I just read the following quote from Benjamin Reitzes, an economist with BMO capital Markets and questioned the notion of demand. In a recent note he stated “there’s little doubt domestic demand is slowing,” referring to Canadian consumer spending being curtailed during the month of August.
And given the imminent recession (de facto definition as real gross domestic product (GDP) growth being negative for two or more consecutive quarters) it certainly makes sense. However, I wonder if this is a demand issue or a restraint issue.
I mean, we still want the new plasma tv, we just know that ‘now’ is not the time to buy it. Furthermore, if it is a restrain issue, does that mean that during a prospering economy our restraints are simply mitigated? We *always* want the new plasma tv, even if we already have one. After all, you can always use a second in the bedroom, or upgrade last year’s model.
Or conversely, did we ever really demand the plasma at all or were we just fine with our CRTs. Was it merely thrust upon us by Pioneer with the objective of satisfying next quarter’s estimates.
Looking at the Merrian-Webster ‘economic’ definition for ‘Demand’ we find:
a: willingness and ability to purchase a commodity or service <the demand for quality day care>
Since I have the willingness (*always*), and I have the ability (have you heard about this thing called a credit card, it’s really neat, you get to buy now, but you only have to pay like 2% every month), it seems that my “demand” is somewhat static as an average majority consumer.
b: the quantity of a commodity or service wanted at a specified price and time <supply and demand>
Since my credit limit is $5,000 I can buy two 50 inch plasmas at $2,500 each, or five 30 inch plasmas at $1,000 each. Given that I don’t have any use for five plasmas, my restraints will appropriate those funds for alternative means (either the bigger plasmas, or other goods and services).
In the 1776 book The Wealth of Nations, Adam Smith generally assumed that the supply price was fixed but that its “merit” (value) would decrease as its “scarcity” increased, in effect what was later called the law of demand.
It seems to me that what we are really looking at is the law of restraint. Given its principles are similar to those of demand, in fact inversely correlated, maybe even perfectly… I feel it is more aptly representative of our economic society. Demands are necessities, air, water, food, shelter; whereas restraint governs all that is superfluous.
That being said, if Canadian restraint is growing (demand is slowing), then hats off to you my fellow countrymen. Keep up the good work.