Calculated Madness

I don't have the opportunity to use my old calculators much anymore. There was a time—in the early eighties, mostly—I lived and died by the little gadgets, but these days I live and die by the laptop. So when a friend asked me to accompany him on his automobile-shopping expedition to make sure the dealer's financing numbers were true and correct, what he really wanted was my dated but still trusty HP-12C. He just didn't want to put it that way, and besides, he knows how I feel about my HP calculator collection. I'd sooner loan out my shoes.

Anyway, when I wasn't busy bringing the salesman's compound-interest calculations back to reality, I entertained myself by fooling around with the calculator's interest functions, which can be useful when you want to, say, figure out how much a gallon of gas might cost in 20 years. This method isn't entirely reliable, of course. It doesn't take into account the many complexities of modern economics, and in fact is little more than a vulgar approximation of the runaway inflation that plagues us. Still, it's interesting to see what shows up in the calculator's display, although disturbing may be a better word.

For example, say a gallon of gas sold for 35 cents in 1970. That's 37 years in the past, so we plug in 37 for the n variable. I decided to use 6% for the interest rate, so we plug 6 into the i variable. Since we're using 35 cents as the present value, .35 is plugged in for the present value, or PV. Future value is what we're after, so now it's simply a matter of pressing that little FV key, and out pops $3.02. This isn't all that far off in many parts of the country; in fact, around here a gallon of gas is hovering very near $3.00 a gallon right now. So, using the same method—and sticking with that 6% inflation number—what might we expect in 20 years? An insomnia-inducing $9.69 for a gallon of gas, that's what. Obviously, a lot can happen in 20 years, but we're just fooling around with a calculator here.

What about a pack of smokes in 1970? Somewhere around 40 cents, I think, and using the same method as before, today's pack would cost $3.45. That's low in some places and probably high in others, but again, almost exactly right for these parts. Add 20 years, and you get $11.06 per pack. It's enough to make you cough.

How about a Ford Mustang in 1965? Legend has it that a new one of those was $2,368 at the time, which would be $27,367 in 2007. Here again, that's either low or high depending on where you live and what sort of car you have your eye on, but not completely outside the realm of reason, either. Looking 20 years into the future the new car is $87,767, and that's probably optimistic.

I happen to know someone who paid the now-absurd sum of $15,000 for a house in 1968, which my handy calculator thinks would translate to $145,552 in 2007. I also happen to know what the county clerk thinks the place is worth today, and the two numbers are pretty close. According to one Web site I happened upon, the average home cost $26,600 in 1970, which the calculator tells me would be $229,720 today. Again, not too far off, at least here in the heartland.

The same site claims a gallon of milk sold for $1.15 in 1970, which would now be the equivalent of $9.93 to my calculator's way of thinking. Fortunately, this method doesn't work well with milk, among other things. I didn't have an income—or a household for that matter—in 1970, but if that median household income figure of $8,734 is right, today's equivalent would be $75,428, and that's just to stay even.

As we know, the prices of certain technology products—computer stuff, for example—haven't been going up, but have dropped instead. Making our 6% rate negative, that $800 printer I remember from 1990 would now sell for $279, a price I can easily believe. A $3,000 state-of-the-art laptop from the same year would cost $1,048 in 2007. Although this figure is unlikely to get you a new upper-tier notebook computer today, it probably isn't far off the mark for a basic—but still very usable—desktop system.

At any rate, if you're graduating from high school this year (you know who you are) and find yourself doubting the need for a college education, you may want to think about today's prices for this and that, versus how they might look in the future. There's more to a good education than just making a buck, but on the other hand, eating is good, too.