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Thursday, March 05, 2009

The economic problem with consumption...

is that many products we have nowadays are actually quite good. A decently maintained car in a friendly climate can last 15 years or more. A modern PC can be used until it physically fails; unless you're a hard core gamer, you don't need to upgrade a PC every couple of years or so like we did in the 1990s. And many people can get away with cheap, micro-things like netbooks or tiny PC thingies that cost $300 or less.

Clothes are cheap, shoes are high quality, and all this stuff can last quite a long time if it's maintained.

So, many people can easily live "out of inventory" for several years before needing to buy much of anything beyond consumables.

This is why the "stimulus" won't do much; people will just save it. Even trying to loosen up consumer credit won't help much; the last thing any sane person wants to do now is go out and buy a new car on credit or go on a credit-card-powered shopping spree.

The US savings rate is up to 5% and rising, from near-zero in the middle of last year. I suspect most of this is non-savers paying down debt (which looks like economic savings), although many congenital savers are also saving even more.

Anyway, the Great Deleveraging continues, and will likely go on for a long time.

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