America’s Waning Stock of Durable Goods

Neat chart from Barry Ritholtz shows that America’s cars and appliances are getting old as households slow the replacement/upgrade cycle of durable goods in response to the bad economic situation. He calls this “a potentially bullish data point” on the grounds that “all of this stuff eventually has to get replaced.”

That’s about right. But it’s also a reminder that waiting for a “natural” economic recovery rather than relying on “artificial” stimulus in the form of fiscal or monetary policy is really just a slow motion version of creating economic growth via the broken windows fallacy. If five percent of America’s cars, fridges, toasters, washing machines, and blenders vanished suddenly tomorrow that would be “good for the economy” in the sense that boosting orders for consumer durable goods would lead to a higher GDP growth rate. But the purpose of having an economy is to make people better off, and you clearly don’t make people better off by destroying their appliances.  

By the same token, even a steep recession will generally come to an end sooner or later. Cars and trucks and buildings and appliances will get old and need to be replaced, in effect raising the “natural rate of interest” and bringing intended savings and desired investment into equilibrium. But this happens by impoverishing the country, just as much as running around smashing windows would.