Non-materialistic millennials and the Great Stagnation By Scott Sumner

When I was a teenager in the early 1970s, I looked forward to getting a nice stereo system, with a receiver, amp, turntable and big set of speakers. My 17-year old daughter also likes music, but has no interest in those things. I have no idea why. And I notice this pattern in lots of other areas. I dreamed of a nice Canon single lens reflex camera. She also likes taking pictures, but has no camera. She has no typewriter. She has no pocket calculator. When I look at her lifestyle, it seems shockingly unmaterialistic. (Or maybe she has all these things embedded in her iPhone.)

This is just one anecdote, so let’s think about this more systematically. Start with two types of “stuff”. George Carlin used to talk about how a house was a place to put your “stuff” (recommended). One recent trend in America is a much lower level of residential investment than usual, even after the recovery. That also means less of lots of the new stuff that goes into houses, like carpets and dishwashers. Even where stuff hasn’t declined, it often has not increased. And recall that it is increases that you need to get economic growth (per capita). I see very few people who want to own two washing machines.

Indeed there seems to be a move toward smaller urban dwellings, while the McMansion becomes less trendy. Yes, ever-bigger homes are still being built, but total housing construction is down sharply. So maybe the millennials have shifted from indoor stuff to outdoor stuff, like cars, boats, swimming pools, golfing equipment, hunting supplies, etc. They no longer wish to spend as much time indoors.

In fact, just the opposite seems to be true. Total miles driven have suddenly turned lower, a development few would have foreseen 20 years ago.

[Update: In the comments, John Thacker pointed out that miles driven have recently turned up again–perhaps due to lower gas prices.]

Boating is suddenly becoming less popular. Golfing was very trendy just a few decades ago, but is now in serious decline. (Ditto for bowling.) Hunting is also declining. These outdoor activities require lots of stuff, which people increasingly just don’t need or want. One exception is camping:

When did camping suddenly become cool again? Have you noticed more and more of your friends on social media lately posting pictures from a campsite or musical festival as part of their vacations? Do you yourself have any outdoor wilderness getaways or nights under the stars planned for anytime soon? It used to be that camping was that dreaded weekend trip your dad or uncles dragged you on at least once a summer where you had to leave behind your video games and air conditioning, eat food from a can and poop in the woods. But now, thanks to a shift in consumer trends and mindsets, it seems like everybody’s camping — particularly millennials. And recent retail figures seem to bear this out as well, according to a new consumer study by The NDP Group. Within the $19 billion family vacation and outdoor adventure category, sales of outdoor camping equipment and related products have risen markedly over the past 12 months, particularly sales of coolers, cargo racks, tents and tent accessories, hammocks, sleeping bags and inflatable mattresses.

And from the same article:

A recent report from Business Insider also came up with similar findings. The modern consumer seems to be shifting purchasing habits away from apparel or simply buying ever more “stuff” to purchasing “experiences” and “big-ticket items,” like vacations, swimming pools or a new car or boat.

Yikes, even apparel is becoming less popular? Is naturism on the rise? Seriously, there does seem to be a fairly widespread move away from a materialistic lifestyle.

My mom is 90, and just a couple days ago she told me something that I found really shocking, while we were discussing all the new types of restaurants. She told me that she only recalls going out to eat once while she was a child, and only recalls one standalone restaurant in her hometown (Lansing.) If people ate out, it was usually in a hotel or private club. And she grew up in a comfortable middle class family. I didn’t even ask her how many nail salons, tanning studios and spas there were in Lansing during the 1930s.

So let’s say I am right that millennials are rejecting materialism, why does this matter? It might influence the recent RGDP growth numbers, which are quite low. It’s true that services have been growing in importance for many decades, but in the 1950-2000 period we also saw a big increase in the consumption of stuff. My claim is that “stuff” is no longer growing a bit slower than services; in per capita terms it’s probably declining—especially in crude physical terms. If the government still says it’s still rising, it’s because of “hedonic adjustments” which treat an iPhone like it’s also a camera, stereo system, computer, clock, answering machine, calculator, etc.

Notice I have not talked about imported goods. Surprisingly, that’s not really the issue. The current account deficit as a share of GDP is almost unchanged in the past 30 years. Yes, we import more than we used to, but we also export more. You need to look at consumption patterns to figure out the more recent slowdown in growth. If some of the items described in this post are made overseas, that really has no bearing on my argument.

Some of this can be passed off as unmeasured growth due to our new internet-oriented economy. But that doesn’t fully explain the move away from stuff. The iPhone has replaced the answering machine, but not the car, boat, swimming pool, golf equipment, hunting rifle, and lots of other stuff. (OK, uber sort of replaces the car, but it doesn’t explain the drop in miles driven.)

Suppose people have stopped doing all this outdoor stuff because they enjoy playing computer games more than stuff-intensive outdoor activities. In that case you could argue that growth (properly measured) has not slowed at all. If so, then our current ways of measuring growth may have reached their limits. We have to accept on faith that someone spending all day on the computer is happier than someone golfing or boating. Revealed preference suggests they are happier, but of course if you truly accept that criterion then you also must apply it to heroin use. I spend all my time on the internet, but deep down believe I’d be happier outside.

And I would argue that this move away from stuff is interesting, even if the output data is biased downwards by unmeasurable aspects of economic growth. Productivity in the services tends to grow much more slowly than productivity in making stuff. If the Fed targets inflation at 2%, then a slowdown in measured RGDP growth (whether accurate or not) will lead to lower NGDP growth, and therefore lower nominal interest rates. Thus the zero bound problem in monetary policy is partly due to the fact that young people prefer eating out and surfing the web, to the kind of auto-centered lifestyle once described by Bruce Springsteen or the Beach Boys. As a quantum theorist might say, “When you measure the economy, you change it”.

PS. This might be a stretch, but is the Trump phenomenon at some deep level a longing for the old stuff-oriented economy? And is Hillary the “services” candidate?