The world can’t be 70% off forever, right?

Posted on December 3, 2010. Filed under: startups, venture capital | Tags: deals, flash sales |

Lately I’ve been thinking about the roll of discounting, flash sales, deals, and deep discounts in our economic recovery.  It feels like consumers are being trained to spend again, under the veneer of some “new” concept where the entire world is 70% off, and as the purse strings loosen, while individual items may be cheap (er), total volume of discretionary spending is rising.  Soon, if it isn’t already happening, I am guessing price of goods will begin to rise (with aesthetic discounts/deals still in place), and then eventually consumer spending will be strong enough that the 70% off sales are going to start to become 30% off and then eventually disappear.  At that point the market will be efficiently priced, discounts/deals will die, and prices will continue to rise, testing the consumer’s willingness to go higher and higher with their buying confidence now restored.  When the cost of living/goods exceeds consumers’ willingness or ability to pay, without the benefit of loose lending practices to defer the correction and enable continued spending despite a crossing of this threshold, we will again dip into some form of mild recession.  When that happens people will freak out again, say it’s “different” this time, everyone will stop spending, discounts/deals will return, and so on and so on and so on.  I haven’t read a single piece of actual economic data to support this, I have taken half of one economics class and read a little on Wikipedia in my entire life, so I have no idea if this is consistent or inconsistent with macroeconomic principles, but I am starting to wonder if the market’s hysteria and perceived future growth in the “deals” space is not a bit naïve with regard to our macro position in the broader recession/recovery cycle.  The world can’t be on SALE forever, right?

People who are smart on economics, please chime in.