Saturday, August 15, 2015

The ‘good old days’ are now: Home appliances today are cheaper and more energy efficient than ever before

From Mark Perry.
"I haven’t done any price comparisons lately of the time cost of goods today versus periods in the past, so here’s one for the summer season on the cost of room air conditioners — today vs. 1973 (updated from this 2013 CD post).

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In 1973, the 8,000 BTU room air conditioner pictured above was advertised in the Sears Spring/Summer catalog at a price of $216.75. At the average hourly wage in 1973 of $4.15, the average American would have had to work more than a week — 52.2 hours or 6.5 eight-hour days — to earn enough pre-tax income to purchase the room air conditioner from Sears.

Fast forward 40 years to 2015. The Kenmore 8,000 BTU room air conditioner pictured below is available today for $219.99, so the retail price at Sears has barely changed in more than 40 years, even though the overall CPI has increased 5.4 times since 1973, and the average hourly wage has increased 5.1 times. At the current average hourly wage of $21.01, the work time necessary to purchase today’s Sears 8,000 BTU room air conditioner is only 10.4 hours, or a little more than a day of work.
ACMP: Measured in what is ultimately most important — our time — the cost of a standard room air conditioner at Sears has fallen by more than 80% over the last 40 years, bringing the cost of what was likely a high-priced luxury item in 1973 down to a price that is affordable by even low-income Americans today. If room air conditioners had increased in price since 1973 at the rate of inflation, today they would cost almost $1,200, more than five times the actual cost today of only $220, and would still be a luxury item not easily affordable by the lower- and middle-class Americans.

But it gets even better, because today’s appliances are so much more energy-efficient than in the past, generating additional savings for consumers today from the lower operating costs of appliances like air conditioners. In the 32 year period between 1981 and 2013, the energy efficiency of room air conditioners increased by more than 46% — and the energy efficiency of other household appliances increased even more — as high as a 217% increase in the energy efficiency of refrigerators.

Bottom Line: Today’s affordable and energy-efficient household appliances like room air conditioners are part of the “miracle of manufacturing,” which continues to deliver cheaper and better goods to American consumers year after year, which translates into a higher standard of living for all Americans, especially for lower and middle-income households. If we wanted to identify a “golden era” of prosperity for middle-class America based on the affordability of common household appliances like room air conditioners, today’s consumers are many times better off than the consumers of any past decade, including the 1950s that Paul Krugman and others wax so nostalgic about. The significant reduction in the cost of purchasing and operating common household appliances like room air conditioners help us understand that the “good old days” are now!

And it’s not just air conditioners that have gotten cheaper over time. The chart below shows that household spending on “life’s basics” – food, clothing and shelter – has steadily declined over time as a share of after-tax personal income, from more than 50% in the 1930s and 1940s, to more than 40% for most of the 1970s when it took more than a week of work to buy the air conditioner featured above, to only about 32% in recent years. The gradual increase in our standard of living thanks to the falling prices (measured in both inflation-adjusted dollars and in the “time cost”) of appliances, food, clothing, cars and household appliances is an under-appreciated and under-reported benefit of the “miracle and magic of the marketplace.” As Larry Kudlow always reminds us “Free market capitalism is the best path to prosperity.”

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