by Charles Hugh Smith, Of Two Minds:
Demand based on debt, unfulfilled promises and unaffordable habits is burning down.
The first-order effect of the lockdown was demand destruction as shelter-in-place orders and business closures restricted consumers’ ability to spend.
The second-order effect will be the permanent destruction of demand because people will realize they’re better off reducing their consumption of high-cost, questionable-value goods and services. Let’s start with the resurgence of savings, the most basic form of security you actually control and the most basic form of hedging against promises of a return to wonderfulness failing to arrive in the real world.
Comically, security you actually control, i.e. savings, are viewed by the status quo as a mortal threat to the economy: how dare you keep some of your own money rather than squander all of it! Notice how this bit of twisted CNN humor labels savings “hoarding,” as if retaining a bit of your hard-earned wages is evil “hoarding” rather than prudent self-sufficiency.
For those who weren’t alive to experience the 1980s, it was a boom era of widespread prosperity. In a functional economy, savings are understood as one of the foundations of prosperity. In today’s insanely dysfunctional neofeudal economy, savings are a despicable evil because they take the bread right out of the bankers’ and corporate elites’ mouths. How dare you rob poor Jamie Dimon and Jeff Bezos with your awful, horrible, cruel savings of money that you actually control, money that protects you and gives you some security!
In other words: how dare you serve your own needs and interests rather than our monomaniacal obsession with increasing our profits at your expense.
Another second-order source of demand destruction is people realizing they don’t actually need as much XYZ as they once thought. This covers quite a range of services, from tourism to dining out to attending absurdly costly sporting events and concerts to all the video subscription services people pay for but rarely use.
Demand destruction won’t be limited to the periphery. It will also shred big-ticket sectors such as healthcare and higher education. One of the key dynamics in demand for these crazy-expensive services is rarely addressed: the more higher education you “consume,” the greater the pressure to get even more higher education. This also holds true for healthcare: the more you “consume,” the greater the pressure to consume even more healthcare.
Correspondent AP (Anonymous Physician) delineates the sources of demand for healthcare:
An under appreciated challenge going forward is the destruction of healthcare demand.
The demand for healthcare was generated by three factors, in decreasing order of importance.
1. “Self-Generation” i.e. when healthcare was received, it led to more healthcare being demanded. Healthcare is pretty unusual as a good/service in that it generates its own demand.
2. Marketing. Except for a tiny sliver of high-margin procedures, healthcare is a loss-leader for health systems. The profitable revenues come from foot traffic, commercial real estate ‘appreciation,’ and the sales of personal information.
3. Actual, proven, demonstrably beneficial need. (By far the last).
The ‘Casino’ model of healthcare is driven by this dynamic: tight-margins/high cashflows lead to overbuilding, which leads to more of #s1 and 2 above, which leads to more cashflow, and so the cycle repeats.
People are discovering:
1. The delivery of healthcare entails real risk–even if theyâ€™ve mis-apportioned it to COVID-19.
2. They’re doing alright without getting it.
3. Since they aren’t getting it, they’re getting less of it. (See #1 above).
We’re already seeing healthcare corporations whining about a drop in income as “consumption” of “elective surgeries” is not bouncing back to pre-pandemic levels, and people are cancelling their “excuse to bill Medicare or Medicaid” “follow-up” appointments.