Peak Stuff and Slow Growth
“Peak Stuff” and Slow Growth
Central banks can’t create end-user demand. If they could, the American economy would be growing rapidly. Instead, there is a savings glut even though savers get almost no interest on their savings. You would expect lower interest rates to make savings less attractive, but the opposite seems to have happened. The Fed intended to boost spending and encourage economic growth by using low rates to drive money out of savings; instead we have more saving and slow economic growth. Is there a reasonable explanation?
Various reasons have been suggested:
1. An aging population tends to save and the current population of aging baby boomers is less inclined to spend than save.
2. The contentious political situation makes people uncomfortable and less confident about the future.
3. The concentration of wealth in fewer people tends to slow growth because poor people spend a larger portion of their wealth while richer people tend to save more.
4. People saving to provide income in their retirement understand that they will need a larger nest egg to meet their goals if interest rates are low so they tend to save more.
These may all play a role, but I want to suggest another option: there is not much that people want to buy. Demand requires two elements: the product that is the object of human desires, and the humans with those desires. There are plenty of people, more all the time, and they always want things. That is not the problem. Demand increases when people want more things, especially new things that they don’t already have. What are the hot new products that people want to buy? Can you think of one major product or product category that is available and eagerly sought by people?
When the television first came out, it would have fit that description. It was new, exciting, and readily available at the local department store. But not everyone could afford them. In my neighborhood, only the wealthiest families had them at first. I’m sure the same thing was true of when automobiles first came out. Radios were at one time so revolutionary that the 1930 U.S. census asked each home to report on whether or not they owned a “Radio Set”. More recently, cell phones and flat screen TVs were in high demand but now almost everyone who wants one has one.
Is it possible that there is just nothing new and exciting to buy? Perhaps we are only in a normal trough in the cycle of product innovation. If that is true, it could be good news because it shows that there is probably nothing structural wrong with the economy and the correction may be just an innovation away. Also, if true, it means that government stimulation is somewhat misplaced and perhaps ineffective.
IKEA executive Steve Howard recently suggested that we may have hit “Peak Stuff.” Just how many candle holders does someone need? He is suggesting the broad trend of increasing consumption that was seen in the 20th century may be slowing. Maybe everyone bought all they need and there is nothing else for them to buy that they really want. So, if people in general have what they want or can buy it easily and inexpensively, a slow-growth economy should not be a shock.
My observation is that this is not a problem but actually a sign of prosperity, abundance, and the affordability of many products due to the maturity of the product innovation cycle. It is normal for a new product to be expensive when first introduced and to be affordable only to the wealthier people. My favorite example is the ball point pen. Now, they are so inexpensive that banks no longer chain them to the counter to keep them from being stolen. The chains are more expensive than the pens and nobody would bother to steal a ball point pen, anyway. The banks put their logo on them and give them away as advertising. The early commercial ball point pens sold for $12.50 each at high-end department stores back in 1945, and that was a lot of money back then. They were a prestige item. This cycle still holds for some new products. The Tesla for example, is an expensive status symbol now, but future models will appeal to the mass market.
It is hard to complain about slow growth when the cause of that slow growth is that people already have most of their needs met. When even homeless people have cell phones, how bad can things really be? The economic measure should be prosperity, not growth. If you have achieved prosperity there is no need or value in further growth. Prosperity is a more subtle concept; harder to define and less objective to measure but perhaps more valuable than growth.
For a global explanation of “Peak Stuff” I suggest we consider the impact of the Internet. The Internet was such a sudden change that it made almost everything available to almost everyone anywhere with easy access and lower costs. Mediated by sites like Amazon and eBay, individuals could buy products from other individuals easily and quickly. This resulted in such a rush of commerce that unmet desires that had stacked up for years were suddenly met. This shortened the product innovation cycle by getting new products to mass markets more quickly than ever. We are now in the aftermath of this explosion of commerce enabled by one of the most important advances since the invention of writing. The large wave has passed and we are in the trough.
The Internet is the most recent of a long list of major innovations that have enabled the improvement of life for humans. Here is my list:
• Taming fire
• Written language
• The steam engine
• The internal combustion engine
• The semiconductor
• The Internet
Each of these major innovations enabled waves of new products that people wanted and eventually acquired. Each presented splendid investment opportunities for those who were able to accurately foresee where value would be created.
If the Internet has made commerce so efficient that we are at “Peak Stuff,” where do we invest? Certainly not the stuff purveyors. This innovation trough will end eventually and there will be new highly desirable product offerings. My best guess is to look to the medical field; a universal cure for cancer based on immunotherapy would be an irresistible product.