In the 1999 Austin Powers film that spoofs the James Bond franchise, the cliché villain Dr Evil plans at first to extort $1 million from the world’s nations.
In the 1999 Austin Powers film that spoofs the James Bond franchise, the cliché villain Dr Evil plans at first to extort $1 million from the world’s nations.
Dr Evil has woken after being frozen in 1967 along with Bond-style hero Austin Powers for 30 years. He soon asks for $100 billion, which seems a fairer price to avert world disaster.
However, US consumer price inflation hasn’t been as dramatic as Dr Evil’s upward adjustment of his extortion demand suggests. One US dollar in 1967 was worth around $5 thirty years later, so if Dr Evil simply adjusted his demand using the US consumer price index, he would have asked for $5m.
By contrast, in the 1995 Steven Seagal movie Under Siege 2: Dark Territory, the villain demands from anti-US countries a mere $1bn to destroy the White House.
I was surprised at this. The countries that wish the US ill could surely come up with more than that. I feel the $100bn figure Dr Evil supposedly demanded in 1997 a much more likely figure for a Bond-film-type villain.
What this shows is not only that film plots are full of holes, but how inflation in the prices of assets in the last part of the 20th century has been much greater in the US and elsewhere than consumer-price inflation.
To take share prices on the New York Stock Exchange as an example, for the period between mid-1967 and mid-1997, the Dow Jones Industrial Average, one of the key measures of share price performance, rose by almost nine times. The inflation rate, remember, was five times for the equivalent period.
The Dow Jones on August 9 this year was around 1 700% higher than in 1967, almost three times the consumer price inflation rate over that period. And we have had several financial crises in the meantime, including the global financial crisis of 2008-2009.
US house prices, whose inflated bubble was at the heart of that crisis, have not been as resilient.
The benchmark S&P Case-Shiller 20-City Home Price Index rose from the base year figure of 100 in the year 2000 to more than 200 a mere six years later. It started a steep slide in 2007 towards the 140 level it hit 2009, and it has bumped along that level until its recent slow climb.
What sent me on this journey of investigating relative prices in the world’s biggest and most important economy was not the sight recently of US troops in the heart of Grahamstown, but the record price of a three-bedroom 230 square metre penthouse in Holland Street.
At R3.38m or around R15 000 per square metre, the price seemed high to me, given that R2m to R3m can buy you a fair size free-standing home in one of the city’s desirable suburbs.
Someone has the money, however, and one incentive to buy flats and town houses is security. Though it is a record amount for a flat in Grahamstown, on a per-metre basis it costs slightly less than the four 113 square metre two-bedroom flats in the Dewhurst block. The asking price for each of those is around R1.8m.
Whatever you think of the price, it is not indicative of the housing market in the rest of the country, which is recovering modestly from our own home-grown bubble.
Inflation in house prices in South Africa has been more dramatic in some ways than in the US, and in some ways less. Even though there was a sharp correction in house prices nationally, starting in 2004, house prices for decades were far too low. The saying was that either we had the most expensive cars in the world or the cheapest housing.
In retrospect it was both.
The influx of fully assembled vehicles from around the world including China and India has kept car price inflation in check. South African houses are cheap in direct comparison with elsewhere.
In Sydney, Australia, you can get a 40 square metre one-bedroom flat for around R3m. The median house price in Perth is close to R5m.
True, the average salary is higher and mortgage interest rates are lower, but an interesting website called Numbeo informs me that the price to income ratio of residential property in Sydney is more than double that of Johannesburg.
Mind you, a double garage space in Clifton has just gone on sale for R2m. I think even Dr Evil would blanch at extortion like that.
