Monthly Archives: May 2010

Wealth and Niches

An often overlooked aspect of economic growth is that it encourages market niches. There are some products for which there is always a market of one form or another; everyone must eat, after all. However there are many products for which there is only a market if the market at large is sufficiently wealthy. This is most prominently true in entertainment and leisure. Everyone wants entertainment, but if you have a small poor town in the middle of nowhere you won’t be hosting an opera house. Even if everyone in town loved the opera poverty can stand in the way. Worse though is if not everyone loves the entertainment. Many a small town in poor areas that I have seen have had a bar and/or a restaurant, plus a gas station and its meager stock, for the local acquisition of entertainment. Even this is a wild abundance compared to many periods in human history. By today’s standards it is a distinctive scarcity of entertainment.

The problem isn’t necessarily that it is bad entertainment. The half-rack of bestselling books and movies at the gas station may have earned their way onto the bestseller list. I don’t know, I don’t think I’ve ever read a bestseller, but millions of people seem to enjoy them. The restaurant may offer some very good food. Small town restaurants often do. The problem is that people have a wide variety of tastes. Small town vendors have to appeal to the majority in all but the richest of small towns. They simply can’t afford to carry something for everyone.

Two things can change this. The first one is more or less universally understood. This one is population density and transportation, which I am grouping together under the term convenience. When there are more people in the ‘operating radius’ of a business, when that business is convenient to more people, it can profitably carry products that appeal to smaller portions of the market. A store specializing (for instance) in board games doesn’t appeal to the majority of the people who live in a region. It doesn’t need to. It only needs to appeal to enough people. I’ve never seen a small town with a boardgame store, but in cities they aren’t that hard to find.

The second one is the actual point of this essay. As wealth increases, niche markets can be supported by fewer people. Everyone knows that rich people can indulge in their idiosyncracies. The eccentric wealthy are practically an archetype. What most people don’t realize though is that this effect also applies to those who aren’t what we commonly think of as “wealthy”. In areas of high population density, a small increase in wealth can translate to a large increase in interest in niche products. Large, that is, from the point of view of those who would distribute such items. People don’t realize the extent to which the modern world is rich relative to history, and the extent to which that wealth allows us relative abundance.

The wealthier an area is, the less convenience it needs to support niche products*. If it were dense with prosperity, a small town could easily support a boardgame store – perhaps even an opera house! When one acts on the scale of a city, where convenience already exists to benefit merchants, small changes can be huge statistically. As a city gets richer, new and stranger products become available. That’s one of the things I look forward to as an influence to bring us farther into the future. It is not merely that we need more technology, but economic growth itself means that more and stranger technologies can be brought profitably to market.

*The flip side of this is that the poorer an area is, the more convenience it needs to support niche products. This is part of the effect that creates cities in the first place. People crowd into populated areas to take advantage of goods and services that they can’t get at home, which makes it profitable to offer new goods and services, which attracts more people… et cetera! Of course, there are many functions that cities serve. This is only one of them. Without further research I cannot guess how important it is.

Report This Post

Conditional Unemployment

“Assume that a worker offers his labors for a certain price and there are no takers. If he then refuses to lower his price, he can hardly be said to be involuntarily unemployed. He is conditionally unemployed, the condition being imposed by himself. Only if his price is a government-imposed one, such as a legislated minimum wage, can he be said to be involuntarily unepmloyed.”

excerpt from Paying Men NOT to Work – Oscar W. Cooley

Most economic wisdom is neither new nor inaccessible. More people should study it.

Report This Post