"The pursuit of efficiency has long been a hallmark of American economic success," Daniel Gross writes in his great new book Better, Stronger, Faster. And he's right. Some of the great triumphs of American wealth, from the Model T to Amazon shopping, are triumphs of an important kind of efficiency: using technology to do more with less.
For much of the last century, efficiency has been the providence of producers. Companies big and small found innovative solutions to complex problems and cut costs to labor, energy, and global supply chains. But lately, ordinary families are evening the score. We're learning to share more (e.g.: cars), buy less (e.g.: movies and music for the house), and live cheaper. Here, Gross and I discuss the future of the efficient consumer.
THOMPSON: For 30 years, corporations dominated the efficiency game via off-shoring and automating. Now consumers are getting in the game by replacing old products with cheap tech or by sharing goods. What changed?
GROSS: Several things changed, and I definitely trace it back to the onset of the Great Recession. If your top line isn't growing, and your net worth is tumbling, and your ability to borrow against your home equity disappears, you have to start figuring out how to do more with less. So the movement toward consumer efficiency was spurred by necessity. The old personal finance advice - stop buying that latte at Starbuck's and start making coffee at home - actually makes a lot of sense. But the nice thing is that new businesses arose to appeal to the new zeitgeist - Netflix allowing for the rental of movies instead of the purchase, Zipcar, Rent-the-Runway, or Chegg.com, which allows students to rent textbooks online. All of these let people get the same utility without having to go into debt to purchase and take ownership of things.
But standards also make a very big difference. The typical car sold today is significantly more fuel efficient than the typical car sold five years ago. And I'm not just talking about luxury goods like the Prius. I'm talking about entry-level vehicles like the Chevy Cruze. Yes, automakers have responded to persistently high gas prices by working on fuel efficiency. But the higher mileage standards promulgated by the Obama administration lit a fire under the carmakers. In the same way, standards for more efficient light bulbs and appliances wind up helping consumers reduce their operating costs, and boost their operating income. Imagine how much better off (and efficient) the typical American homeowner would be if building codes mandated greater use of more effective insulation.
THOMPSON: Do you think the new consumer efficiency revolution could stem from income inequality -- that our wages are falling behind productivity, so we're using technology to make our money go further?
GROSS: There's something to your point. I'd put Groupon and LivingSocial in the bucket of efficient consumer businesses, and there's no question they've caught on because people need to make their dollars go much further. But of course we've always used technology to make our money go further, regardless of where we are in the economic cycle and what's happening with income inequality. I'm old enough to remember what long-distance phone calls used to cost before MCI came on the scene. Now I use Skype, not because my income has gone down, but because it's cool to get stuff for free and I like being able to see the person at the other end of the call. And in many ways, I think it actually think that it works the other way around.
To a large degree, efficient consumption starts as a luxury good and then trickles down to the rest of consumers. There are a few reasons for that. At the beginning, efficient consumption products - the Prius, solar panels, programmable thermostats, LEDs - are niche products and so have a hard time competing on price with mass-manufactured equivalents that have been around for decades. They're artisanal by comparison. Now think about housing. It's more efficient - and ultimately reduces your operating costs - if you can live close to a train or light-rail station, so you don't have to own a car to get around. But we all know that homes and developments close to transit tend to be more expensive than those that are farther away. In Connecticut and New Jersey, real estate in towns that have direct train connections to New York, tends to cost significantly more than houses in nearby towns that don't have them.
THOMPSON: Family consumption makes up a huge part of GDP. Are efficient consumers bad for the economy? Won't we all be poorer if we buy fewer cars, houses, and clothes?