While on my evening walk I recently noticed an old Mercedes gathering dust in the neighborhood – the car hasn’t moved in the last 10 years. Or maybe more.
While this rude treatment meted out to the Merc pained me, I noticed that there were many other cars which had rusted completely just being parked out in the open.
So I asked my economist wife – what is the impact of such reduced life cycle of an asset on the overall economy.
What I was thinking was this:
- At an individual household level, this was clearly capital being blocked or even wasted. As the same could have been re-utilized in buying another asset or investing elsewhere.
- At a more macro level, the automobile industry was not really a loser. They might end up selling more cars if many individual households just buy cars and don’t use them. So where in our country’s GDP calculations would this waste be accounted for.
- A car that is used regularly results in more spends – on fuel, maintenance, tires etc. All of which stimulates the down-stream industries and hence positively impacts the economy. Discounting the fuel-price etc. So does it mean that if a society in general fails to extract the true value from its assets,it fails to stimulate the ancillary industries sufficiently? If so, would this apply to apparels and other items we usually stock?
- The fact that the car was not sold-off meant that the supply was reduced in the 2nd hand car sales market. Does such a trend result in higher prices in the used-cars market? Would selling off an un-used asset lead to higher supply and hence a more vibrant used-assets market? if yes, then maybe a Quickr or OLX should pitch to the finance ministry and get some more funding.
Too many questions and the wifey says that its way too complicated for me to comprehend. So while I work on a mathematical-excel model to quantify this, do share your point of view.
Would our economy have a positive impact if we would learn to extract more value from each of our purchases.