While we live in the real world, that world is also full of
illusions. I'm sure that you can think of many. These illusions make it
difficult to think clearly about the facts of the matter. One illusion is the
seeming constant value of money.

Now, of course, we are all aware of the fact of inflation (or if we live in
Japan, deflation). And we are aware that the purchasing power of our money
changes over time. But that doesn't stop us from constantly hearing (and
absorbing the news of) just the opposite. For example, the Dow Jones Industrial
average (the stock market) has been hitting some new record highs lately. I'm
sure that you've heard about this. But if you take into account the fact that
money has decreased in value since the last time the stock market reached its
peak (October, 2007), it is ten percent below that peak, just as we reach new
peaks.

What we hear over and over again is that the market is booming and everything is
going great, while we are in fact down ten percent from just before the lesser
Depression.

Story
here and comic strip
here.

You can see the Dow Jones nominal values (in the value of the money at the time)
here and since 2000
here. But, of course, these charts do not take into account the changing
value of their measurement device, i.e. dollars. Why would anyone be foolish
enough to measure something with a yardstick that is constantly shrinking over
time?

Here's what the Dow Jones average looks like when adjusted for the changing
value of money:

From the
NY Times:

After six straight days of gains, the S.& P. 500 closed Friday
just 14 points, or 0.9 percent, from the record high of 1,565.15 it hit in
October 2007. Factoring in inflation, however, the index is still far from
earlier peaks, as is the Dow.

The stock market value isn't the only thing that we see expressed
in constantly changing dollars. How about what is the most popular movie of all
time? Avatar? Titanic? Harry Potter? Transformers? Wait a minute, Transformers?

Avatar is plenty popular but when adjusted for inflation, it is that paean to
the South of happy slaves, "Gone with the Wind," that is the all time highest
grossing film (with Avatar in second). See even more constructive lists
here.

While it makes perfect sense to use dollars to compare the price of one good in
the present against the price of another good, also in the present, it doesn't
make any sense to use this same comparison when comparing the price of a good in
the present with its price in the past. We really have to use inflation adjusted
dollars when we make comparisons over time, unless we want to completely confuse
ourselves (which we do with apparently wild abandon).

This is not easy to do. Yes, technically it is trivial. But emotionally it is
wrenching. If you are old enough to remember the good old days, it seems like
everything has gone to hell (or at least is a lot more expensive). You can't
help but remember what it cost way back when and now, no matter what
calculations you do, they don't satisfy you emotionally. And your emotions feel
a lot more real and truthful, than calculations do.

When I was a little kid I remember Mr. Anderson. Mr. Anderson was an old old guy
(well, I was a little kid, after all). He owned the department store where my
mother worked. He had the habit of giving out dimes to little kids. That was
about two candy bars. One Hersey bar is now $1.00. See
here. Talk about going to hell in a hand basket. (A
real chocolate
bar costs about $7, but then we aren't comparing the same things.)

So what does this have to do with hang glider prices and your feelings about
them (if you are an old fart)? This just my way of softening you up as a target,
i.e., to make you think hard about your emotional reaction in order to give your
frontal lobes a change to override your amygdala. I'll get to actual glider prices
in the next article.