the trend does not seem to bode well for the average American.

    http://www.goldetfs.biz/2011/11/gold-vs-the-u-s-dollar-over-...

  • Report this Comment On August 31, 2012, at 12:30 PM, RandyFisburn wrote:

    The analogy of the corned-beef sandwich costing .55 back then, and $10 today, in context to inflation & income still shows that our income hasn't kept up with inflation. Based on this analogy, the corned beef sandwich should only cost $9.30 today.

    But that's just half of the story. The average annual household income in 1950, at $3,900 comprise of 1 income earner. Today, the annual average of $66K comprised mostly of 2 or more income earner. This shows that inflation actually runs twice as fast as income growth.

    Talk about twisting facts......

  • Report this Comment On August 31, 2012, at 12:46 PM, RandyFisburn wrote:

    Funny that transportation, utility, and other non-health related insurance costs are not separated out. I bet those are all lump together as others. This article makes "others" appear to be discretionary income.

    However, for a 2 income household, 2 cars is essential. Car payment, fuel, insurance, and fees, fines, maintenance is no small expense, These can easily take up 15%-20% of the household expense.

    In addition, these days, phones & internet should no longer be considered discretionary as it is an indispensable utility of modern life.

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