The Consumer Price Index and Government Statistics
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The Consumer Price Index and Government Statistics
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CASE STUDY The three career home run leaders are Barry Bonds (762 career home runs at the end of the 2007 season), Hank Aaron (755 career home runs), and Babe Ruth (714 career home runs). In Chapter 12, we compared the careers of these sluggers using the five-number summary and boxplots. We pay for what we value, so another way to compare these players is by their salaries. Bonds’s highest salary was $22,000,000 in 2005. Aaron’s highest salary was $250,000 in 1976. And Ruth’s highest salary was $80,000 in 1931.
Bonds’s highest salary is by far the largest. Does this mean he is clearly the best of the three? We know that a dollar in 1931 bought a lot more than a dollar in 1976, and both bought more than a dollar in 2005. Maybe in terms of buying power, Aaron’s or Ruth’s salary is highest.
In this chapter, we discuss methods for comparing the buying power of the dollar across different years. By the end of this chapter, you will be able to determine whether Bonds, Aaron, or Ruth had the highest salary in terms of buying power.
We all notice the high salaries paid to professional athletes. In Major League Baseball, for example, the mean salary rose from $329,408 in 1984 to $3,386,212 in 2015. That’s a big jump. Not as big as it first appears, however. A dollar in 2015 did not buy as much as a dollar in 1984, so 1984 salaries cannot be directly compared with 2015 salaries. The hard fact that the dollar has steadily lost buying power over time means that we must make an adjustment whenever we compare dollar values from different years. The adjustment is easy. What is not easy is measuring the changing buying power of the dollar. The government’s Consumer Price Index (CPI) is the tool we need.