AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (28 comments)

  1. they dont make them like they used to..

    1. meaning, my 1951 international harvester refrigerator was still working 10 years ago…only reason i had to get rid of it was i could not get a replacement door handle and door seals

  2. Further witness to the disposable nature of business. Although it is probably only a little more effort and cost to make an appliance which will provide good service for decades, there is no money in selling long term durability or reliability.

    The oven in my kitchen was put in the cabinet in 1966 when the house was built. Still works fine (as of last night) but I do not relish the day something goes wrong and I have to go out of pocket for well north of $1k for a replacement oven with a 90 day to 1 year warranty and almost no serviceability.

    Unfortunately major appliances, power tools, all the way down to clothing and shoe companies have shifted to building products which, like home electronics need to be replaced on an ever shortening cycle. While this makes since on a DVD player because DVD’s probably won’t be sold in 5 years, I’ve been perfectly happy using a nearly 50 year old oven, and the shoes I bought and take to have re-soled.

    Ah the good old days. I wish I had been there for more of them.

  3. PeakTrader

    RJS: “they dont make them like they used to.”

    Yet, the average age of consumer durables has not fallen over time, like its price.

    Also, politicians will accelerate the cost of living with expensive and inefficient economic policies.

    Before the Fed, over a hundred years ago, we had deflationary growth with inefficient boom/bust cycles and a large uneven wealth distribution.

    Today, the destructive economic policies of politicians more than offset the huge benefit of much smoother business cycles.

    We didn’t have to borrow massive amounts of money to maintain or raise our living standards over a hundred years ago.

    And with so much redistribution of wealth by government, we still have a large uneven wealth distribution.

    I suspect, the masses are suffering much more than the rich in Europe.

    1. PeakTrader

      If you give one person $1 million, he’ll squander it. If you give another person $1 million, he’ll turn it into $2 million.

      That’s why wealth redistribution always fails.

      1. PeakTrader

        It fails, because it destroys wealth creation and creates wealth destruction.

        1. PeakTrader

          It seems, when politicians compromise on taxes, that means more work for accountants to help the affluent avoid taxes.

    2. Yet, the average age of consumer durables has not fallen over time, like its price“…

      Hmmm, interesting point pt

      Granted that the number of hours needed to work to acquire a major kitchen appliance has dropped substantially but then ‘if‘ but what ‘seems‘ to have changed substanially also is the lifetime one can expect from the more modern major appliances…

      I live in a small 60 unit apartment complex and I was talking to one of the owners while they were hauling out the old refrigerator (Sears product from the late sixties) and putting in a new one, something branded with the name ColdSpot…

      More than half the apartments still have their originally installed units from the sixties…

      The owner was telling me that since the early ninties the major appliances were quite a bit more efficient at doing their jobs…

      The dishwashers used less hotwater and cycled better and faster, the hot water tanks were considerably cheaper to run, the stoves (gas) and the refrigerators were quite a bit more efficient also…

      One major fly in the ointment was lifetime…

      In his experience all these major appliances had at best maybe a 20 year life span…

      Engineered obsolescence?

      What do you think?

      1. PeakTrader

        Juandos, perhaps, there are more lighter materials that wear out more quickly. Yet, the Maytag repairman is obsolete (to fix or replace a part).

        An engineer (mechanical) should know.

        My 2006 car, bought new and paid-off, seems more durable, with over 100,000 miles. The only repairs (i.e. excluding maintenance) have been replacing a water pump and windshield wipers.

        1. My 2006 car, bought new and paid-off, seems more durable, with over 100,000 miles. The only repairs (i.e. excluding maintenance) have been replacing a water pump and windshield wipers“…

          Good point pt regarding cars…

          I have a ’02 Astro Van which is mechanically quite sound…

          Only two major problems so to speak….

          Fuel module and front brake replacement…

          Still considering the vehicle already had in excess of 100K miles when those had to be fixed not something to cry about…

          Now the really irritating problems in the vehicle are the nylon on metal linkages for doors, switches, and windows…

          Those have been crapping out one at a time over the last few years…

          Still quite sound mechanically, can’t afford to give it up yet…

        2. Windshield wipers are a maintenance item Peak.

  4. I’m confused. This article (https://www.polk.com/company/news/average_age_of_vehicles_reaches_record_high_according_to_polk) says the average age of vehicles is 10.8 years. How does that square with the numbers in your post?

    1. I can’t find detailed information about how the BEA calculates the average age of consumer durables, but it is obviously different than the Polk calculation of average age of autos. They are both trending upward though and are at all-time highs.

      1. morganovich

        my understanding is that the average age of a car in the US is 11.1 years and 10.8 for a light vehicle. (polk) experian calls it 11 years.

        there is simply no way that it is the 4 years listed in that chart.

        that is literally mathematically impossible.

        that would make the average car in the US a 2008.

        there are 250 million cars in the US.

        maybe 30 million have been sold since 2008.

        there is simply no way to average that to get 4 years.

        i have never seen a number that low and suspect that the polk/experian numbers are far closer to the truth.

        1. Walt Greenway

          I would think the average car age is somewhere over the average car loan length, but I don’t know offhand what that is. I was surprised to see my credit union now offers 72-month auto loans.

          “Overall, average vehicle age has been increasing quickly over the past five years. Polk reports average age based on an analysis of national vehicle registration data.” [emphasis added]

          1. Walt Greenway

            And the rate on that 72-month auto loan is 2.45% APR. Wow, that is low with a 2.40% CPI the last 12 months. The credit union is essentially paying you to take their money.

        2. morganovich

          walt-

          well, yes and no. what’s the interest rate on the deposits you keep at that credit union?

          zero? maybe 12 to 20bp on savings/money market?

          what’s really happening is that the depositors at the CU are not keeping up with inflation and are essentially being paid zero for the use of their money and the credit union is marking that up by 2.3-2.5% and lending it to a car buyer.

          further, if you use that money to buy a car, that’s a depreciating asset, no? so every year it is worth less even in nominal, much less real terms. so i am not sure precisely how you are getting “paid” to take it, particulars as the overall price level is not what really concerns you in terms of repayment but rather your wages. the rate of growth in wage rate is more like 1% (based on hourly) and hours worked is flat from a year ago.

          i agree that it’s an attractive rate. i’d just be careful with notions about “being paid to take the money” and also about precisely who is doing the paying. (it’s depositors, not the CU)

          1. Walt Greenway

            morganovich, I can pay cash for the car or pay 2.45% and invest the money (I calculated a 2.41% CPI for my property tax cap hobby last week). There are very few years I can’t get over a 2.45% hurdle rate and those years are more than cancelled out by the ones I can, so I based my “paid to take it” remark from my perspective and not a CU depositer.

            You are correct about what the CU pays their depositers (.10% to .00% APR for smaller accounts), but I only flow money through there for 0- 30 days from a small 1.75% account. If you want to loan me money at 2.45% APR, I will take it.

            My cars are 8-12 years old, same motorcycle 17 years, and my washer and dryer were 25 years old last June. Same house 25 years, and same wife 30 years. Same job for almost 40 years. I’m an outlier that screws up averages. I don’t believe in following the crowd.

          2. Walt Greenway

            “further, if you use that money to buy a car, that’s a depreciating asset, no?”

            No. I keep my cars and house on the liabilty side of my balance sheet. I would consider a depreciating asset as a liability and housing costs as consumption like food (because I do not plan to ever sell or move and I keep my house 80% levered). I only count non-housing and liquid assets as assets.

          3. morganovich

            walt-

            that’s still not quite the same.

            how are you going to get such return with assuming significant risk?

            you are not going to get it (especially in real terms) in bonds right now.

            anyhting else has significant risk.

            sure, you COULD and it might even be a worthwhile risk/reward calculation. but that’s still not the same as getting paid to take the money.

            the market could drop 15% next year and that would sure make you wish you had paid cash.

            your treatment of cars and housing seems odd to me and counter to basic (and gaap) accounting principles.

            surely if your car has value, it is an asset. the same is true of your home. the fact that they depreciate does not stop them from being assets.

            the debt with which you finance them is a liability, not the thing you purchase.

            however, houses tend to go up in price. thus their appreciation helps you cover the cost of the debt service. a car drops like a rock in price the minute you drive it off the lot. this drop in asset price combined with the interest on a car loan is what makes car lending so tricky. the asset is rarely enough to cover the cost of the loan unless you put a great deal down.

          4. Walt Greenway

            morganovich,

            We each have to do what works for ourselves. I am my own hedge fund manager, and I don’t have the constraints you have :) If it doesn’t make me money with regularity I can put into my pocket, I consider it a liability (and I tend to keep both my cars and houses a long, long time). I don’t make money on cars, and I put my real estate investment dollars in REITs (which are up an actual 12.2% YTD) and not my house (might be up about 9% YTD before commission and fees if I decided to sell). I would have to be in the market to buy a car, which I am not, to jump on that 2.45% loan.

            I have never bought anything on credit that I could not pay cash for–including my first house in 1977. So, all of my loans are strategic buying decisions. I put 1/2 down on my first house, and I put the rest into Fidelity’s Magellan mutual fund. Each month I tried to put the same amount in Magellan that I put in my house. I sold the house in 1987 when I bought the one I am in now, and I sold Magellan the next year. I wish I had put the minimum down on the house with the rest in Magellan because the returns from Magellan were spectacular. I have not felt threatened about paying my bills since.

            I view risk long-term without short term-term panic, but I’ll admit 2008 was not one of my better years. My 1, 3, and 10-year returns are respectable, and I can live with the shitty five-year return. My average weighted loans are at 3.96% APR with an assets-to- liability ratio of 6.24 to 1 at the end of Nov (which is up from about 2 to 1 in 2008).

  5. MacDaddyWatch

    When household incomes decline by $4,000 over a period of just 4-years, its amazing just how much longer that old refrigerator can last. And with the prospects that the next 4-years won’t be any different or even worse, speculating on a consumer durable rebound makes little sense.

  6. morganovich

    how is this not essentially a broken window fallacy?

    sure, you can boost reported GDP by replacing your worn out car, but you can do the same by breaking a window and hiring a glazier, no?

    in either case, you are paying money to replace somehting you already had. you face costs simply to maintain your welfare.

    this may look great from the GM or the glass company position, but as the buyer, you just paid to stand still.

    i realize that a fair chunk of gdp is spent on replacement goods. cars wear out, you need a new roof for your house, your sweater gets holes in the elbows, whatever, but aren’t we really running into one of the major flaws in gdp as a measure of societal welfare here?

    it seems that by the logic of this “a big replacement cycle is coming, hurrah!” argument, we could generate great prosperity if we could just make cars fall apart faster. i doubt many buyers would agree.

    i can even see using this as an argument that it might be a good time to buy stock in appliance and auto makers, but the claim that replacing lots of things that wear out (even as it boosts gdp) somehow drives prosperity as a society seems a bit odd to me. (and i think basitat agrees)

    1. morganovich

      to perhaps provide an example to help make this case, let’s choose a durable that is a part of a car, the car battery.

      if i were to state: the average age of a battery in a car in the US is at an all time high and the imminent replacement cycle is about to boost economic growth, would that sound like the sort of growth you want.

      it is absolutely true that such a replacement cycle would boost GDP. my point is that so would paying people to dig holes and fill them in again. this is one of the serious limits to gdp as a measure of economic well being and a strong reason why using GDP growth as the target for economic policy can be so fraught.

      if you mistake the map for the terrain, you can blunder into all sorts of swamps.

      i think this is the key mistake that drives much of the keynsian thinking.

      they assume gdp to be the goal and lose sight of what it does and does not mean. it’s a form of cargo cult thinking. folks like krugman seem to be the high priests of this cult.

      step back and look at this whole consumables thing from the bottom up as opposed to the top down.

      imagine we are talking about you as an individual. when i say “your car is old and about to wear out” or “your dishwasher is old and works poorly” does that make you think “prosperity”? does such a set up make you feel as though you are ready for good times? generally, it makes you think “this is going to be expensive. i may need to forgo consumption somewhere else to maintain my standard of living.”

      yet somehow when we sum all of us up, this becomes a good thing?

      gdp is a measure of output. it’s important that we remember that and not confuse it with being a measure of prosperity or well being.

  7. On the autos in particular take the curve since 1950 and the improvement in quality is clear, in fact the manufacturers admit it, vehicles used to turn the odometer over at 100,000 miles, now it is 1,000,000 miles. Also if you ever drove a carburetor based car when the temp was in the mid 30s recall carb icing? Also today’s cars start right up with none of the cranking or pumping the accelerator of the old days. In 1950 consider what today is standard that was optional, such as power windows, and air conditioning which came out in the mid 1950s. One could go on and on without touching the safety features either. So cars are expected to last longer as well warranty periods tell the tale in the 1960s it was 90 days, today its 3 to 5 years or longer.

    1. morganovich

      lyle-

      i suspect that one of the other big innovations that has extended car life is rust resistant coating on the underside. cars in the noetheast and midwest all used to rust out through the floorboards. “California car” was a big selling point on something older.

      this is not much of a factor anymore. you do not get holes in the floor of a new bmw the way you used to in the 70′s and 80′s.

      1. Or I recall my dad had a 49 dodge that did make it to 120 k miles by dint of 3 different engines plus grinding the valves. The floorboards eventually became pieces of plywood also. He was always having to putz with the voltage regulator or the generator, (it had the old 6 volt system). So I take that as a way to measure how far cars have come. Yes I forgot about rust thru, living in Tx it is not as big of a problem also.

  8. The average age of consumer durables (Table 8.9) calculated by the BEA and as graphed is the product of Current-Cost Net Stock of Consumer Durable Goods (Table 8.1) divided by Current-Cost Depreciation of Consumer Durable Goods (Table 8.4).

    It is a value not an age.

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