Question:

What has changed from the 1970's to today with how we consume?

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I remember cars being $2-3k or a little more. I also know that the cost of living was much less but what do you think the leading factor for inflation today? Is it population growth? Is it the EU and China's growth? Is it corruption in the banking and real estate industries? I remember my parents bought our house in the 1950s for around $20,000 and now houses have been sold in same area and size for over $300k. How do people afford these huge mortgages?

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  1. Inflation again, just like we had in the 70s except now it's out of control.

    I bought a brand new Mercury in 1972 for $3000.

    Inflation, inflation


  2. Assuming inflation of 4%, a house costing $20,000 in 1948 would cost over $200k today.  Add to that the fact that our houses are much larger than the ones made right after WWII, and you can easily get to $300k for a house today, even away from the coasts, where things are more expensive.

    Another factor is the increasing risk in other sectors of the economy, which have caused people to gravitate to housing as a safe store of value.  Add to that the fact that in the 1940's and 50's, the U.S. was the only player on the block with significant amounts of capital to invest, and now there is much more money going after investment opportunities, and it is easy to see why prices would rise.  

    Also, the goods you were buying in 1970 are not equivalent to those we purchase today.  Today's cars go faster, last longer, and are generally safer than the ones available 40 years ago, just to give one example.

    On the other hand, wages have also risen faster than inflation, and people have become much more specialized, at least in the U.S. and the other parts of the developed world.  My grandfather owned a seed warehouse, and was considered well off, but he probably didn't make more than $20k a year while he was working.  My wife and I both work (another factor in allowing us to afford a mortgage today) and clear over $200k.  This allows us to afford a much bigger mortgage than our parents or grandparents could afford.  While our income growth is definitely being impacted by foreign competition, the U.S. is still not doing too badly overall.

  3. The government has been inflating the currency at a fairly healthy rate over the last 30-40 years. Your dollar is worth about 1/6 of what it was in 1970.

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