The economics of stuff, or secular stagnation and cast iron frying pans
Dan here…When in Fort Lauderdale, FL to visit a son and his girlfriend this Christmas, I ran into the phenomenon of ‘lots of stuff’ as they furnished their new apartment. Both real estate turnover and ‘used furniture’ were thriving industries, I assume partly from the turnover of ‘snowbirds’ and younger folk offering services to this older population. (update:typos corrected)
Frances Woolley at Worthwhile Canadian Initiative points us to another look at this idea of the economics of stuff…
This post could have been called, “Secular Stagnation and Cast-Iron Frying Pans”. Secular stagnation is sometimes thought to be caused by an imbalance between savings and business investment. The economics of stuff explains secular stagnation in terms of household investment, that is, investment in consumer durables.
Buying cast-iron frying pans is a form of investment – one that pays dividends for decades in the form of excellent grilled cheese sandwiches. But I already own three cast-iron frying pans – I’m not planning on buying any more for the foreseeable future.
The economics of stuff suggests secular stagnation is due to deficient population growth, as well as population aging. It doesn’t matter how many old people there are, as long as the population is growing, young people will come along who will need to buy stuff. But if there is no net population growth – or if the number of old people exceeds the number of young people – the young no longer need to buy stuff. They can get all the cast-iron frying pans (and furniture and wine glasses and vinyl LPs) they need from old people. Who are happy to get rid of it.
All of what I’ve written here is basically common sense, but it points to two limitations in the micro-foundations of other explanations of secular stagnation. First, because other explanations fail to take into account the limitations of people’s capacity to store stuff, and people’s (irrational) aversion to getting rid of stuff, they fail to predict the extent to which people’s demand for new stuff falls over time. Second, they treat “consumption” as something that lasts one period and then disappears. That’s wrong.
Stuff is messy and hard to deal with. But that’s not an excuse for tossing it out of economic analysis.
Lifted from comments at Worhwhile Canadian Initiative:
rjs says….
How can anyone be happy w/o a cast-iron frypan? Only way to do steak..or lamb chops or soda or potato farls..
2) thru 6) suggest that maybe “lower rates of economic growth” are not necessarily the end of civilization as we know it, but may actually be accompanied by an increase in that elusive observable “contentment”.
Self Storage Association and The Economist add extra information.
The self storage industry in the United States generated more than $24 billion in annual U.S. revenues (2013 – estimate). The industry has been the fastest growing segment of the commercial real estate industry over the last 40 years and has been considered by Wall Street analysts to be “recession resistant” based on its performance since the economic recession of September, 2008. The industry pays more than $3.25 billion each year in local and state property taxes.
The virtue of self-storage, of course, is that it allows you to buy more stuff and then stuff it somewhere where you forget you have it and then buy another of the stuff you stuffed. Such as that extra cast iron frying pan you didn’t need for a long time, and then suddenly there are guests craving more grilled cheese and you vaguely remember you had another pan but you go out and buy one because finding it is too much trouble.
Re: I threw out teflon awhile ago, and actually prefer cast iron for many foods. A set of four!
I would bet that self-storage is more tied to downsizing of ones own space, or dealing with your parent’s possessions after they die, or storing “stuff” in a time of crisis till you can move back into a decent sized dwelling — or just a dwelling. There may be people who buy stuff just to have it and keep it stored away, but i would think they are unusual.
I had to deal with the first two situations over the past couple of years. When my mother passed away, I was left with the oak furniture, ornaments, paintings, and collectables which had survived her own very severe downsizing in the early 2000s, when she sold the family home (thank God, before the downturn pirates struck.) Three generations of family memories, not garage sale items. At about the same time, I sold my own home and severly downsized to a one bedroom duplex. No place for the oak furniture — no place even for my own extensive library. So, her furniture and my books are in storage till I manage to find a larger space. (Next year looks promising – fingers crossed.)
With homelessness and precarious housing so common, is it surprising that so many people pay hundreds a year to hang on to family memories, or the accumulated small treasures and tools of decades of home life?
I wonder, could this decade be the time where not only the wealth, but the family memories of the bottom 50% are swept away? Like refugees fleeing with only their ID papers and a few battered photographs, are we going to become historyless economic refugees?
Noni
I think the storage industry is one that captures customers. It is easy to go for years without it, but once you have it it is hard to give up. Home computers and internet are similar, but as society has changed many people have found it hard not to buy in, whereas it is still considered quite reasonable to sell or donate that oak furniture that does not fit.
Dan, i have to admit that i can’t take credit for that clever comment…mine was the rather mundane comment above it, noting that economic growth aint just ‘stuff’, and that health care was 17.4% of our GDP … the lines in their comment section are misplaced…
so as much as i wish i’d cited the importance of cast iron frying pans for good eating, it wasn’t me…
Selling — well, it’s a buyers market right now even for 120 year old oak furniture. As for donating, guess what? I could have donated a lot of the good, usable but not treasured items, but the charity wanted to charge me to pick it up.
One thing increasing the lack of demand right now, so destructive to the economy, is probably the glut of used goods taking the place of new items. Thrift shops and charity stores are chock full of older people’s middle aged children shopping for downsized goods. I suppose you could view that as some kind of inheritance…
Noni
Dan: 3 typos in “Francis Wooley at Worhwhile Canadian Initiative”
Frances with an e. (Francis with an i is a boy’s name.) Two l’s in Woolley. And Worthwhile.
Thanks 😉
Oh boy…thanks Nick. Corrections made.
Noni: It is not so clear that the glut of used goods is a bad thing. Eventually, we will have to have an economy which minimizes our exploitation of our limited environment, and used goods, such as cast iron frying pans, are capital. The failure to maximize the investment in renewable resources is the true tragedy.
Lack of demand, per se, is not destructive of the economy, but demand’s over concentration among the wealthy, due to wealth’s maldistribution, is. A low demand economy on limited resources is in fact what we should strive for.
Actually, it is inevitable that we will ‘achieve’ this, but our eventual prosperity will depend on how well we are able to capitalize renewables, since any non-rewewables we depend on, or any renewable resources we consume at a rate faster than they are able to be renewed, will run out.
Rjs
this is a personal reply to a comment of yours to me several days ago:
i do not have the same phobia about “hijacking” as some people at AB do. conversations lead where they will. please feel free to go “off topic” on one of “my” threads any time it seems interesting to you.
i do regret that oil futures was more interesting to the other visitors than the abolishment of retirement security by the Congress.
As for “stuff”, I am with those who think we can have a viable and pleasant economy without neurotic consumption. But based on what I have seen, I don’t think we will get there from here.
gotcha, Dale…i’ll respond on today’s open thread lest i be accused of taking this one off topic as well..