Tuesday, August 25, 2009

Another Way to View Cost/Price

Last week, The Economist published an alternative Big Mac Index. But this one didn't show prices of the famed sandwich as adjusted for exchange rates. This one showed the price of a Big Mac expressed in time spent to earn the price, based on average net wage in cities around the world.

The chart provides some interesting comparisons, but can raise many questions about costs, relative demand, etc. But it did remind me of an interesting annual report by the Federal Reserve Bank of Dallas. While it is now more than ten years old, and the data has certainly changed, it contained similar comparisons scattered on tables throughout the publication. What made it more interesting was the time/price equivalents were all within the U.S. at select times in through the 20th century.

I would think students in economics, personal finance or even Twentieth Century American History would find the information interesting and a prompt to discussion. What do you think? Please share.

3 comments:

bill greene said...

This Texas Reserve Bank featured in tyhe 1997 report seems like a great free market enterprise. They did a lot of direct supervision and consulting with the commercial banks in its district but I wonder where they were in the last ten years of easy money, subsidized Fannie Mae mortgages, and sub-prime credit practices that led to the current financial debacle?

The pictures in the report celebrate a huge staff of financial and banking experts at the Reserve Bank and none of them blew the whistle? And the same goes for the other 11 Federal reserve bank experts around the country--None of them saw the Fannie-Mae disaster coming ??

Mike Fladlien said...

i just saw this article...do you think the article intends to mean real wages are higher in the US?

Tim Schilling said...

I'm not sure which article you're referring to, Mike. The one in the Economist or the one in the Dallas Fed's Annual Report.

If it's the article from The Economist, I would think the answer is yes. Real wages (or more specifically, real income) is the amount of goods and services commanded by money wage/income. As I understand it, it changes in the real measure equate to changes in standard of living. Consequently, it's higher in the U.S.

To carry it one step further, the higher real wage is an indicator of the higher productivity of the American worker.

If you were referring to the Dallas Fed piece, the story portrayed is of rising standards of living over time. The measure is how much labor is expended to secure the good/service.