31 Comments

  1. sb October 8, 2007 @ 4:33 pm

    How about Dow/(cost of 1 gigahert of memory) or Dow/(cost of a hybrid car) or Dow/(cost of camera cellphone) or Dow/(Cost of an international phonecall). We all consume primary goods like those you use, but that doesn’t mean they constitute the main element of comparison. Even if relative to all factor of production, the dow were lower, we could still be richer if our productivity had increased enough.

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  3. NN October 8, 2007 @ 5:32 pm

    This would be true if all any one purchased was in forein markets. while I agree we’re not that great off, marking it against oil is not exacly a balanced approach.

    As sb said, you’d need to spread your numbers across much more than on item.

    And inflation has been low, and I’m for one am making more – some things cost more, but a lot cost less. But that’s just my two cents :)

  4. cb474 October 8, 2007 @ 5:35 pm

    I agree that the Dow Jones numbers are silly. They are always referred to in sheer numbers, with each new level being perceived as a new “high.” Whereas it’s the precentage changes that are meaningful, not the sheer numbers.

    But doesn’t comparing the present to the height of a huge stock market bubble in 2000 necessarily make present values seem low. I mean, yeah, everyone was doing great at the height of the bubble. But it was a bubble. The reason people are doing worse now is because the bubble burst and people lost their shirts.

    Maybe I’m missing the point, but somehow it seems odd to present the height of a stock market bubble as better times, totally out of the historical context that prices were vastly overinflated during the bubble and bound to only go down.

  5. JL Wallace October 8, 2007 @ 5:39 pm

    “One if by Land and the Lantern is Lit…”

    Our Constitutional Republic has been destroyed. The foundation of American Liberty has been either distorted, erased or forgotten. Our entire planet is ruled by an oligarchy of established bankers, oilmen and global corporations. We the People find ourselves enslaved and intoxicated by an economic system that by design, destroys the prosperity, development and education of the Worlds Citizenry.

    The Federal Reserve and its fiat monetary policy need to be abolished. The unconstitutional (and enslaving) 16th Amendment needs to be repealed. Congress needs to listen to the people and convene an Article V Convention so we may work towards restoring the Constitutional Republic that our “elected” officials have stolen from us and sold to the highest bidder within the corporatocracy.

    Our government is allowing the corporate elite to successfully merge Canada, Mexico and the United States into a single supra-national entity, the North American Union – complete with its new currency the “Amero”, which will be ushered in just after the fabricated collapse of our economy. The fascist Tories within our government are working towards another false-flag attack similar to 9/11 to “justify” an attack on Iran and the further erosion of our civil liberties in America.

    A Halliburton subsidiary, KBR has already been awarded a $385 million contract to construct “detention centers” in the United States. Any puppet President of the United States now has the power to enact martial law and fully transform America into a police state. The conditioned-complacent public in this country and all the Worlds Citizenry need to act now to save what few liberties we have left. Rediscover Patriotism. Resurrect Dissent. The time has come to ascend upon Washington and RESTORE THE REPUBLIC!

  6. TheBankruptcyNews October 8, 2007 @ 6:12 pm

    @Sb. The falling prices of certain goods is another point. I think that the current model works because we have deflationary pressures that are balancing the inflationary pressures. The game will be over when the price of commodities is so high that we can’t buy anymore “cheap” manufactured goods.

  7. TheBankruptcyNews October 8, 2007 @ 6:16 pm

    @NN. Based only on inflation data the Dow is about 8% lower than in 2000.

  8. The market is still 59% lower than in 2000 - mycall et al October 8, 2007 @ 6:23 pm

    […] next time somebody tells you that the economy is doing great, you can answer him or her that it is great if you can leave out of thin air. Published 08 October 2007 04:18 PM […]

  9. AKfaust October 8, 2007 @ 7:09 pm

    What prices of certain goods are falling? What are Americans buying in 2007 that cost less that in 2000?

  10. Cantanker October 8, 2007 @ 8:21 pm

    Is this a 10 year period or are you arguing that we were doing better in the Great Depression than we are now?

    Sure, different things were plentiful then. You could go hunting and fishing for food and your taxes were lower. You would also expect to die much sooner.

    So when did it all start to go south?

    The whole article contains engouh for a teaser ad.

    The author is a flirt and doesn’t follow through!

  11. J October 8, 2007 @ 8:28 pm

    I agree with your argument – but think your data is flawed… all the commodities you named are in greater demand today then in 2000. Meaning, they have risen more then inflation (due to high demand, low supply) which makes the numbers look bigger and more disproportional then they really are… but the premise of your argument I do agree with; just not with your numbers :)

  12. TheBankruptcyNews October 8, 2007 @ 8:40 pm

    @J
    You are welcome to suggest any commodity you want. I could not find any that is equal or lower to the price in 2000 adjusted for inflation. If you find a few, let’s put them on the mix and see what happens. My guess is that the difference is going to be marginal.

  13. mark October 8, 2007 @ 10:07 pm

    Maybe this means that stocks are way UNDER-priced.

    A share of a company is partly intangible, and partly a share of the company’s capital assets. When inflation kicks in seriously, at some point shouldn’t the price of stocks start increasing? At least stock of companies that produce necessities.

  14. James H October 8, 2007 @ 10:39 pm

    This sort of good-based evaluation is very sensitive to the type of goods used and is mostly useful to illustrate the comparative advantages of different countries, not the buying power of individuals.

    For example, if we used computing power as our basic measurement, the price per unit of computing in 2000 would be higher than it is in 2007. So the dollar will look much stronger in terms of how much computing we can buy today. But the prices of everything else will seem extremely high. From that you could write a similar article showing that the advancement of computing technology is causing the dollar to lose value.

    Furthermore, how do you know that you need to work 3.29 times as hard to buy oil today? What if your salary accelerated faster than oil prices? What if you need to buy less oil because you have found ways of reducing consumption?

    It is a good way to make dramatic-looking numbers, I admit. But this article is quite flawed.

  15. frenchie October 8, 2007 @ 11:33 pm

    a can of coca cola cost me a dollar in 2000 and it still cost a dollar today….our dollar may have inflated but if coca cola company is still making margins off of the same can of coke today than in 2000 our dollar hasnt inflated that much. the barrel of oil has just gone up in cost of manufacturing because 1st world countries now have control of the industry in the middle east as before 3rd world citizens would be doing the same work for a fraction of the cost…. not because the dollar has inflated 59 %

  16. jose October 9, 2007 @ 12:41 am

    Keep track of the real value of the falling USD (in terms of Gold/Oil/Wheat) here:

    http://www.metastocktools.com/#USindex

    Data and charts updated daily.

  17. TheBankruptcyNews October 13, 2007 @ 1:54 pm

    Great link Jose. Thanks!

  18. Libertarian October 9, 2007 @ 1:38 am

    The latest round of interest rate cuts is also going to contribute to future inflation. Inflation seems to be the preferred method of politicians for raising taxes (think new tax brackets after raises that don’t cover cost of living changes) and minimizing the debt (Hey, $10 trillion isn’t too bad, that’s only 9.5 trillion Canadian dollars)

    Maybe we should all just blindly throw our money into the stock markets, knowing that the government will do anything to bail out failing companies. The DOW’s gains may not beat inflation, but at least its losing value slower than the dollar itself.

  19. TheBankruptcyNews October 9, 2007 @ 4:38 am

    @James
    Computing power and technology in general are the few things that are proving deflationary pressure. But that’s another story altogether (I will write another article on the subject).

    The median household income is equal or lower today than it was in 2000: http://www.census.gov/hhes/www/income/medhhinc.html
    How do you like that for drama?
    There are things that could be better explained in the article, but the reasoning is sound.

    So to answer your question: What if… Well, it did not happen. Stick to reality and you will see the article is not flawed in the use of the data. The wishful thinking with “what if” and “abstract” dollars are deeply flawed.

  20. Reality Me » GW Broke Us October 9, 2007 @ 9:23 am

    […] Our nation is 59% poorer than we were in March of 2000. […]

  21. Survival Acres Blog » Bankruptcy News October 9, 2007 @ 9:47 am

    […] the bankruptcynews.com […]

  22. Bigelow October 10, 2007 @ 8:35 am

    TheBankruptcyNews said,
    in October 8th, 2007 at 6:16 pm
    “@NN. Based only on inflation data the Dow is about 8% lower than in 2000.”

    Seven years and eight percent lower, now that’s real progress!

    “Changes in “Purchasing power” required to buy a basket of goods and services can not be accurately measured because of the need to continuously add new products to the basket, because the measurement of quality improvements on existing products is too subjective, and because it is impossible to pick a representative and properly weighted basket of goods, services, and assets in the first place. Furthermore, such measurements are highly prone to governmental manipulation at private citizen expense. Endless bickering over the CPI numbers every month should be proof enough of these allegations.”
    Inflation: What the heck is it?
    http://globaleconomicanalysis.blogspot.com/2006/02/inflation-what-heck-is-it.html

  23. » Official Reports Confirm Economy Worst Than in 2000 The Politics of Debt: Speak Up! Economic and Financial News for the Rest of Us October 11, 2007 @ 10:33 am

    […] Economy Worst Than in 2000 Posted in October 11th, 2007 by TheBankruptcyNews in The article The real economy caused quite a stir, and I am happy that it opened way to some healthy discussion. Some interpreted […]

  24. Felix October 12, 2007 @ 12:44 am

    The dow is crashing measured against inflation, if you want to use inflation instead of a particular commodity like oil or vs consumer electronics. Compounded inflation since 2000 is around 50% and it is growing fast.

    Made in asia consumer electronics, indeed… the cornerstone of civilization.

  25. Pangolin October 12, 2007 @ 7:29 am

    The last time I checked I couldn’t eat computer memory or asian consumer electronics. I have to eat meat and vegetables, bread and oils, milk and cheese. All of these items have increased in price considerably as protesters in Burma, Mexico and Italy all agree. The price of fertilizer has gone up and farmers are passing that price back to me.

    When I get in my car to go to work I have to have gas in the tank if I expect to get there and reduced cell phone tarrifs will do me no good when my boss calls to tell me I’m fired. The car needs tires and motor oil and those are made with petroleum also.

    At work my boss, or somebody, has to make sure the power bills are paid or else the computers go down and the lights go out. The office has to be kept warm enough in winter for work to proceed and customers to stay in the building. That costs more too,

    Let’s not talk about the price of housing or medical care. Just try holding down a job with a kidney infection; your doctor gets to charge whatever he wants in those circumstances.

    The CPI has been juggled by including prices of items that are secondary to life support. Mostly the prices of luxeries have stayed stable or been reduced while the neccesities of life have gone up.

    Your dollar is worth less and most people notices. Circuses without bread is not a viable policy for a long term economy.

  26. Beowulf October 13, 2007 @ 9:56 am

    Maybe you all should be voting for Ron Paul?

  27. » The Real Economy II The Politics of Debt: Speak Up! Economic and Financial News for the Rest of Us November 7, 2007 @ 5:57 pm

    […] November 7th, 2007 by Benjamin Franklin in Economics, Finance, Politics In the previous article (The Real Economy) I showed that the purchasing power of the Dow Jones, when it is compared against commodities […]

  28. » Dow Jones 400 to 600 more points of pain The Politics of Debt: Speak Up! Economic and Financial News for the Rest of Us November 11, 2007 @ 12:53 pm

    […] The real economy […]

  29. Anonymous December 12, 2007 @ 12:35 am

    Actually, oil is the best commodity to measure the dow against, or any market for that matter because economic growth is predicated by cheap energy. Dollars mean nothing, energy means everything. Who cares how much a Prius, widget, or CPU processor costs. They all take a tremendous amount of energy to make and bring to the market. If the value of your market shares buys less energy today than 2000, you are worse off, period.

  30. The Real Economy - Personal Development for Smart People Forums December 11, 2007 @ 10:57 pm

    […] market high, and if you feel a 59% poorer than in 2000, you are having exactly the right feeling.

  31. Franklin December 12, 2007 @ 4:00 am

    Yes. I am working on creating sicko-dollars to measure stuff in health care cost, and electro-dollars to measure stuff in electricity (I think that electricity may be something interesting to measure against, because it fluctuates with commodities inflationary moves but also with increases in industrial production). Will see.

The real economy

Economics Comments (31)

I wrote previously that, in constant dollars, the Dow Jones is far from a new high (actually, some 8% away). Those constant dollars, however, were based only on inflation data, which is statistical data and not actual market data.
The following table shows the 2000 and 2007 prices in terms of different commodities. The calculation is tedious but simple: At the beginning of the year 2000 you needed 24 dollars to buy 1 barrel of crude oil, today, you need 79 dollars, that means that you need to work 3.29 more time to get the same amount of oil (if your salary was not adjusted for inflation). Adjusted for inflation (in year 2000 dollars terms), the oil is at 60 dollars a barrel. The formula I am using is Price in 2007/Price in 2000. That will give me the depreciation of the dollar with respect to the commodity, and, therefore, a price for the dollar based on that commodity.
So, I am going to suppose I bought 1 share of the Dow Jones in 2000 and I need to sell it to buy different commodities (Dow Jones 2000 will be base 0).
The question is when was I better off? During the bubble of 2000 or now? Or, in other terms, which is more of a bubble?

You sell to buy: Dow Jones Price in 2000 Dow Jones Price today You win/lose
Crude Oil 496 market units 179 market units -69%
Gas 8212 market units 4723 market units -51%
Gold 46 market units 19 market units -64%
Silver 2358 market units 1049 market units -62%
Corn 55 market units 41 market units -36%
Wheat 47 market units 16 market units -70%

(I use market units because I am analyzing price relations between equal market units, i.e., barrels, ounces, bushels, etc.)
As you can see, the Dow Jones’ “new high” is lower than the high in 2000. In most cases, by about 50%; in fact, the average for only these commodities is 59%. So, if you feel that you are hurting (and don’t understand why you are not as well off as you were in March of 2000 despite the new highs of the market) here you have your answer. Governments use the market levels as a proxy for the health of the country’s economy. As you can see in this table, in “useful dollars” the market is still 59% lower than in 2000. So, next time somebody tells you that the economy is doing great, you can answer him or her that it is great if you can live out of thin air.
We are not doing better, there is no new market high, and if you feel a 59% poorer than in 2000, you are having exactly the right feeling.

Franklin @ October 8, 2007

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