Gale Pooley Weighs in on Time-Price
Gale Pooley, the brilliant co-creator of time-prices with Marian Tupy, checked in today with two emails elaborating on my time-price answers to my readers during my Q&A segment this week.
Springing from the time theory of money, time-prices measure values by the number of hours and minutes you have to work to acquire the money to buy goods and services. Tupy and Pooley estimate that since 1980, while the world’s population increased 71%, time-prices dropped 72%.
Pooley’s emails responded to the question of the apparently rising prices of the Ford F-150 pickup truck since 1970 and the rising prices of the iPhone since the first one was introduced a decade ago.
Great article on time-price analysis.
A bit more on the iPhone:
When Apple introduced the first version in 2007 at $500, the blue-collar hourly compensation was $25.07. That would put the iPhone time price at 19.94 hours or 1,196 minutes.
The iPhone 11 is $1,000 and is 120 times more powerful, [by my rough metric of the increase in the number of transistors in its CPU, gg], which would mean the comparable price is really $8.33 ($1,000 ÷ 120). Blue-collar hourly compensation today is around $32.06. The time-price today is 0.26 hours or around 16 minutes.
The time price has decreased by 98.7%. The time required to buy one iPhone in 2007 will buy almost 75 today.
To see if this is reasonable check craigslist and see what a first-generation iPhone will sell for. You must ignore the collector value. It would be hard to find someone that would give you much more than $10.
He sent a second email on the F-150 pickup truck, which the estimable Bill Bonner speculated had become more expensive over the years.
According to the National Auto Dealers Association NADA Guide, in 1970 you could buy a basic Ford F150 for $2,599. Blue-Collar compensation was $3.93 per hour, indicating a time price of 661.3 hours.
A 2019 basic F150 is now $28,155 and blue-collar production worker compensation is around $32.50 an hour indicating a time price of 866.3 hours.
This would indicate a time price increase of around 30%.
But the 2019 model is of a completely different species than the 1970 model.
Mileage is 100% better at 22 city/30 highway versus 12 city/14 highway.
Other differences include power, safety, and comfort factors.
If one were to conservatively estimate all of these factors at 100% better than the 1970 model, the time price for the 2019 relative to the 1970 has actually fallen to 433 hours indicating a time price decrease of 35%.
Thanks to the freedom to create and innovate, new trucks are getting more and more abundant.
Gale Pooley previously contributed a comment on my case for negative interest rates as normal during a period of monetary manipulation. Pooley’s explanation follows:
One of the first equations we learn in Economics is:
Nominal Interest Rate = Real Interest Rate + Inflation
If we assume the real interest rate is 3% and we have 3% inflation, then the nominal rate should be 6%.
But what if we have negative inflation or deflation?
If the real rate is 3% and we have 3% deflation, then the nominal rate could be zero.
If the real rate is 3%and we have 6% deflation, then the nominal rate would be negative 3%.
The problem is people are mis-measuring inflation. People are trying to use money to measure money. They should be using time prices.
Since 1980, on the average, time prices for our 50 foundational commodities have been falling around 3.4% a year. So if the real rate is 3.4%, then the nominal rate should be zero.
Negative nominal internet rates could be perfectly rational.
Time-prices explain economic reality far better than the contorted analyses of conventional government economists, with their subjective Consumer Price Indices, GDP deflators, and Purchasing Power Parity guesswork.
All investors should understand that despite the continual and egregious errors of governments around the globe, private companies continue to innovate relentlessly. Focus on the government errors, such as monetary blunders, trade wars, and subsidies for political cronies and academic fashions, distracts attention from the dramatic progress in technology. Learning curves abound across the global economy, lowering costs by 20-30% with every doubling of units sold.
Wealth is knowledge. Growth is learning. Both continue to expand in the face of the ignorance and obscurantism of the administrative state.
Time-prices tell us that we can continue to invest confidently in new learning and technology. That is the goal of this Prophecy.
Editor, Gilder’s Daily Prophecy