Tuesday, August 26, 2008

Over 100 Years, Food Prices Have FALLEN By 82%

Do a Google search for "rising food prices" and you'll get 391,000 results, while a search for "falling real food prices" gets about 144 results, a ratio of 2,700:1. Maybe we get so focused on the most recent year or two of rising prices for products like eggs that we lose sight of the longer term, historical trends.

The chart above shows the real, inflation-adjusted prices of eggs (in 2008 dollars), annually back to 1890. The price we're paying today for eggs (in real dollars) is about 1/7 of the price 100 years ago, a decline of 85% compared to the price our grandparents, great-grandparents or great-great grandparents paid in the early 1900s.

And it's not just egg prices that have fallen over the last 100 years. Grocery prices in general fell in real price by 82% between 1919 and 2007, measured in the number of hours worked (9.5 to 1.7 hours, another way to adjust for inflation) to purchase a 12-item basket of groceries, according to the Dallas Fed (see graph below).


At 8/26/2008 8:38 AM, Blogger randian said...

Yet another nail in the coffin of the "stagnant wages" meme. Why care if your wages are "stagnant" if there is general deflation in prices?

At 8/26/2008 9:09 AM, Anonymous QT said...

Why indeed?

When one looks at the thousands of photographs taken in the time of FDR, one glimpses an America that does not even remotely resemble how we live today. How can anyone looking at the proliferation of cars, AC, central heating, endless electronic gadgets and conveniences not conclude that Americans are better off than their parents and grand-parents?

Such a supposition defies common sense and the evidentiary evidence that is to be seen around us.

At 8/26/2008 9:53 AM, Blogger OBloodyHell said...

> Such a supposition defies common sense and the evidentiary evidence that is to be seen around us

It's an appeal to the dark element of the human spirit, always whining, "I want morrrrrre!!!"

The fact that we all carry around Star Trek communicators, about 200 years early, is beyond these nits.

At 8/26/2008 10:29 AM, Blogger Dave Narby said...

While I agree generally with this blog (OK, I agree most of the time), one of the thing it falls prey to is the bane and boon of simplification.

Simplification is good - It allows us to aggregate data and form meaningful statistics.

Simplification can also be bad because it can obscure significant information... For instance, while 'food' in general is probably cheaper, the way that food is delivered (mass production), significantly decreases the quality.

If you were to look at premium food (fresh fruits and vegetables, free range/veg-fed hen eggs, organic foods, etc.), you would find the price is probably about the same, maybe a little more due to the decreased demand (most people appear to choose cheap food over good food).

If you doubt this, remember this inviolable rule of economics: You get what you pay for.

At 8/26/2008 11:45 AM, Anonymous Norman said...

Please use log graphs for these long term commodity prices otherwise the current is meaningless. But thanks for your work.

At 8/26/2008 1:04 PM, Blogger SBVOR said...

Dr. Perry,

What a pity Americans will never see that Dallas Fed study on the network evening news (or read about it in any newspaper).

Maybe you can present it to the cable audience on your next visit with Kudlow!

Thanks for all you do,

At 8/26/2008 2:49 PM, Anonymous Anonymous said...

If you were to look at premium food (fresh fruits and vegetables, free range/veg-fed hen eggs, organic foods, etc.), you would find the price is probably about the same

I have, and it is not. They are about the same (sometimes less, sometimes more depending on season) as canned products. They are certainly not 82% more. Go to your local farmer's market (if you have one) and check it out.

At 8/26/2008 5:47 PM, Anonymous Anonymous said...

This disparity in prices might be partly due to the fact that people used to have their own hens producing the eggs that they could easily consume in 1 day/week/etc. They wouldn't necessarily desire a surplus. Ditto with cattle, back when large-scale feeding operations were not possible. Additionally, in 1890, the mid- to long-term storage of food was expensive.

Of course, this is all speculation on my part...I have no idea why there is such a disparity in real prices over time.


At 8/26/2008 6:56 PM, Blogger OBloodyHell said...

> If you doubt this, remember this inviolable rule of economics: You get what you pay for.

1) Except when you pay the government to do it... LOL (I'm really cryin' on the inside... :o) heh).

2) You speak of The Sausage Game:
...so here's what the sausage game is: You win yourself a market with a nice all-meat sausage, the best sausage you can make. People eat that sausage and they say 'mmm-hmmm!' So now you've established the product, right? Now you can afford to start slipping in a little sawdust. Add the sawdust by small enough increments and no one'll even notice. People will still say 'mmm-hmmm!', because people are creatures of habit. Of course,
five or six increments down the road, you'll end up with a product that bears little or no resemblance to what you started with, but you'll get away
with it, for a while, at least. Your market share will hold, your profit margin will increase, and everybody will think you're smart.

- Leonard Caust -

The flaw of the sausage game is that it is basically a form of "inflation". It devalues the brand name over time, and it occurs because of the short-term quality of the current market system

The problem arose when companies started being more commonly publicly owned rather than family owned. Corporate stockholders don't care about 10 years from now, so you can milk a company, literally run it into the ground, and they don't care as long as they can get out before the fecal matter strikes the aerial motion inducer. Family-owned business have a long-term view -- "this is wealth to pass on to my children".

It would be interesting to see if it would be possible to design some kind of longer-term feedback mechanism into the system somehow -- so if you owned a company 10 years ago and it was doing better now than it was, then, you'd get something more back than just what you made when you owned it... but it has to provide a measure of authority to go with that reward, somehow. The other mechanism would be something to induce long-term interest in a company by existing management. Unsellable 10 year stock holdings, maybe, with higher dividends if the company is doing well. I dunno, something to give those who own/control the company *NOW* a longer-term interest in the valuation of the company 10, 15, 20 years down the road.

At 8/26/2008 11:03 PM, Anonymous QT said...


When you look at food production, the yields have gone up tremendously over the last 100 years. Prices reflect higher yields, better agricultural practices, disease resistance, improved irrigation, better packaging, tremendous advances in refrigeration as well as flash freezing, and improved transportation.

Contrary to your assertions much of our food is of higher quality and of considerably more variety than the produce that one could buy 100 years ago. Food adulteration lead to the passage of the Pure Food Act of 1907.

80% of our vegetables in Canada come from the U.S. If we relied on local produce, our choices from Oct-June would be 1) root vegetables or 2) more expensive hothouse produce.

At 8/27/2008 11:00 PM, Blogger Dave Narby said...

@ Anonymous

What's cheaper? Fresh food? Or processed, preserved food?

...And which is better for you?

I recommend you start taking Piracetam in high dosages immediately... And put down the Twinkies and eat an apple.

At 11/09/2008 2:08 PM, Blogger Barnabas0611 said...

Norman said to use log graphs for long term data. But log graphs are used when changes in data are by multiples not addition. If the changes in time were in a sequence of 0.1, 1, 10, 100, 1000 etc, years, then a log graph would have been appropriate.


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