The Great Recession: America Becomes Thrift Nation Article in Time.

 

http://www.time.com/time/nation/article/0,8599,1891527,00.html?xid=rss-fullnation-yahoo

If the trend TIME asserts is going to continue and America truly has a culture shift towards thrift, it would mean the conventional models for stimuli to demand will not work and Businesses will have to be innovative with their offerings which will result in further cost benefits for the consumer. Seems very close to the low-level equilibrium trap in which less developed countries find themselves.

For most of the third world at subsistence levels, societies consume exactly what they produce with little left for re-investment. As per capita income rises, the increasing population eats up surplus and forces society to its formal subsistence level. In other words there is no major change in over all living conditions.

Hence the argument for Government spending: the classical Keynesian economics. But is the spending in the right direction? furthermore since this is a Global recession would the disjointed efforts by some Governments produce an economic recovery?

The paradox is that consumer thrift strengthens the same forces which favor out-sourcing and further wage cuts. Global sourcing and integrated value chains have made Business cost agile but would they be able to respond quickly to the American consumer who would now not only need a product which is cheaper but to use it up, wear it out, make it do, do without.

The technology industry has a big role to play in turning around the economy and improving the environment. "Information is the dominant strategic resource in the economy in the 21st century,'' according to former Vice President Al Gore.

This morning (04-17-2009) I heard the outcome of the case on Piratebay.org on BBC. Needless to say information media is a global resource and like everything good eventually gets into someone’s idea of property and hence regulated. So what if the dominant advancement for mankind in the last 2 decades has been information technology…most of the required value to the thrift consumer has been provided by email, google, ebay to name a few. Needless to say these companies are probably over valued by conventional beliefs of value. But here I digress, let’s get back to the core problem of identifying true needs and offering a requisite service or product which would satisfy the thrift consumer.

One concept which readily comes to my mind which may arrest the vicious cycle of subsistence demand is diversity marketing: Shifting emphasis from selling to the vast, anonymous crowd to selling to millions of particular consumers. The evolution from mass to micro-marketing is a fundamental change driven as much by necessity as opportunity. America today is a far more diverse ... society than it was in the heyday of the mass market.

It is not only sufficient that business continuously make efforts to make offerings cheaper but in a thrift economy the offering itself has to make rapid leaps in technological advancement much the same way as the new media technologies like twitter have done. Now if only there was a revenue model for Twitter.

And lastly Accounting skills are key to turn around financial crisis.