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Home > Blogs > Anthony Harrington > Redefining consumption in the new normal

Redefining consumption in the new normal

Future generation | Redefining consumption in the new normal Anthony Harrington

These thoughts on future consumption and consumer behaviours were prompted by Jason Hsu’s piece, 'The 3D Hurricane and the New Normal', cited in John Mauldin’s  28 June 2011 “Out the Box” missive – itself perhaps the most potent-free source or portal to excellent pieces of analysis to be found anywhere.

Hsu’s 3D Hurricane heading for the shores of an advanced economy near you is made up of the triple whammy of government deficits, public and private debt and the adverse demographics in advanced economies – his 3 “Ds”. On the latter point, demographics, Hsu points out that we are heading towards a state of affairs in advanced economies in general, and in the US in particular, where, by 2025 (the peak in the baby boomer retirement cycle) there will be ten people retiring for every one fresh-faced young worker entering the economy. The ratio of those in work to those on retirement will have shifted from 5.3:1 in 1970, to below 2:1 by 2050.

What this means is that no one in the generations of workers succeeding the baby boomers is going to be in a position to vote themselves health benefits and state pension benefits that are in any way comparable to that which the baby boomers have managed to secure for themselves. In Hsu’s words: “... as scientifically as one can put it – the Boomers have screwed Generation X”.

Growth of Asia markets?

We have to add to this analysis the point made by Bruce Stout in his QFINANCE Viewpoint 'The Final Decoupling Is Going to Be a Painful Wake-Up Call for the West', namely that emerging economies, fuelled by youth, growth and plenty of surplus cash (courtesy of Western overconsumption), are bound to reach a point where they redeploy their surplus in internal investments instead of in funding advanced market debt. Then what Hsu and Stout sketch out for us are decades to come in which consumption in the advanced economies is going to be at a much lower level than it is today. Since, today, we equate high consumption with a high standard of living, the corollary seems to be that it will be Asia and Latin America that will be living high on the hog while the west declines into relative poverty. The wheel will have turned and those on the top will be those on the bottom...

Do I believe that Asia will become hugely more prosperous? Certainly. Does it follow that the West must “decline”? If it does, I’ve yet to hear the argument stated in a compelling way. Sure, there is debt enough to sink just about anything, but hey, unlike the Titanic, countries tend to bob back up again. Look at Russia and Argentina, both big defaulters and now doing very nicely – and borrowing freely from the international capital markets, default forgiven. And yes, future generations are going to have to work longer. But then, they are going to live longer - possibly, even probably, a great deal longer than is “normal” today. That changes, or possibly even erases, the notion of retirement, which wipes out the pensions debate and the mountain of debt that goes along with it.

Moreover, the world is changing around those “future generations” in far more fundamental and amazing ways than can be caught simply by comparing emerging market and developed market demographics and GDP league tables. Astonishing advances are being made every day in the biosciences. And in technology, Moore’s Law, which in 1965 predicted that computer processing power would double every 18 months, is still holding good. Intel now crams almost a billion transistors into its latest 216mm-squared chip. Moreover, and probably more importantly, the chips continue to get smaller and to require less power as the technology shrinks into the nanosphere. Which brings me to my next point. Technology changes reality by changing the world we know. That calls forth new skills and new innovations and it is by no means clear that these skills and innovations need be emerging-market or developed-market specific. Entrepreneurs are where you find them.

Brave New Cloud

We’re still trailing 1970s notions of affluence as conspicuous consumption around with us as far as an economist’s definition of “a high standard of living” is concerned. Today’s youth – and the rest of us - use mobile devices, variously configured as phones, music players, cameras, browsers and social media tools to shape and craft a huge variety of lifestyles at relatively low cost. Of course, if someone uses an iPhone to organize a party on their or their parents’ yacht, then we’re in conspicuous consumption territory, and that might be a place that many in the west can kiss goodbye to in the years of austerity ahead. But they are highly likely to still have access to a rich media stream at near zero cost that would have been an Aladdin’s Cave of Treasures to someone from the 1960s.

Cloud computing looks likely to develop into something approaching utility computing over the next twenty years, to the point where a small monthly fee will buy you access to the entire digital universe at whatever speed you need. This will transform how we work and what we work at, as well as how we play and “consume”. Will we still buy newspapers, books, movies and music, or will we subscribe to a service that provides “all you want of whatever you want” at the price of a current tube ticket between two central London stations? We’re already nearly three quarters of the way there.

And in the non-digital universe it seems clear that concerns over global warming are pushing societies into adopting simpler, less cash intensive modes – more cycling and walking and less driving, for example. In Aldous Huxley’s Brave New World, no new hobby or sport could be introduced if it did not increase consumption. Fortunately, the West seems to be moving in the diametrically opposite direction to that envisaged by Huxley, towards things that promote well being but cost not very much. The jury is still out, but advanced economies may well have a hand or two left to deal before they cash out...

Further reading on demographics, western consumption and advanced economies in the future:


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