Do we still live in a material world?
Photo: Brocken Inaglory. Source: Wikipedia
Not so much. Think about how we buy stuff: Americans are famous for “retail therapy.” When the going gets tough, the tough go shopping. That’s why we have so many malls. Only, with Amazon, we don’t need to go to the mall. There’s no need to schlep to the store: retail therapy is just a click away. Or think about lawyers: law firms used to need 1200 square feet of storage space for every lawyer for all the paper they would generate. Now, it’s half that much. And their paralegals have been replaced by search engines and algorithms.
Even computers themselves have become less resource intensive. Thirty years ago mainframes occupied entire building wings; they needed liquid nitrogen cooling units to keep them from overheating. In graduate school, I worked as a night-shift security guard where one of my principle tasks was to make sure the computer room stayed within a narrow climate-controlled range, with just the right temperature and humidity. Now, we carry the equivalent of a 1980s-era Cray supercomputer in our handbags and pockets.
This process has been going on for a long time. Almost 100 years ago, R. Buckminster Fuller observed that the economy was undergoing what he called “ephemeralization,” or doing more and more with less and less until you can do everything with nothing. In the 1920s, he saw how Henry Ford’s assembly line could lead to better products at lower cost. In the 1970s, the Club of Rome predicted ecological and economic disaster as global over-population led to resource shortages. But we don’t need as much now. Between 1977 and 2001, the weight of all the raw material needed to meet US consumption fell by 8% even though our population grew by 20%.
Ford magneto assembly line, c. 1913. Public domain. Source: Wikipedia
Dematerialization is one reason why interest rates are so low. When you need less stuff, there’s not as much inflationary pressure that comes from getting that stuff. The virtual economy is still an economy – operating within the laws of supply and demand. But the shortages, surpluses, and surprises are all new. The “new normal” isn’t normal at all.
Douglas R. Tengdin, CFA