Perhaps a hundred years ago, neither demand nor supply was particularly great. People mostly lived in a rural setting, not in cities, and there weren't any mass-produced goods. People saved their money until they had enough for a purchase, and then they went and bought what they were after.
One of the first notables of mass production was the Model T automobile, which was targetted specifically for the common man. It sold initially at a third and later a tenth of the price of the competitors. The price of a car dropped hugely, so demand increased hugely. That's how Henry Ford made his money. By applying the simple law of supply and demand. By the way, when you bought a Model T, you paid cash.
Demand is a funny thing, however. If a family doubles its income it wins greatly. It can buy twice the goods that it could before. And it can buy more expensive luxury items that weren't within reach before. All the other families are ensuring that prices on regular items remain low because they won't pay more. They don't have more money, so they won't pay more.
But what happens when more and more families see what that first family did? They figure out how to double their income too. They want those luxury items too. Pretty soon, lots and lots of people have doubled their income and are buying luxury items right and left. Interestingly, they're also willing to pay a little more for the basics. Vendors sell milk for a penny or two more per carton. Families aren't thrilled about it, but they pay it because they have the extra money. They might cut back on some of the luxuries, but that's not a great sacrifice.
So prices are going up. What about the families that didn't double their income? They have to pay the higher prices too. Their budgets get tighter. Any luxuries that they might have enjoyed are quickly being eaten up by those higher prices. There is pressure to find more income.
Meanwhile, the double-income families are busy enjoying luxuries. In fact, so many people are enjoying certain luxuries that those luxuries are becoming ubiquitous. They're everywhere. People are starting to assume that other people have those luxuries. The Model T is the perfect example of this. What started out as a luxury, permitting enjoyable day trips to see new places eventually became a mandatory part of American life. The vast majority of Americans assume that they are going to own a car. That's because all of American society has adapted to the existence of that luxury. It is a necessity.
A college education is becoming a necessity. Advanced health care is becoming a necessity. These are not things that we get for free, and they make demands on our incomes.
Families with double incomes are the norm now. Two working adults is typical, though there are still plenty of families with just one working adult. They are frequently challenged to provide all the necessities for their family - both the traditional necessities of food, shelter and clothing as well as the more recent 'necessities' of cars, advanced education, insurance, health care and so much more.
Automation and mass production have certainly done their part to drive down prices. Some necessities and even luxuries are available in greater abundance than ever before. But with the advent of new necessities and the trend in society to get ahead of the pack by having more available cash, the pressure remains on the income laggards.
Note that the laggards are the ones that are unwilling or unable to have two adults working. Or are unwilling or unable to take other steps to bring in more income. One such step is the use of credit cards.
A credit card is a means of buying things on credit. That is, taking out a loan. The buyer borrows money from a lender and pays it back over time, plus interest. The statistics on credit cards are astonishing.
- 80% of households have at least one credit card
- 60% of credit card holders carry a balance from month to month
- $10,000 is the average debt for households that carry balances from month to month
Credit cards enter the discussion at this point because it is another means of adding to the available income of a household. Take a loan, buy things, then pay the minimum payment each month.
But not everyone is using credit cards to add to their purchasing power. Twenty percent of the population doesn't use credit cards, and a further 32% of the population doesn't carry a balance. That still means that nearly half the population carries a credit card balance. They are willing to pay for things with money that they don't even have! Given the laws of supply and demand, they are artificially increasing demand, which is going to result in higher prices. If not higher prices, then a continued shift of luxuries to necessities.
All of this is applying constant pressure on American families to find income so that they can operate in the resulting society. The lower income a family is, the more they rely on credit cards to permit them to make purchases. What they're buying is up for debate, but remember that yesterday's luxuries are today's necessities. Can a family operate today without cell phones, computers and cable television? Having them provides a competitive advantage in our society. Lacking them means more work for that family to be contacted by their employer, prepare information for school or work, etc.
Now set the clock back again to the days of people paying cash for everything, including cars. If the only way that people could buy a car was if they had the cash in hand, do you think that automobile manufacturers could charge the prices that they do? Would all cars be equipped with so many bells and whistles, or would cars be available that were stripped down to the necessities?
Ultimately, our society is pushing ever harder to get ahead of the curve. Unfortunately, that just pushes the curve farther and farther in the direction of luxuries. We call this "improving the standard of living", yet the means of accomplishing it involves having two adults per family working, buying necessities on credit, and now we're to the point where college students have credit card debt - and children are starting to carry credit cards.
Now go beyond the individual and look at government actions. Each time the government subsidizes an industry by giving money to citizens, the net result is going to be either price inflation or a shift of more luxuries into the perception of necessities. Once that happens, the government program becomes a necessity. To take it away would mean the loss of apparent necessities, and people will not stand for that.
The root of all of this is a demand for a better standard of life at any cost. Too few Americans have a sense of denying themselves any luxury. "Living within one's means" is a dying ethic, to be replaced by "Just Do It". Those who attempt to live within their means are finding that their necessities are creeping ever farther and farther afield, demanding that they pay more money, either for their original necessities, or for new ones.
Take some time to think about what you really need versus what you just want. Each time you indulge yourself with a want, you are making things just that much more costly. Should we stop all advances in medicine, electronics and other areas of progress? Certainly not. There is a question of appropriate pace, however, and if the pace is too great, families will be left behind, stretching the fabric of society, and ultimately producing a tear when the pressure becomes too great.
Revolutions are born of tears in the fabric of society. I'd rather have a peaceful evolution of society than be able to watch television on my cell phone. Assuming I could remember where I left it.
