A chart from economist Mark Perry, creator of the Carpe Diem blog, has been making the rounds on Twitter lately and is being hailed as “stunning” and “one of the most important charts about the economy this century”.
The chart examines the change in prices of various US Consumer goods, services, and wages over the past two decades. Seen below, it shows how the price of consumer goods with strong foreign competition, such as TVs and toys, have plummeted while the cost of domestic services like healthcare and college tuition skyrocketed.
It helps pinpoint the reasons for the recent increase in market volatility, which some have blamed on inflation and rising wages.
The graphic above, which has made the rounds at the Federal Reserve, also hints at the effects of the possible reversal of globalization in the world economy, including higher inflation and the increased price of goods. “We would have fewer choices, potentially less quality, less productivity, and higher prices if we reverse globalization,” said Timothy Adams, President of the Institute of International Finance, when discussing the chart’s implications.
It remains to be seen what the long term effects of the current trade tariffs will be, as they are designed to break down trade barriers, not create new ones. Regardless, globalization has generally had a deflationary effect on free economies such as the U.S. and U.K. where competition comes from lower-cost foreign companies.
The Federal Reserve has indicated that they’ll consider a rise in the price of goods as a temporary outcome, and intend to focus more on growth than inflation.
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