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There are three things that I think most pundits are missing in their prognosis for the economy and they are all basic laws of economics.
Let’s start with the law of diminishing returns, as this applies to saturated expenditures of big-ticket durable goods. This is also related to the law of diminishing marginal utility, which posits that, all else being equal, as consumption increases, the marginal utility derived from each additional unit declines. We appear to have hit that point in at least eight per cent of consumer expenditures, which is double the share of the services expected to stage a huge comeback once the pandemic is fully in the rear-view mirror. Consumer expenditure on big-ticket durables in the United States is now at a record US$16,000 per household, about 60 per cent above the average of the past three decades.
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