Interesting chart via statista measuring the cost of one hour of light through ages.
We find it relevant today as there is much confusion over the concept of deflation and inflation. It appears many can’t distinguish between the difference between deflation and a relative price change.
Sometimes, in the heat of a policy making moment, it isn’t easy.
The costs for the production of light, one of the most important enablers of progress, have dropped in a way that is hardly imaginable. The environmental economists Roger Fouquet and Peter Pearson have retraced this development for England.
One hour of light (referred to as the quantity of light shed by a 100 watt bulb in one hour) cost 3200 times as much in 1800 in England than it does today, amounting to 130 euros back then (or a little more than 150 dollars). In 1900, it still cost 4 euros (close to 5 dollars). In the year 2000, we arrived at a cost of 4 euro cents (5 U.S. cents).
You can also put this into relation with the amount of time that an average worker needed to labor during different ages in order to earn enough for the 100 watt bulb to glow for an hour – just like the economist William Nordhaus has done in one of his classic essays.
The people of Babylon, in 1750 B.C., who used sesame oil to light the lamps, had to work for 400 hours to produce the said amount of light. Around 1800, using talcum candles, 50 hours needed to be invested. Using a gas lamp in the late 19th century, 3 hours were due. Using an energy saving bulb today, you will have to work for the blink of an eye – a second. – statista
Stocks And Oil Price
There was a period a year or two ago that the stock market would move tick for tick with the price of crude oil on the perception lower prices signaled declining global aggregate demand and thus deflation and recession. No worries today as the oil price moves are chalked up to supply, driven, mainly, by technological change. That is a secular decline in the relative price of crude oil.
ECB Monetary Policy As Oil Prices
The European Central Bank (ECB) monetary policy seems to driven by the price of oil, concluding that price declines are deflationary. We believe this is flawed analysis as Europe imports most of their oil and a decline in the oil price is a relative price change and stimulative as real incomes rise.
The Europeans are going to someday pay a hefty price of the ECB’s flawed logic.
It used to be true in the U.S. before the country became a major oil producer. Now a decline in the price of oil is a bit more ambiguous. It is expansionary or contractionary?
It will be interesting as history looks back on this period to see what we got right and wrong about distinguishing the differences between a generalized price deflation/inflation and a change in relative prices.
We suspect a lot!