Monday, September 2, 2013

Pent up demand

An important economic term because it represents a potential economic energy, the idea that consumers being denied their usual goods will pay a bit extra when they come onto the market.

Keynesians need a source of potential energy because they tell their constituents that an upswing is inevitable (they think in terms of cycles). But we have been at equilibrium for 5 years, GDP growth at 2.3% on average, and well bounded.  At least four major investment cycles have occurred (smart phone, fracking, emerging market investing, and Obamacare). That is a lot of movement in which prices would have adjusted. In other words, the Keynesian moment is gone, but the Keynesian want to hang on.

Here is a test. In a turbulent world how long can a consumer stay addicted to a good he has not seen for five years? Some addiction! A meth addict can be locked away from meth for five years, and at the end of five years be clean and barely at risk.  Meth is the most addictive drug around (next to nicotine and heroin), yet it is difficult to maintain the addiction when the drug is withdrawn for five years.  Yet Kenyesians think the average consumer is more addicted to goods from five years ago? No way.

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