Wednesday, August 7, 2013

A New Economic Frontier? Let's Discuss....

Are We Heading for a New Economic Frontier?
You’d almost have to be a hermit not to acknowledge economic matters happening all around you today – whether it’s gasoline or food prices, your kids’ tuition expenses, parent care, or postponing retirement because of gaps in health insurance or income.  My husband, who is a Ph.D. in Economics, often discusses these matters pertinent to all of us, both socially and in his professional life.  One day over lunch, he posed one of his open-ended comments to me, stating he just didn’t understand why inflation wasn’t climbing as it had in the 1970’s, and that he felt it was inevitably coming.  The most recent bust in the market of September, 2009, the high unemployment rates, shrinking production – this is a climate ripe for inflation, wherein by definition, prices of goods and services generally and progressively increase and interest rates for borrowing follow.  However, something counter-intuitive is happening in our economy.  Demand for new goods has not increased significantly, shortages of goods and services are generally not occurring, prices are generally not soaring, and borrowing rates of interest remain low. 

As a layman, I offer my thesis as to the reason why inflation has not taken center stage in our economy.  There is a HUGE secondary market growing in our economy, and it is the market of used, or second-hand, merchandise sales.  Since 1995, online community sales have sprung up, whether by auction or fixed price sales, offering buyers and sellers a new means of transacting business – one in which each player has a say as to how things are done in the economy, including setting prices.  And according to one of the most popular online communities’ (eBay) annual reports, its new way of conducting business must be working, as annual net revenues have grown from $1.26 million in 2002 to nearly $14.1 billion (yes, billion) in 2012.  Its stockholder’s equity climbed from $3.6 million in 2002 to $20.9 billion in 2012.  As of 2012, eBay had over 112 million active users and more than 350 million listings globally.

There’s also Ruby Lane, which was founded in 1998 by Tom Johnson and Jim Wilcoxson.  It has grown immensely since its beginning, boasting some impressive metrics, including over a half million active items listed by over 2,000 shop owners (August 7, 2013).  Ruby Lane is an S Corporation, so its financial data is not as highly visible as its online competitors’, but one can reasonably conclude with its demonstrated growth that financial results are highly favorable over the past several years. 
Etsy is another fast-growing community for the secondary market, due in part to increased fees, both sales and maintenance, for eBay and Ruby Lane.  Etsy also helped itself when it began relaxing its rules, changing eligible requirements for items listed (now including vintage as well as hand-made goods).  According to Etsy’s websiteas of January 2013, Etsy has "22 million members and over 800,000 sellers in nearly 200 countries.  In 2012, its sellers grossed more than $895 million in sales."  Etsy was certified as a B Corporation in 2012 (which basically means it is a company with a business mind and sense of commitment to community).
 According to the National Flea Market Association’s website, “Our country has over 1100 flea markets that provide opportunities for approximately 2.25 million vendors conducting over $30 billion in sales annually.  Flea Markets are visited by over 150 million customers each year.”  

With statistics like these, is it any wonder why we (whether buying or selling), who share in this secondary market of auction and fixed sales pricing, are helping to hold down inflation in our economy?  Is it because we simply don’t demonstrate demand for typical new retail offerings?  Or is it because we are most content in the world of recycled, gently used and/or highly collectible goods?  Whatever the answer, it makes sense whether you’re a lay person or an Economic scholar, that without the demand on new goods in the economy, lesser demand creates a surplus of goods, and surplus of goods impacts pricing of these new goods in the market.  Prices tend to rise when demand exceeds supply, and prices tend to decrease when supply exceeds demand.  That is the basic economic theory of the law of supply and demand. 

So, could it be that the online business model will go down in history as the one that generated a new economic frontier?  All you scholars out there – why not take my thesis and run with it?  And all you buyers and sellers out there – pat yourself on the back for doing your part to keep inflation in check! 
Note:  While I realize this topic is not the usual light discussion we're all used to seeing in the blogosphere, it's an important element of who I am and how I think.  I originally wrote this blog (and now updated) while an active seller on Ruby Plaza, the beta operation Ruby Lane started in 2010 and abandoned in 2012.  With an MBA and undergrad degree in Accounting, I actually enjoy the world of business, and found mastering the mechanics of running an online shop on Ruby Plaza both fun and challenging.  Even now, in my fun world of hobby antiquing and selling in a bricks and mortar store, I still am driven by the business side of the venture.