Busting the myth again of the dollar's declining value

(Hat tip to ArnoTrader for this one!)

More misleading analysis purporting to say that the dollar has lost 95% of its value in the past 100 years.

Let us take at the period from 1913-2006, where we have complete data. So what do they mean, when they say the dollar lost 95.1% of its value in those 93 years? Essentially, an average good/service that cost $1 in 2006, used to be priced at 4.9 cents in 1913. In other words, the average price level of goods/services increased by 1930% since 1913. True, but guess what, average earned income increased by 6560% during the same time period. Average earned income rose from $740/yr in 1913 to $49,300/yr in 2006. Adjusting for inflation, $740/yr in 1913 is $15,000/yr in 2006 dollars. Average incomes, not only kept pace, but beat price inflation by 230%. Read full article here.

In fact, what I have been saying and writing for a long time. When reduced to the common denominator of hours of labor required to purchase a basket of goods, the dollar's purchasing power has gone up mightily.

Inflation vs. The Cost of Living

Jim Luke of EconProph summarizes Atlanta FRB's David Lockhart's distinction between inflation as a continuous general rise in the price level and fluctuations in the cost of living.

We are now seeing a disconnect between how the public and policymakers/central banks perceive what each calls “inflation”. The public at large, encouraged by talk from the hard-money gold crowd, are encouraged to see “inflation” whenever certain key prices go up. Recently we’ve seen gasoline and food prices go up, and along with these price increases more people are worrying about “inflation”. In reality, they are worried that the “cost of living” is going up. Rises in the cost of living is not inflation.

Read the rest at Inflation vs. The Cost of Living

(h/t Unforgiven)