Sunday, June 1, 2008

Beeronomics and the Terms of Trade

When Mark Thoma was in high school the price of a sixer was $1.25 and the price of gas was $0.25/Gal, so the relative price of beer to gas was 5. Now, the price beer of gas is $4/gal and the beer Prof. Thoma drinks these days is $5.50. I susupect what he drank in high school (Old Style, PBR) is more like 3.60 these days, so I'm going with that here, so now the relative price of beer to gas is about 0.90.

So what am I talking about? Are we better off, worse, or about the same as back then? Indubitably, most of us are better off. Real income has risen, and even more goods can be purchased in the typical household bundle now than was possible in 1971 (partly because many goods didn't exist then). Many households in the US today are 2, 3, or more car/TV/computer households, we eat more more and better foods than we did, proportionally fewer folks worldwide are poor, poverty is less severe, there's less war and other conflict, lower crime rates... you get the idea.

So... on average we have more income to spend on more and better things and we still bitch and moan about a few bucks a week on gas. So now, prices are going up, wages are stagnating, and things are starting to hurt more, but some people are better off, namely those of us who drink beer but almost never drive as a bike-rider, and occaisional beer drinker with a steady job, I'm pretty ok with the changes (my terms of trade have improved as a consumer), considering that the prices of some other things are not also rising rapidly. THE MARKET IS GIVING A CLEAR SIGNAL HERE (for those of you out there who are bitching and moaning but still claim to be pro-market) -- DRINK MORE AND DRIVE LESS (especially after drinking)!

The bigger danger is that fewer farmers are planting hops in favor of corn and other grains - this must be stopped to keep the price of beer down; I think we should get the government to intervene.

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