This chart shows the impact of inflation and the declining purchasing power of the US dollar. For example, a new home adjusting for inflation (using the BLS calculator) should cost around $64,597 per year. The current cost of a new home? $245,800. The average income has stayed about the same normalizing for inflation (doesn’t say much since we are going back to the Great Depression here).
A new home today costs nearly 10 times the annual average income of a worker. The
two income trap has largely hidden this inflation since it now takes two households to accomplish what one income was able to do 75 years ago. On top of that, people now need to go into massive debt just to purchase a home.
Take a look at the cost of a new car as well.
In 1938 a worker was able to purchase a new car with one-third of their annual income. Today a new car is more expensive than the annual average income. This is why in 2013 one of the top growing consumer debt sectors was with automobile loans. If things stayed the same, the cost of attending Harvard for one year in 2013 would be closer to $7,000 per year (the current tuition is $54,496 per year). It isn’t only Harvard charging incredibly high tuition around the country. Of course the higher education bubble is one of the most pressing issues around creating a
$1.2 trillion student debt market.
Rent, movie tickets, and even gasoline are much more expensive today adjusting for inflation. This puts a heavier strain on the pocketbook of most Americans. It also has created a dependency on debt. We do have stronger safety nets so we don’t have the “in your face” poverty of the Great Depression. Yet we still have close to 48 million Americans on food stamps. The area that has seen prices become more affordable is with food. This however is largely derived from better access to food and products and the mass production of this commodity. Yet the bigger costs of living in housing, cars, rent, and going to college are all much more expensive today. It may feel cheaper to some if they only look at their monthly debt payment but the true costs have increased.