A Lesson In Economics

I read a lot of articles and comments about the varying cost of things around the world and I am amazed at the lack of understanding by supposedly educated Americans. I suppose in part it is because I have traveled and lived around the world but mostly I accredit my understanding of finances to some great advice from my grandmother.

She taught me early that the cost of an item should not be measured in dollars and cents, but it should be measured by what you have to expend for that item.

In simple terms the value of an item is in direct proportion to how long you have to work for that item. Since the cost of gasoline is on most people’s mind, let us examine that using the Bureau of Labor Statistics data for 2006 for production (manufacturing) jobs.

One gallon of subsidized gasoline in Mexico is selling for about USD$2.00 per gallon and according to Reuters on July 13, 2008 the average price across the United States was USD$4.11. This means the average factory worker in Mexico has to work 43.64 minutes versus 10.35 minutes for the American worker to purchase the same gallon of gasoline. (Price of item divided by hourly wage times 60 minutes).

This thinking also tells you just how much inflation is affecting you when you compare your previous salary and previous prices.

Using this method also helps me to determine if I really need that new toy. Is it worth the labor I must expend? I hope you try this and I hope it gives a greater appreciation of just how well you and this Country are doing.