https://www.bloomberg.com/opinion/ar...like-europeans
Americans Need to Learn to Live More Like Europeans
Supply-chain shortages are constraining U.S. consumers' endless appetite for buying whatever they want whenever they want. It's about time.
By Allison Schrager
November 12, 2021, 4:30 AM CST
Allison Schrager is a Bloomberg Opinion columnist. She is a senior fellow at the Manhattan Institute and author of "An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk."
Follow @AllisonSchrager on Twitter
It's become the conventional wisdom that the U.S. economy is built on Americans' endless appetite to buy lots and lots of stuff. Household consumption makes up about 67% of GDP. When the economy falters, we're told spending is our patriotic duty. But suddenly, Americans can’t spend like they used to. Store shelves are emptying, and it can take months to find a car, refrigerator or sofa. If this continues, we may need to learn to do without — and, horrors, live more like the Europeans. That actually might not be a bad thing, because the U.S. economy could be healthier if it were less reliant on consumption.
After all, Americans haven't always acted like this. We've entered an age of overabundance. We consume much more than we used to and more than other countries. Consumption per capita grew about 65% from 1990 to 2015, compared with about 35% growth in Europe. Household consumption makes up only about 50% of GDP in Germany.
American Exceptionalism
Countries' household and non-profit consumption per capita
https://www.bloomberg.com/toaster/v2...ideTitles=true
Source: World Development Indicators
Note: In 2015 dollars
And these numbers reflect big changes in Americans' lifestyle. The average U.S. home was 1,700 square feet in 1980, by 2015 it was 2,000 square feet, even though the number of people in the average household shrank. In 1980, 15% of households didn’t have a TV, now only about 3% don’t. In 2015, 40% of American households had three or more TVs, including 30% of households earning less than $40,000 a year! In 1980, only 13% of households had 2 or more refrigerators, in 2015 30% did — including many low-earning households. Clothing purchases have increased five-fold since 1980 and the average garment will only be worn seven times before it's disposed of.
Our spending habits slowed some during the pandemic but, despite all the shortages, they've come roaring back.
There are many reasons we’ve become a nation of shopaholics. We’ve become a richer country which means we spend more. Many goods have become cheaper and more accessible. That's partly because of technology that makes production more efficient. For shoppers, the Internet makes it easier to find more goods for the best prices without even leaving your home. The other big factor is we get more stuff from abroad, imports of goods and services as a share of GDP has nearly doubled since the 1980s. Lots of trade has been with countries like China and Mexico who have lower labor costs. Even American-made goods use parts that come from abroad. We experienced the vulnerabilities of a global supply chain in the last few years, but when it does work (most of the time) it means the U.S. can fully exploit the comparative advantages of trade and provide goods more efficiently, faster and for less money.
The pandemic revealed vulnerabilities of this hyper-efficient global market. Ports are backed up causing shortages — for the first time in many Americans’ lives. The odds are that eventually the port issues will be resolved (we hope). But there are reasons to believe the age of over-abundance is over. Even before the pandemic the U.S. government offered more subsidies and imposed more tariffs to encourage companies to produce more goods domestically, and the Biden administration wants to expand the effort to promote resilency. That may mean more goods are made in America, but over the long run less trade tends to mean less variety of goods at higher prices.
Meanwhile, the U.S. economic relationship with China becomes more uncertain each day. If it deteriorates further, that also tilts the U.S. toward less trade and fewer cheap goods. The future of trade is a big unknown, but if we turn inward, Americans won't be able to sustain the same levels of consumption.
Finally, if we are truly serious about protecting the planet, being a good global citizen will take more than driving an electric car or installing solar panels. It means consuming less so that we throw less away. Maybe that means getting by with only one refrigerator or avoiding fast, disposable fashion.
Americans tend to overspend or buy cheap substitutes rather than save up for longer-lasting, better-quality goods. That's a function of the accessibility of cheap goods, of having more space to store our purchases, and also of a culture where buying stuff feeds the empty part of our souls. European souls are not necessarily more fulfilled, they just find other, more eco-friendly ways to shut out the darkness — like going on a long bike ride.
In short, with higher prices, a more eco-conscious population and less trade bringing fewer cheap products, Americans may have to get used to consuming like Europeans. We will certainly not be deprived, but we will trim back our excesses, perhaps be more thoughtful about what we buy and purchase fewer, higher-quality goods.
What would that mean for the U.S. economy? European levels of consumption coexist with lower levels of growth. It feels like our voracious consumption is what fuels the economy. But that needn’t be the case. Long-term, sustainable growth doesn't come from going deep into debt to buy stuff we don't really need. It comes from technology and innovation, where we come up with new products and better ways of doing things. An economy based on consumption is not sustainable.
Tufts University business professor Amar Bhide argues that what’s great and unique about American consumption is openness to new products and new ideas. Historically, America was a nation of early adopters. This, not just volume, has been what has propelled American growth because it creates a vigorous marketplace where new products can find a market, experiment and improve. Buying smart, while maintaining an openness to new things, can be the foundation of a more sustainable and growing economy.
It’s not just toys, tech and turkey that are in short supply this Christmas. Rolex watches will be harder to find too. Luckily for bling seekers, there are other ways to get in on the luxury watch boom.
A combination of lockdown savings, roaring markets (until recently at least), revenge spending and a broader interest in alternative assets has sent demand for the hottest watches far outstripping supply. Waiting lists have gotten longer and prices on the second-hand market are skyrocketing.
Interest in iconic models, such as the Rolex Daytona, the Patek Philippe Nautilus and the Audemars Piguet Royal Oak, is long-standing. There’s also fanfare around the skeletal watches made by Richard Mille, the Rolex Submariner and the GMT-Master II. Among the most hyped recently is the Rolex palm print dial, dubbed the “Weed” in some circles.
Of course, there have always been more buyers than available timepieces. Rolex is estimated to make about 1.1 million watches a year, while Patek Philippe makes about 65,000 and Audemars Piguet about 45,000 — hardly enough to satisfy luxury shoppers.
Perpetual Winner
Rolex dwarfs other Swiss watch brands
https://www.bloomberg.com/toaster/v2...ideTitles=true
Source: Vontobel Equity Research
But interest in watches has exploded over the past two years, as lockdowns led people to funnel money that would have gone to vacations and fine dining into luxury goods instead. The first choice for men was a watch, and many buyers reached for the brands they knew best. Record stock markets and soaring cryptocurrencies have not only brought wealth, but also driven a broader interest in investing in alternative asset classes, whether it’s non-fungible tokens or timepieces.
The mismatch became so great that in September, Rolex SA took the highly unusual step of issuing a statement that scarcity was not a strategy. It simply could not keep up with demand without reducing quality. The group declined to comment further.
Even retailer Watches of Switzerland Group Plc, which had always been able to secure Rolexes for its boutiques in the U.K. and U.S., ran out of stock around July, thanks to demand escalating month over month. It is now working with Rolex on a new concept, where it carries a range of watches for display only. Customers can come in and try the models, including the Submariner and Daytona, which were rarely in stores before, and then register their interest — a bit like in a car showroom.
Watches of Switzerland doesn’t keep waiting lists beyond two years. Lists for the most popular models would otherwise extend well beyond this limit. Anecdotally, there are reports of waits for the Daytona stretching up to 10 years.
Shortages have also driven up prices in the secondary market, populated by operators including Germany’s Chrono24 GmbH, Watchfinder (owned by Cie Financiere Richemont SA) and London’s A Collected Man. The Rolex Daytona, AP Royal Oak and Patek Nautilus can change hands for three to four times their original retail price. Other sought-after Rolexes can trade at two times at least.
In the Money
The value of the most desirable watches has escalated
https://www.bloomberg.com/toaster/v2...ideTitles=true
Source: A Collected Man
Perhaps even more frustrating than not being able to get your hands on one of these models is that the three manufacturers are privately owned, so there are few ways for equity investors to participate in the excitement. One is through Watches of Switzerland, which generates 50% to 60% of its sales from Rolex, AP and Patek. Its shares have almost trebled over the past year.
Surfing the Rolex Wave
Watches of Switzerland is regarded as a proxy for supply constrained brands
https://www.bloomberg.com/toaster/v2...ideTitles=true
Source: Bloomberg
Meanwhile, interest in watches is spreading from the most supply-constrained brands to those owned by the listed players: Swatch Group AG and Richemont.
Omega, owned by Swatch, has a strong following, with the Speedmaster particularly popular in Asia and the latest James Bond Seamaster watch, produced to coincide with the most recent film, also sought-after. Richemont’s Cartier has been relaunching or upgrading some of its classic models over the past five years. The company’s strategy is to keep supply running slightly behind demand, after buying back excess stock in the wake of China’s anti-corruption campaign, which led to a glut of timepieces about five years ago.
Online watch platform A Collected Man, which specializes in independently owned Swiss makers, has also seen interest surge in two other Richemont brands: A. Lange & Sohne and Vacheron Constantin.
The big question is whether the current frenzy, and escalating values, can continue. Recent market jitters and rising prices for many essential goods could mean their time is running out. Pressure on cryptocurrencies would be another challenge. Meanwhile, efforts to curb conspicuous consumption in China could mean less demand for top-end timepieces in the region.
But with the major issue right now being supply constraints, a slowdown in China could mean more to go around in other booming luxury markets, such as the U.S. So if you can get your hands on a Rolex this Christmas, it won’t just give you bragging rights, it’ll be a hedge against common prosperity too.
Americans Need to Learn to Live More Like Europeans
