Tag Archives: consumption

[REVISED] Intro to Sharing Economy

What do Bitcoin, Groupon, Airbnb, Waze, Meshnet, Kickstarter and Wikipedia have in common? They are all billion-dollar ideas based on one concept: Sharing Economy.

Like the name suggests, Sharing Economy is “a socio-economic system built around the sharing of human and physical assets”(Wikipedia). The system sees the excess capacity in goods and services as a problem and solves it with collaborative consumption. Simply put, Sharing Economy wants to lower your cost of living by letting you borrow a bike from you neighbor and make your trip in Porto Rico much more enjoyable while cheaper by renting you a house in San Juan.

Jeremy Rifkin’s comments on Airbnb’s success explains a lot about the Sharing Economy:

Airbnb owes its meteoric rise to a new phenomenon — near zero marginal cost — which is disrupting entire sectors of the global economy and giving rise to a new economic system riding alongside the conventional market. Marginal cost is the cost of producing an additional unit of a good or service once a business has its fixed costs in place, and for businesses like Airbnb, that cost is extremely low.”

The extremely low marginal cost is one of the greatest benefits of Sharing Economics. By efficiently redistributing resources among the crowd, this economy system significantly decreases the pressure of purchasing for individuals. For example, if you want to buy a vacuum machine, in the conventional market, you have to pay $200. That’s $200 per person. But with the sharing model, although the nominal price of the vacuum machine is the same, since you can share the purchase with your neighbor, the real cost becomes $200/n. The more you share, the less you actually pay.

The concept is simple, but the impact can be huge.

Ever since the recession, most households’ real income has been decreasing with the ever-rising CPI.

real_income

This forces average households to spend greater portion of their income on food and other basic living expenses. People are scared of big purchases because of the financial pressure. Shared purchases, however, removes this pressure. The real expense on shareable goods is divided as explained in the vacuum example and therefore become much lower. With the cheaper shareable goods, people will be able to buy more. Therefore, in the short run, sharing economy can create extra purchase power to stimulate the market.

In the long run, with the growth of population, the scarcity of resources is going be increasingly significant. U.N projects that, by the year of 2050, there will be 9.3 billion people in the world. A world without resource-sharing would be unimaginable by then.

The only concern about sharing economy is regulatory uncertainty. Sharing Economy’s model suggests that everybody can be service provider or property lender. This will surely introduce problems when it comes to security, licensing and other indirectly related issues such as benefit negotiating. But since Airbnb and Uber have been proven to be successful in their respective industry, it is expected that these obstacles on Sharing Economy will be removed in the near future.

More About Jobs: Figures and Theory

According to recent data about job creating, there has been an increasingly upward trend of job creation in the country. The Wall Street Journal reported the number of jobs created in each month of the first quarter of 2014. In January, 139,000 jobs were added to the economy. February saw 178,000 jobs added to the market. And March’s job creation number:…(drumroll, please)… 191,000 jobs. The unemployment rate fell from 6.7% to 6.6%. It is important to keep in mind that February and January were the months of the brutal polar vortex. The economy is indeed thawing, according to the previously mentioned figures.

The Washington Post attributes March’s job creation figures to growth in specific American industries, such as construction, finance and automobile production. The construction industry added 20,000 jobs, which is 4,000 more than the average across the past three months. The financial industry added 5,000 jobs to firms of different sizes. The automotive industry exceeded analyst expectations. Sales rose 6% to 1.5 million.

If these trends continue, unemployment could become less and less of a problem. Since each month of the first quarter of 2014 produced more jobs than the previous month, it is safe to say that the US economy is gaining momentum in the labor market. We cannot be sure if these trends will continue, but we can hope that they do. If all goes well, the US economy could see more than 200,000 jobs added this month. This, in turn, could help increase the nation’s economic output, which could combat the current economic slump.

A New York Times article discusses the theory of job creation. According to the article, the people who give others jobs, employers, do not do it out of the kindness of their hearts. This is similar to why producers produce goods in Adam Smith’s Wealth of Nations. They do it because it is in the best interest of their firms. They do it so their firms can create a supply that meets the demand, and so they do not lose to competitors. These people, however, are not the jobs creators. The job creators are the consumers and investors. They are the ones who provide firms with money, which is used to expand and improve production.

To put all of this together, one could attribute the increasingly upward trend of jobs added to the economy to the fact that people are consuming and investing more. This could be a feasible claim. When firms have more money, they can produce in larger quantities and more efficiently. Using this theory, it seems that the way to continue this trend of job creation is to consume and invest more. Every time a firm makes money and expands, it will need to hire more people to keep everything running as smoothly as before the expansion. This money comes from purchase of the product and investments. These firms can afford to hire more people when they have more money.

Retail: Affecting More Than One Part of the U.S. Economy

The polar vortex has been caused one of the most brutal winters that most people have seen. Temperatures were far below average and snowfall was much higher than average. One of the tolls of this unusual winter has been its affect on the economy. Now that it is nearing its end, the economy is on the upswing.

An article in the Wall Street Journal, explores this. The article focuses on retail sales. Now that the winter is winding down, retail sales have already increased by .3%. Obviously, some retail items are intended for winter, and their sales would increase. An example would be winter coats and boots. Those both saw increased sales due to the weather, which is what would be expected. According to the article, sales of swimsuits are also rising at a healthy rate. I guess people are ready for the warmer weather to come.

While the retail industry has been positively affecting the economy on the consumption side, the employment side has been suffering. The article in the New York Times has graphs that depict employment and industries that have recovered and not recovered. As one can see, retail  trade and manufacturing have both suffered during the months of January and February in the year 2014. Interestingly enough, there is a twist. According to the Washington Post, producer prices have decreased, and one reason is that shipping costs have gone down. This is for the month of February 2014.

After digesting all of this information, I realized that it makes sense. A harsh winter can have adverse effects on the retail industry, especially for seasonal products, such as swimsuits. Obviously sales for winter clothes would increase. Now that the weather is changing, people are more eager to make purchases for summer clothes. With decreased retail sales in January and February, firms would not be making enough money to keep all of their jobs in the sales and manufacturing sides. This is why employment in those industries declines. These firms simply could not afford to keep all of these employees. With the decreases in shipping costs, firms have lowered their expenses. This means that they will be able to meet the increasing demand for their retail products.

I think that it is safe to say that the end of the polar vortex is very good for the economy. First of all, the retail industry is recovering. In another blog post, I mentioned that consumption is very important to the recovery of the economy. With more people consuming retail goods and shipping costs going down, firms have more money to play with. This means that they will turn better profits and be able to hire more people, thus helping fight unemployment in the economy. Spring could be the light at the end of the tunnel. All we can do now is play the waiting game