Chart of the day… or century?

As I wrote in the summer of 2018 on CD, I’ve probably created and posted more than 3,000 graphics on CD, Twitter, and Facebook including charts, graphs, tables, figures, maps, and Venn diagrams over the last 14 years. Of all of those graphics, I don’t think any has gotten more attention, links, re-Tweets, re-posts, and mentions than previous versions of the chart above, which has been referred to as “the Chart of the Century.” Here are some examples of the attention that past versions of the chart above have gotten:

A multi-colored graphic that’s made the rounds at the Federal Reserve hints at what Chairman Jerome Powell could face if President Donald Trump succeeds in throwing globalization into reverse: Higher prices for many goods and potentially faster inflation.

Plugged as possibly the chart of the century by economist and originator Mark Perry, it shows that prices of goods subject to foreign competition — think toys and television sets — have tumbled over the past two decades as trade barriers have come down around the world. Prices of so-called non-tradeables — hospital stays and college tuition, to name two — have surged.

A chart that has been making the rounds at the Fed from economist Mark Perry shows how falling prices for trade-sensitive things like TV sets and toys have helped offset rising costs for things like medical services, housing and education.

American Enterprise Institute economist Mark J. Perry is highly and justifiably respected for his ability to convey complicated economic relationships by way of rather simple charts and graphs. The most famous example of this, shown here, is called by some the “chart of the century.” The high praise comes about because the chart is loaded with information regarding the types of challenges faced by the Fed and other Washington policymakers. Perry’s most recent version reports price increases from 1998 through 2018 for 14 categories of goods and services along with the average wage and overall Consumer Price Index.

Based on today’s BLS report for CPI price data through June 2020, I’ve updated the chart above with price changes through the first half of this year. During the most recent 22.5-year period from January 1998 to June 2020, the CPI for All Items increased by 58.8% and the chart displays the relative price increases over that time period for 14 selected consumer goods and services, and for average hourly earnings (wages). Seven of those goods and services have increased more than average inflation of 58.8%, led by huge increases in hospital services (+226%), college tuition (+193%), and college textbooks (+179%), followed by increases in medical care services (+133%), child care (+126%), housing (+71%) and food and beverages (68%). Average wages have also increased more than average inflation since January 1998 — by 93% — indicating that hourly wages have increased 34% more over the last several decades that the average increase in consumer prices.

The other seven price series have declined since January 1998, led by TVs (-98%), toys (-77%), computer software (-73%), and cell phone service (-53%). The CPI series for new cars, household furnishings (furniture, appliances, window coverings, lamps, dishes, etc.) and clothing have remained relatively flat for the last 22.5 years while average consumer prices have increased by almost 59% and wages have almost doubled (+93%).

Various observations that have been made about the huge divergence in price patterns over the last several decades displayed in the chart include:

a. The greater (lower) the degree of government involvement in the provision of a good or service the greater (lower) the price increases (decreases) over time, e.g., hospital and medical costs, college tuition, childcare with both large degrees of government funding/regulation and large price increases vs. software, electronics, toys, cars and clothing with both relatively less government funding/regulation and falling prices. As somebody on Twitter commented:

Blue lines = prices subject to free market forces. Red lines = prices subject to regulatory capture by government. Food and drink is debatable either way. Conclusion: remind me why socialism is so great again.

b. Prices for manufactured goods (cars, clothing, appliances, furniture, electronic goods, toys) have experienced large price declines over time relative to overall inflation, wages, and prices for services (education, medical care, and childcare).

c. The greater the degree of international competition for tradeable goods, the greater the decline in prices over time, e.g., toys, clothing, TVs, appliances, furniture, footwear, etc.

What’s New?

d. The price series that has shown the greatest change recently is the CPI for Educational Books (mostly college textbooks). Textbook prices rose an average of nearly 6% annually between January 1998 and December 2016, nearly three times average annual inflation during that period of just above 2%. But starting in early 2017, the CPI for Educational Books flattened for the first time ever and has now actually declined in 14 of the last 24 months and by -4.0% cumulatively over the most recent two-year period.

We can expect future declines in the prices of college textbooks, as the traditional textbook market faces increasingly tough and disruptive competition from alternative options including hundreds of “open textbooks” that have been funded, published, and licensed to be freely used, adapted, and distributed. The University of Minnesota’s Center for Open Education maintains an “Open Textbook Library” website that lists hundreds of textbooks in more than 20 academic subjects that are available for free online or as a PDF file, or as a print copy at a low-cost ($33.50 for print copies from OpenStax). Just in the field of economics, there are 25 free open textbooks for Economics courses including Principles of Microeconomics, Principles of Macroeconomics, International Economics, Money and Banking, Economic Analysis, and Principles of Political Economy.

Based on the evidence in the chart above showing stagnating and now falling college textbook prices following half a century of rising prices, Hurricane Joseph (Schumpeter) appears to be hitting the college textbook market with a very large, tsunami of creative destruction called “The Open Textbook Effect.”

e. The annual increase in college tuition and fees of only 1.74% through June of this year was one the smallest annual increases in the history of the CPI for college tuition and fees going all the way back to 1978. That increase is far below the average annual increase in college tuition of nearly 6% over the last 42 years. So perhaps the “higher education bubble” is finally starting to show signs of deflating? And we can expect that bubble to continue to deflate as a result of the new pressure from the coronavirus pandemic on higher education.

MP: I’ll continue to update the price chart every six months, look for the next version in January 2021 with data through December 2020.