Wednesday, November 5, 2014

Eggs and Gasoline: Comparing How Far the Average Income Goes in 1938's U.S. to Today's China

I first came across this "1938 Cost of Living" image in a shared tweet:

1938 cost of living list

Any mentions I have seen assume the numbers in the image are U.S. specific, and I will do the same. I don't know the original source for the image, but the earliest mention I can find is by a Reddit user in a post which inspired many others.

The numbers are thought-provoking in how they compare to today's and what they would now be if everything had increased at the same rate. For example, a top comment on the Reddit post provides a "2014 Version" with costs updated using a simple inflation calculation:
New House: $64,939.43
Average Income: $28,823.11
New Car: $14,319.98
Average Rent: $449.58
Tuition to Harvard: $6,993.48
Movie Ticket: $4.16
Gas: $1.67
U.S. Postal Stamp: $0.50
Sugar: $9.82
Vit D Milk: $8.33
Coffee: $6.49
Bacon: $5.33
Eggs: $3.00
As Charles Mudede in Slog points out, the actual prices of some of those items today are much higher:
Tuition at Harvard is now $38,891, a 2014 Prius is about $25,000, the median price for a single-family home is around $200,000, and per capita income is just below $30,000...

Which in turns leads to points that Americans don't have as much purchasing power as they once did.

When I first saw the numbers, though, my thoughts went in a slightly different direction. The average American income of $1731 per year jumped out at me. It didn't seem very different from figures I remembered seeing for current average incomes in China. In The New York Times, Edward Wong shared some relevant numbers while reporting on income gaps in China:
Average annual income for a family in 2012 was 13,000 renminbi, or about $2,100. When broken down by geography, the survey results showed that the average amount in Shanghai, a huge coastal city, was just over 29,000 renminbi, or $4,700, while the average in Gansu Province, far from the coast in northwest China, was 11,400 renminbi, or just under $2,000. Average family income in urban areas was about $2,600, while it was $1,600 in rural areas.
Yet while many people in China make the same or even less than the average American in 1938, even without any adjustment for inflation, they can't get anything near those low 1938 prices for many of the items. In fact, for some items they could be paying more than what people in the U.S. are paying today.

For some examples, in response to figures indicating that with a dollar's worth of currency people in China could buy more than people in the U.S., several years ago Patrick Chovanec shared/translated/converted data informally collected by a Chinese financial publication to compare prices for the same goods in Hangzhou, a city not far from Shanghai, and Boston:

comparison of various items' prices in Hangzhou and Boston

The more-expensive-in-Hangzhou goods, such as eggs and gasoline, are highlighted in red. And there are many other items to look at, such as iPhones (more expensive in China) and a popular economic indicator — Big Macs (more expensive in the U.S.). Using examples which may especially resonate if you have lived in both China and the U.S., Chovanec explains there is of course much more to consider, including costs of services, than the above chart when comparing people's purchasing power in China and the U.S. But as the chart suggests, it is not hard to find goods which cost more in China, and you cant make tea eggs or stir-fried egg and tomato, both common in China, without . . . eggs.

All of this is simply to say that when wondering how to interpret the latest news of China's economic growth, consider that many in China are living with a 1938 U.S. salary or less and spending it in a 2014 China.

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