The U.S. Dollar's Declining Purchasing Power: A 70-Year Analysis
Since 1950, the U.S. dollar has experienced a significant decrease in purchasing power due to inflation. To understand this decline, we can examine the cumulative inflation rates and the Consumer Price Index (CPI).
Understanding Inflation and Purchasing Power
To quantify the U.S. dollar's decreasing value, we look at the cumulative inflation rate from 1950 to 2023, which has been approximately 1100 to 1200. This means that what could be bought for $1 in 1950 would require about $11 to $12 today.
In more concrete terms, if you had $1 in 1950, it would only hold the purchasing power of about 8 to 9 cents today. The Consumer Price Index (CPI) further reflects this change, with the CPI in 1950 around 24.1 and rising to approximately 300 or higher in recent years, illustrating the devaluation of the dollar.
Impact of Inflation on the Dollar's Value
In summary, the U.S. dollar has lost about 90-92% of its purchasing power since 1950, primarily due to inflation.
Impact on Other Currencies and Global Inflation
When the dollar's value is compared against other currencies, the USD Index (DXY) was pegged at 100 in 1980. By 2023, DXY had dropped to about 96, indicating a decline but not as significant as the 70-year period from 1950 to 2023. This drop in value is due to global inflationary pressures, not just U.S.-centric inflation.
Price Index for Personal Consumption Expenditures (PCE)
The U.S. Bureau of Economic Analysis (BEA) reports that the price index for Personal Consumption Expenditures (PCE) has increased significantly over the years. In 1967, the PCE index was 18.43, rising to 106.07 in 2017. This 50-year period saw the dollar lose 79% of its value, reflecting an average inflation rate of 3.5% during that period.
Historical Context and Gold Comparison
From 1834 to 1933, the U.S. dollar was defined as 20.32 per troy ounce of gold (31.1 grams). From 1934 to 1971, it was 35 per ounce. After 1971, the USD became free-floating. In 2018, the price of gold was around $1200 per ounce.
For example, Charlie Chaplin earned $670,000 in 1916. Divided by 20.32, this equates to 32,972.4 ounces of gold, which translates to approximately $39,500,000 in 2018 dollars. Similarly, J.D. Rockefeller's wealth, if compared to 2018 gold value, would be estimated to be between $300 to $400 billion.
Liz Taylor was paid $1 million for Cleopatra in 1963. Divided by 35, this amount corresponds to 28,571.4 ounces of gold, which translates to approximately $34,300,000 in 2018 dollars.
In conclusion, the U.S. dollar has seen a substantial decline in purchasing power over the past 70 years, with the value of the dollar eroded significantly due to the effects of inflation. This period of economic history provides valuable context for understanding the current and future value of the U.S. dollar.