The Cost of Life in America : The Indicator from Planet Money Over the past two decades, prices on average have increased. But certain things have gotten cheaper while others have gotten more expensive, and which is which can tell us a lot.

The Cost of Life in America

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Stacey, you know I like digging up old, arcane videos of "Saturday Night Live" clips from, like, when I was a kid and maybe...


I did not know this about you.


VANEK SMITH: (Laughter).

GARCIA: Well, there's one that's really about inflation where these two guys are on a bench and they're both like...


JOE PISCOPO: (As character) These kids don't know anything about money. Everything's so expensive now. I bought a Coca-Cola last week.

EDDIE MURPHY: (As character) What?

PISCOPO: (As character) You know what it cost?

MURPHY: (As character) What?

PISCOPO: (As character) You know what it cost?

MURPHY: (As character) What?

PISCOPO: (As character) You know what it cost?

MURPHY: (As character) What?

PISCOPO: (As character) It cost 60 cents.

MURPHY: (As character) No.

PISCOPO: (As character) Sixty cents.

MURPHY: (As character) For a Coca-Cola?

PISCOPO: (As character) A Coca-Cola.

MURPHY: (As character) Unbelievable.

VANEK SMITH: Was, like, 9-year-old Cardiff excited about this? Like, did you have a - like, a little hint of your interest in economics?

GARCIA: There's a reason...

VANEK SMITH: You're like, that's fascinating. I wonder why the prices of these things have gone up in this video.

GARCIA: There's a reason I ended up in this chair.

VANEK SMITH: (Laughter).

GARCIA: And someday we'll explore the reason why you ended up with - in this chair as well.

VANEK SMITH: That would probably take longer (laughter).

GARCIA: Yeah. But for now, here we are. I'm Cardiff.

VANEK SMITH: I'm Stacey. And this is THE INDICATOR, Planet Money's quick take on the news.

GARCIA: Today's indicator is 55.6 percent. That is inflation in the last couple of decades. So if all the stuff you were buying in 1998 cost let's say a hundred bucks back then, now it costs 155 bucks.

VANEK SMITH: That sounds like a lot, but that is actually pretty normal inflation - just a little more than 2 percent a year. But that one inflation number does not tell the whole story. It is just the average rise in prices of everything in this basket of goods and services that a typical American buys.

GARCIA: And the really interesting story is in the differences between all those things in the basket. So today on the show, we look at what's gotten cheaper in the cost of American life, what's gotten more expensive, and how those differences affect us all.


PISCOPO: (As character) We scrimped. We saved. Our house, it cost a nickel. And we thought it was - where are we now? We made a nickel, we (unintelligible). Oh.

MURPHY: (As character) A nickel for a house?

PISCOPO: (As character) I don't believe it.


GARCIA: OK, so overall the prices of things that the average American buys have gone up by 55.6 percent in the last 20 years. Now, here are examples of things that have actually gotten cheaper. In other words, these are the things in the basket that are holding down the average. Televisions, toys, computer software - these all cost less than half of what they did back then, back in 1998, in some cases way less than half.

VANEK SMITH: Yeah, I think my bank is actually giving away flat-screen TVs if you open a checking account now. That is much cheaper (laughter) than a TV you would've gotten before. Furniture and clothes have stayed about the same price. But that still means they've actually become more affordable for Americans because, again, in that time, the overall cost of living has gone up. And you'll notice that these things that have become cheaper or whose prices have stayed the same have something in common. They are all goods. They are things that you can touch, and they last for a little while. They're tangible.

GARCIA: Yeah, hold that thought. And now let's turn to some examples of things whose prices have gone up by more than overall inflation.

VANEK SMITH: Yes, what are the cranky men on the bench complaining about? That's what we want to know.

GARCIA: Indeed. These are the things that are dragging up the average. And they are, first, medical care services. And that includes the costs of getting treatment at hospitals, dentists, nursing homes. And it also includes the cost of health insurance. Second, the cost of child care has gone up, and that's obviously a big deal for young parents with kids. And then third, college tuition - the sticker price of college tuition has gone up more than 200 percent in the last 20 years, which means it has more than tripled.

VANEK SMITH: That is a big deal for not-so-young parents with kids.

GARCIA: (Laughter).

VANEK SMITH: These items that have gotten more expensive, they have something in common, too. They are not goods. They are all services, and mainly health care and education services.

GARCIA: So what do we make of this? What can we say about this trend that the goods we buy have become cheaper while the services we buy have become more expensive?

VANEK SMITH: So for one thing, goods are easier to trade across borders. And that means that people can buy the cheapest option from somewhere else in the world. This explains, for instance, why toys are so affordable. We can import them from countries like China, where they are a lot cheaper to make.

GARCIA: Yeah. Services, on the other hand, can't be bought as easily from other countries. You can't get your haircuts in Vietnam if you're a lawyer in Boise. I mean, I guess...

VANEK SMITH: You could.

GARCIA: ...Technically you could.

VANEK SMITH: That would be a very expensive haircut.

GARCIA: Another reason that goods have gotten cheaper is because of technological innovation. So for instance, computer software has gotten better and better, and robots in factories can help make cars cheaper because it means the factories don't have to pay as many workers to make the same amount of cars. And that is also what makes electronics generally cheaper.


MURPHY: (As character) You bought a calculator. It was the size of a credit card, and it cost $5.

PISCOPO: (As character) I remember the same thing was the size of a shoebox. It cost $50.

VANEK SMITH: I remember I had a huge calculator in high school, a graphing calculator. And it was - it was a lot.


VANEK SMITH: So unlike producing goods like, say, calculators, services are harder to automate away with new technology because by their nature they require more people skills. And there are some services you would not necessarily want to be automated. For instance, a lot of people would rather learn in a classroom with teachers they can ask questions of rather than watching an online tutorial that was already taped even if the tutorial is much cheaper.

GARCIA: And finally, regulation probably plays some role in the rising prices of services. So for instance, child care centers have to be a certain size, and some state governments also limit how many kids a single child care worker can supervise. But honestly, regulation is a less clear story. For example, there's a healthy debate about whether more government involvement in health care lowers or raises its cost - just not certain.

VANEK SMITH: And as the cost of services has gone up, services have also become a bigger and bigger part of the American economy. But that is partly what you would expect. Since televisions and toys and furniture have gotten cheaper, it makes sense that we can take the money we save on them and spend it on services like education and health care and even some services that are a little more indulgent, like eating out at a restaurant or going to see a play.

GARCIA: Yeah, but there is one thing to worry about. When you look at the costs of some services that have really gone up, you'll see that those are the services that help low-income families in particular to elevate themselves in the job market. Expensive college tuition is maybe the best example of this because we know that people with college degrees on average make a lot more money throughout their lives.

VANEK SMITH: But also child care services because it helps young parents who want to balance having a career with having kids rather than forcing one parent to take time away from working.

GARCIA: Yeah. So if you take all these trends together, it's become easier to afford these amazing, cool new gadgets and TVs and computers. And these things don't just give us pleasure. They also make some of us better at our jobs. But it's also the case that higher child care and health care and education costs have made starting and providing for a family that much more daunting.


GARCIA: A word about sourcing. The chart where we found some of the data for these price changes was produced by the American Enterprise Institute and posted by economist Mark Perry. Thanks to them. We've got to link up to it on our website. It relies on data from the Bureau of Labor Statistics, which produces the consumer price index, the measure of inflation we used for this episode.

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