New Economic Theory: Has the US Economy Maxed Out Its Demand For New Goods?

While doing ‘spring cleaning’ over the past few days, I noticed the material goods that we have accumulated over the past several years (a lot of which we don’t need and is just taking up space). It got me thinking. Has the US economy just simply maxed out its demand for new goods? If you think about it, most people who can positively contribute to the economy pretty much have everything they need and then some.

Compare the wealth, in quantity of material goods, of today’s typical US family with one from the 1970’s. Most people who have a driving license have their own car. Most people have their own PC or laptop. There are multiple TVs in a home. Everyone has their own personal cell phone. Everyone has a digital camera. Everyone has an Ipod or some other mobile music/video device. Most families, who desire to, have their own home. Many have more than one home. People have more clothing and shoes than they know what to do with. The list can go on, just walk around your home for a few minutes.

Several elements have contributed to this phenomenon. These elements are:
-Increased quality of certain goods
-Flood of inexpensive goods from foreign countries
-Easy access to credit
-Rapid increase in technology

First, due to increased competition, the quality of expensive goods has gone up significantly over the past few decades. This has reduced the need for frequent replacements. I have two cars that are 10 years old, and knock on wood, drive just fine and require minimal maintenance. How long would your 1970’s car last before requiring a major repair or replacement? TVs and other electronic devices work forever. My house was recently painted with paint that last 15 years. The roof was redone with shingles that last 25 years. The main reason people get replacement items these days is not that need them, but because they want the bigger and cooler version. Even when they do need to replace something, the replacement will last significantly longer.

Thanks to China and other specific foreign countries, the US market has been completely flooded with inexpensive goods over the past two decades. Anything you need can be obtained for a fraction of the price they could have decades ago. These items are so readily available that people just seem to accumulate more even though they already have perfectly functioning equivalents.

Credit (mainly in the form of credit cards and mortgages) has been so easy to obtain. And at such relatively low interest rates, it has been almost like an addictive drug. People just keep buying more stuff even though they don’t have the actual money on hand (and don’t really need it). The country is more leveraged today than in any time in history. There is evidence that the borrowing trend has gotten to a point that it can no longer be sustained.

The last component behind all of this is technology. Over the past couple of decades due to technological advances, we have been able to do more things faster and cheaper (and with less people) than ever before. And as technology continues to improve, this pace in efficiency is increasing more rapidly and dramatically.

You may ask what all of this has to do with today’s economy. Well, it all appears to have started with the real estate market. Most people, who need a house, now have one. This caused the real estate bubble to burst and ignite the financial crisis we now face. The government has installed fear in us. Collectively, we do not want to get into any further debt. And because we possess most things we need and these items last much longer, we have the luxury to hold off on buying new stuff in these uncertain times. This is causing the domino effect on the rest of the economy.