Saturday, August 24, 2013


George Carlin, the greatest comedian to have ever lived once famously said Americans are addicted to stuffs and they keep on buying them endlessly - stuffs they don't need, stuffs that they don't want, stuffs that are poorly made, stuffs that they cannot afford. I recently was helping an american friend move to his new house. I was amazed at the stuffs he had that he needed to move. Lots of stuffs. To make it worse - he is moving what in my opinion could easily service at least three families in a normal household to a storage facility because he doesn't need them in his new house. Apparently he has enough stuffs in his new home. When at the storage I did see lot of other people who had their own stuffs and are paying to just keep them. Believe me - lot of stuffs.

Lets take a step back, and see what is the economic cost of the whole thing. Why do people in the US  buy more than the rest of the world? Why do you spend hard earned money on something only to put in a storage later? The answer is simple - because it's cheap. When I say stuffs these are hard assets in the home like Majestically looking sofa sets, huge show-cases made of glassy wood, flat screen television sets, fire places, entertainment systems, multiple carts with beds(twice the number of people at home), tables pretty much of all sizes, out of proportion sized mirrors and all kinds of furnitures that you can possibly imagine. It is amazing  quantity of goods within what is called a persons home. It turned out to be an American consumer zombie - in Carlins own words.

Almost all these items are manufactured abroad, most of them in Asia particularly China. They are being put in containers and shipped across the planet and stocked up in every store across the developed economies. Lot of resources such as wood, raw materials, labour are used to manufacture them. Americans over years had accumulated the buying power because prices of goods have come down dramatically.   This has created lot of wastage. People do not value their possession as one that involved labour, capital and environment when they appear in market cheap. The people is Asia definitely cannot afford them. Historically they have been savings economy and not a consumption economy. They are either non-affordable or considered luxury. Either way the Asians under consume to feed the western world with their cheap products.

Following are some flaws in the economic model - because stuffs are cheap.

1. Under-utilization, because they can afford a new one always. Apple products are good examples.
2. Degradation to environment for raw materials to sustain the price.
3. Poor labor conditions in places they are manufactured because cost needs to be set low.
4. Need distortion - non essential items become essential items.
5. Market distortion - resources mis-allocated.
6. Products do not run their life time often ending in trash sooner.

Increasing Supply is always good. Prices going down cannot be bad. But there is a problem where we need to determine which segment of the world population really would UTILIZE it better. Consumption in western world has to come down significantly. They are no longer the more productive regions of the world. They import way more than they can produce/export. Mis allocation of resources cannot go on indefinitely. Market tend to allocate better.  It will lead to better utilization of available resources.