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. (Emphasis mine. L.S.)
