According to the Wall Street Journal, “Eating is getting costlier for Americans as the food industry faces the steepest inflation in a decade.” However, keep in mind that we don’t know if the rise in food prices is a short-term or a long-term development. Also, our sense of rising food prices may be exaggerated by the fact that some of the pandemic saw an actual food price deflation. Moreover, rising food prices are already being mitigated by wage increases, which are necessitated by the tight labor market. Finally, price rises over a short period of time, say one or two years, do not negate the long-term trends. Over the last century, food has become dramatically more affordable in the United States.
Back in 2019, Dr. Gale L. Pooley and I looked at the nominal prices of 42 food items, ranging from a pound of sirloin steak to a dozen oranges, in 1919. We then expressed those nominal (i.e., 1919) prices in terms of hours of work. The time price of a food item in 1919 denotes the length of time that a worker had to work to earn enough money to buy that same item in 1919. We then looked at the 2019 prices of the same food items (including, of course, the same quantity of those foods). We then expressed those nominal (i.e., 2019) prices in terms of hours of work. The time price of a food item in 2019, therefore, denotes the amount of time that a worker had to work to earn enough money to buy that same item in 2019. Here is what we found.
Let’s start with unskilled workers. Between 1919 and 2019, the unweighted average time price of 42 food items fell by 79 percent. The total time price (i.e., the nominal price divided by the nominal hourly wage) of our basket of 42 food items fell from 47 hours of work in 1919 to 10 hours in 2019. We found that for the same length of work that allowed unskilled workers to purchase one basket of 42 food items in 1919, they could buy 7.6 baskets in 2019. The compounded rate of “abundance” of our basket of food items rose at 2.05 percent per year. That means that unskilled workers saw their purchasing power double every 34 years.
It is crucial to remember that the relationship between the percentage change in time prices and food abundance is geometric, not linear. If the time price of food increases by 99 percent, one hour of work will only get you 50.3 percent as much food as before. If the time price of food falls by 99 percent, one hour of work will get you 9,900 percent (or 100 times) as much food as before. You can also think about it this way: a 50 percent decline in time price allows you to purchase two items for the former price of one; a 75 percent decline allows you to purchase four items, a 90 percent decline will get you 10 items, and a 95 percent decline will get you 20 items; a five-percentage point decrease from 90 percent to 95 percent, in other words, enhances your gains by 100 percent.
Let’s turn to blue-collar workers. Between 1919 and 2019, the unweighted average time price of our 42 food items fell by 87 percent. The total time price (i.e., the nominal price divided by the nominal hourly wage) of our basket of 42 food items fell from 27.26 hours of work in 1919 to 3.85 hours in 2019. We found that for the same length of work that allowed blue-collar workers to purchase one basket of 42 food items in 1919, they could buy 11.73 baskets in 2019. The compounded rate of “abundance” of our basket of food items rose at 2.49 percent per year. That means that blue-collar workers saw their purchasing power double every 28 years.
Our calculations will be cold comfort to those who see their purchasing power decrease in real-time. However, long-term trends are important. They remind us of the massive improvements in U.S. living standards over the last century, and they show that progress is possible – given the right mix of policies and institutions. In the coming years, demagogues from both sides of the political spectrum are bound to exploit these unfortunate economic developments to undermine America’s political and economic setup. We should not let them scare us into giving up liberal democracy and free enterprise. Freedom made America prosperous before, and it can do so in the future.