Is Marie Kondo bad for the economy? A Thought Exercise on Global Demand

U.S. consumers spend, and the global economy depends on it. Though the 320 mn U.S. population is only about 4% of the global population, U.S. consumption represents 10.6% of global GDP, and this figure’s impact is understated since the rest of the world’s investments, exports, and consumption associated with U.S. consumption is excluded. So, if ‘Tidying Up with Marie Kondo,’ the new Netflix show that helps people combat hoarding embrace minimalism, becomes the new norm, does it mean the economy will suffer?

I believe the answer is no, but it requires advanced economies to sort out housing and emerging markets to figure out politics. With 7 bn in global population, there is no shortage of people who want to live the good life. Regardless of the different views on materialism and frugality and the different stages on Maslow’s hierarchy of needs, people want modern shelter, appliances, technology, and conveniences. However, the first problem is that increasingly those who have the means don’t need or want to spend. The second problem is that those who truly need don’t have the means to spend.

Let’s take Japan, the third largest economy in the world, for example. Japan’s elderly owns most of the wealth, but the lack of desires, retirement insecurities, or concerns for their kids’ future keep them from living it up. The problem underneath is Japan’s bad demographics. The country’s bad demographics, characterized by the rapidly aging population and low fertility rates, threaten the stability of the stability of the retirement system and the vibrancy of the economy and its future prospects.

As for what explains the bad demographics, I believe housing played a big role. Japan’s massive housing bubble made having children expensive, unreachable, and undesirable. Buying a home or paying rent is an option for a young individual, but having a stable home becomes more of a necessity for a couple looking to raise a family. As a result, when Japan’s housing price outpaced wage gains, it became rational for people to have fewer kids or forgo having kids.

Increasingly, this trend may play out in U.S. as well. The combination of the knowledge economy’s cluster effect and global wealth investing in U.S. cities have driven up housing prices in metropolitan cities. For instance, the tech jobs in San Francisco, the finance jobs in New York, and the biotech jobs in Boston draw young talents to these cities. This results in a cluster effect where the talent influx creates a bigger ecosystem for these jobs, which draws even more people to these cities. In addition to the increase in demand from the population growth, investors also add to those who wish to own a piece of these growing cities.

In the end, the high home prices reduce these residents’ disposable income in the short-run and may reduce their willingness to have children in the long-run. While wage gains and home prices ebb and flow, these advanced economies’ demand becomes permanently impacted once demographic takes a dip. As a result, housing plays a big role on why advanced economies may decide to spend less than they are able to.

As for the second problem, emerging markets’ messy politics often prevent them from achieving their full potential. China is a poster boy on how politics matter. Since Deng opened up China with a single-minded focus on pursuing growth, China has been on a tear. In the past decades, China has lifted close to 800 mn of its 1.3 bn population out of poverty. Growth inducing policies allowed people to get jobs and buy things to improve their quality of life. However, things may be starting to slow in China.

Automobile sales contracted for the first time in 20 years and smartphone sales have been falling for over a year now. This doesn’t mean that China is running into a wall or a crisis, but it does mean that it is important for other emerging market to take over the baton for demand. The difficulty is that there are few countries can match China’s size and trajectory for growth. Messy politics have kept other large emerging markets such as Brazil, India, and Indonesia from achieving their full growth potential. Politics matter because bad policies prevent technology and organizations from maximize productivity and full utilizations of their land, labor, and capital.

China Automobile Sales (mn of units)  

China Smartphone Shipments (mn of units)

As I see it, there are five ways to tackle the two problems so that Marie Kondo doesn’t become the new scape goat for a global economic slowdown.

1. Transfer money from the haves to the haves-nots in the advanced economies and emerging markets for them to spend.
2. Lend money to the haves-nots in the advanced economies and the emerging markets for them to spend.
3. Encourage investments in financial securities and discourage investments in real estate.
4. Loosen building and zoning laws and adopt accelerated building techniques to meet housing demand.
5. Influence emerging markets to pursue better growth policies and achieve more global economic coordination for mutual gains.

However, not all of these solutions are feasible, practical, or advised. First, transferring money is not productive and will be lobbied hard against. Second, lending money to those who can’t payback results in high non-performing loans at best and another economic crisis at worst. Third, channeling wealth from real estate is possible, but the current homeowners will become unhappy voters. Fourth, turning every desirable metropolitan city into dense concrete jungles of stacked modular apartments works on paper, but not in practice. This leaves the last option, which is also the best out of all the potential solutions.

The difficulty here lies in the world’s current state of political economy. As politicians around the world see global economy as a zero-sum game (maybe globalization or the winner-takes-all development has indeed turned it into a zero-sum game), this also makes the last option unlikely. 

So, what will happen and will Marie Kondo become the scapegoat? I don’t think so, but may be it is not impossible.