What's the real value of your dollar

February 6, 2017

 

 

"Not much if you spend it on Guam, where it’s worth two quarters and a nickel"

 

How far will your dollar stretch? It depends on where you live. It can go quite far if you live in Mississippi, where the cost of living is the lowest of any state and a dollar is worth $1.15. Among the 50 states, Hawaii is considered to be the most expensive state, where a dollar is worth $0.86. But still, Hawaii’s dollar is not as shrunken as that of Guam, where George Washington’s purchasing power is pegged at $0.55, making the territory doubly more expensive than the rest of the states.

 

According to the Bureau of Statistics and Plan’s CPI update released on Jan. 18, Guam’s price level generally increased by an average of 7.1 percent in 2016 as compared to 2015. The significant decrease in food prices — which dropped by 36.7 percent— was offset by the new rates implemented by the Guam Memorial Hospital, which posted a 42.4 percent increase. Also contributing to the price hikes is the transportation group, which shows an increase of 6.0 percent when compared to the same period one year earlier. New car prices increased 7.1 percent and when compared to the same period one year earlier. Motor Fuel prices increased 2.7 percent when compared to the same period one year earlier.

 

The worth of dollar on Guam has continuously plunged since 2008, when it was $0.67 compared to its 1996 value. The cost of living on Guam has consistently spiraled in the past 10 years.

 

There was apparently an opposite trend in the mainland, where the value of a dollar increased in every state in the five years through 2013. “While this may sound positive, the reasons for the higher dollar value were mostly related to the housing crash. The states with the largest increases in the value of a dollar also had among the largest median home price drops between 2008 and 2013,” Thomas C. Frokich and Steven Peters, of 24/7 Wall St., wrote in a May 2016 blog post.

 

“California for example, where one dollar is worth just $0.89, the median home value dropped by more than 20% over that period. Because Americans spend far more on housing than on goods and services, the housing market collapse meant that component declined considerably, leaving room for more purchases. While one dollar could therefore buy more than it did before the housing collapse, a number of Americans lost significant amounts of money through the depreciation of their homes.

 

Alan Cole, an economist at the Tax Foundation, noted that, generally, states with higher nominal incomes also have higher price levels. “This is because there is a relationship between the two: in places with higher incomes, the prices of finite resources like land get bid up,” he wrote.

 

However, he said the causation also runs in the opposite direction. “Places with high costs of living pay higher salaries for the same jobs. This is what labor economists call a compensating differential; the higher pay is offered in order to make up for the low purchasing power,” Cole said.

 

Guam’s minimum wage would have been raised from the current $8.25 to $9.20 in May, but Gov. Eddie Calvo vetoed the bill pending analysis on its economic impact.

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