How much? Well, in 1913 you could buy as much with a dollar as you can with $22 in 2010. By 1920, the dollar was worth only half - about $10 in today's value. Deflation (the opposite of inflation) during the Great Depression of 1929 increased the value of the dollar to $13. By 1940, the dollar was worth even more - it could buy as much as $15.57 could today.
By 1950, the dollar's value had fallen back to $10. It has fallen ever since:
- 1960 = $7.67
- 1970 = $5.62
- 1980 = $2.65
- 1990 = $1.67
- 2000 = $1.27.
This is the price of an expanding economy. The Fed keeps interest rates low to stimulate spending, which drives demand and ultimately economic growth. In fact, the Fed targets a 2% core inflation rate. In other words, as long as prices (excluding volatile food and energy) only goes up 2% a year, the economy will grow at a healthy rate.
Of course, this is just fine as long as your income also increases more than 2% a year. If not, then inflation will eat away at your standard of living. For many Americans, that is exactly what has happened. That's because income inequality has increased. Between 2000-2006, average wages remained flat despite an increase of worker productivity of 15%. In those six years, corporate profits increased 13% per year. And that was before the recession!
What can you do about it? Don't work harder, work smarter. Most of that productivity was because of technology replacing jobs. So, improve your skills and become technologically proficient. Go back to school, if needed.
Get real smart about how the money works, so you can make more money, and make your money work for you. Learn how the stock market works, hire a financial planner, and invest in yourself. Understand how the economy works in just 5 days.
