Tuesday, May 03, 2005

Economic Ignorance.

Spotted by the Media Research Center.

In asking about how Bush's energy bill would lower energy prices, CBS's John Roberts falsely cited "the current record price of oil," when the current $51 a barrel price would need to rise substantially to $90 to set an inflation-adjusted record high;
Media Research Center: Cyber Alert 4/29/2005
Reporters and indeed many people have no notion of the idea of inflation.

How many of you heard from your parents or grandparents about how when they were young they took a quarter, saw a movie, bought popcorn, bought some candy, bought some soda and came home with change? I bet all of you have heard some variation on that story, no? The old joke is nostalgia is remembering the low prices and forgetting the low wages or salaries of the time. My guess is it took people just as long (or longer) to work to earn that trip to the theater than it does now.

People who run around and forget inflation have a Howellellian (ala Mr. Howell from Gilligan's Island) understanding of money. You remember Mr. Howell. A native would be on the island causing them grief and Mr. Howell would attempt to pull out some G-Notes to bribe the native. That native has no idea or even use for that money. Of course, on Gilligan's Island Mr. Howell's misunderstanding of money is made to look absurd.

Money is actually a measure of time. The true measure of something's worth is how much time one must work to earn it. The longer you have to work the more valuable it is. The question that we must ask before making long term comparisons is do I work longer or less to earn a tank of gas now than I did before? Short term then comparing dollars and cents works.

For example in pre-Euro Italy, a sandwich cost thousands of Lira. Does that mean only the uber-rich could afford to live and vacation in Italy? No, the amount of time it takes to earn thousands of Lira was also very small.