The U.S. economy has grown so much during that period that people now are still buying more physical stuff than they did in 1950. Still, there are signs of a plateau.
Pointer from Tyler Cowen.
This follows a chart showing that the share of consumer spending going to goods has dropped from 60 percent in 1950 to 30 percent today.
One of the many reasons that the U.S. is not going to go back to the economy of the 1950s is that physical goods are less important to people now than they were then.
Cars last longer than they used to, so we can buy fewer cars and still have more cars.
I’m tired of the “in your face” immigration shaming on the part of nations, and now the pictures of the drowned Syrian boy in the surf. But this is only the beginning of what we can expect, when nations relied for so long on traditional production to fund services, instead of finding ways for important knowledge based services formation to become a direct source of wealth in its own right. Does anyone think services production can really continue growing under these circumstance, as traditional production declines? Now, human capital has been needlessly been made less worthy than it could have been, and no nation wants immigrants from any nation, as a result.
As I said before,Actually we make tons of stuff, (FED series) right here in the US despite all the outsourcing, and more than any period before the last decade, and we’ve recovered almost near the peak before the recession. Does it make sense to say physical goods are less important to people when real consumption per capita of those items is near all-time highs?
It’s just that technological innovations have increased the average labor productivity in that sector by an order of magnitude in the Post-War era – a real and continuing industrial revolution – and so we only need a shrinking portion of the domestic and global workforce to produce all that stuff. And since the labor component – one of the major input costs – is shrinking, the stuff also gets cheaper in real, (and quality-adjusted) terms.
But if you solve for equilibrium, it means an increasingly portion of the labor force must shift into the fields with slower rates of labor productivity growth, which just means that more and more people are performing Baumol-Cost-Disease services that can’t be augmented by addition capital, and by necessity, not because these services are ‘more important’.
Again, the analogy is to agriculture. When agricultural labor productivity began to skyrocket, the labor force couldn’t stay in agriculture with everyone producing lots more food for everyone else. And food isn’t less important by any means unless you mean it in some marginal sense – people are consuming more agricultural resources per capita than ever on average. It’s just that you only need a tiny fraction of the labor force to make it all, so everyone else has to find something else to do. Well, now that’s happened with manufacturing too.
One key difference is that manufacturing is also the capital-producing sector. Commodities are delivered in a just-in-time fashion without significant stores, and services tend to be expendable or depreciate very rapidly. But manufacturing can make either end-consumer items or more durable capital.
So, if the labor productivity of producing more capital goes way, way up, and more and more people are doing service jobs that can’t be profitably augmented with more capital, the demand for capital falls, the marginal product of capital falls, and the real interest rate will approach the depreciation rate, which also tends to get lower as technical innovation increases durability. Compare historical depreciation rates of some commercial vehicles and you’ll see this decreasing trend.
This model is consistent with many of the economic trends and phenomena over which most of the mainstream has been puzzling for the last decade.