When is a market NOT a market?

Still from Veggietales "Silly Little Thing Called Love"
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I don't delve into politics here at T&E very often. This blog isn't about that kind of topic. I'm interested in sharing useful information, not stirring up controversy or drawing attention to disagreement. That's why I kept my religious affiliation quiet for so long.

Occasionally, I have written on my strong disagreements with feminism. And I've also written about my preference for cooking with grains other than wheat, corn, and rice--a largely political decision. Today, I am writing about economics.

In theory, prices and markets are driven by supply and demand. The greater the supply, the lower the price. When demand exceeds supply, the price goes up. We all learned about it in school (or homeschool, as the case may be).

But what about artificial demand?

What happens when people spend their money on items they neither use, need, nor desire?

Whenever you have a consumer-oriented culture, you will encounter artificial demand. Also known as wasteful spending.

When I buy something at the grocery store, then allow it to go bad before I use it, I have spent money creating for the store, the supplier, and the producer the illusion of a demand that does not exist. Now, everyone buys things occasionally that weren't what they were cracked up to be or turned out to be the wrong thing. That "margin of error" is part of the overall economy. But a large part of the American economy is made up of unwarranted purchases.

How many people buy exercise equipment in the hopes that it will inspire them to exercise? They never had the motivation to take up jogging before, what makes them thing a treadmill will change anything? Six months later, the treadmill is still in the box, or at best, collecting laundry in the bedroom. That's artificial demand. And the industry that produces that equipment knows it. As long as they can succeed in moving units off the shelves and into our homes, it's called growth.

Back to the food example, according to a recent post at Small Steps On Our Journey, 96 billion pounds of perfectly good food are wasted in the US every year.

I'd be willing to bet that most of that is done at the grocery store level (foods that reach their "use by" date have to be thrown away), but a fair chunk of that also happens in our homes. I know we used to throw away a lot of fruit before I figured out that it needed to be on the dining table if it was going to be eaten. Still, I bought fruit every week, knowing that a lot of it would probably go to waste.

Now, one way to think about that food waste is that it could feed a lot of people who are hungry if it weren't in the land fill.

Here's another way: A lot of food is being bought (either at the wholesale or retail level) for which there is no actual demand. It goes straight from shelf to trash, with an occasional layover in pantry or fridge. That gives entirely the wrong numbers to the wholesalers and producers. The market is larger than it should ever naturally be, because it is so completely saturated.

Then there's the storage industry. Off-site storage rental is a $20+ billion industry in the US. While legal liability and government regulation make it reasonable that some businesses should need off-site storage, and people who have to downsize suddenly, come into an inheritance, move, or move overseas may need storage for varying lengths of time, it does not make sense that the average joe should have so much stuff that he has to rent separate space just to hold it out of sight! This is an entire industry built on the premise that people acquire goods in a wasteful and thoughtless manner.

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What about clothing? If people only bought clothes and shoes they actually wore on a regular basis and to cover the occasions they actually encountered, rather than collecting and chasing after fads, a lot of department stores would probably have to close up shop. The market for designer labels would shrink significantly.

I'm not talking about depriving ourselves, here. I'm talking about covering our needs AND indulging in luxuries we actually enjoy. This article isn't even touching frugality. If you go out and buy a brand new book and actually read it--even if you don't enjoy the book--that is a legitimate demand made on the supply of that book. Buying a book and letting it collect dust is an artificial demand that sends a false impression of the book's popularity. Same goes for music, games, movies, and anything else that can be bought.

If we stopped buying wastefully, it would be a huge shock to the American economy. A lot of businesses (even industries, perhaps) would go under. The prevalence of artificial demand has inflated the size of the economy and created an unreasonable base line from which economists count growth or retraction.

However, taking a broader view, what would such a change accomplish? It would free up untold sums of money to create a more realistic view of the needs and desires of the American consumer. It could allow more people to pay off debt, save, invest, or pursue entrepreneurial activities. While many businesses and industries would suffer significantly in the short term, those that came through the shift would be stronger for the long term. Since their markets would be based on actual demand, their bottom lines would be far less susceptible to fluctuations in the national and global economies. And a lot of that stuff that no longer can find a market in the US could be sent to other markets, creating the opportunity for real growth elsewhere.