May 22, 2008

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Recession-proof?
Electronics prices always go down ... right?
By John ďjaQĒ Andrews† jandrews@hippopress.com

Gas prices. Mortgage crisis. Credit squeeze. Inflation.

The news is rife with economic disaster stories these days. Even food has seen sharp price increases, with rice purchases being rationed at some wholesale clubs. Whether we dip into recession or not, thereís no denying that tough times are here.

Makes writing about gadgetry a little hard. Computers and MP3 players and wireless video transmittal magic bobulators are cool and all, but theyíre luxury or convenience items. Who has the spare cash?

Then again, history has shown us that prices for electronics consistently go down over time. High definition televisions used to cost several thousand dollars; now you can find models for just a few hundred. iPods donít really get cheaper, but their capabilities and capacity constantly go up while costing the same. So really, electronics should be sort of a bright spot in a dreary economy.

Not so fast. For a number of reasons, the days of cheap gizmos may be waning. Iím no economist ó heck, Iím not even particularly good at math ó but as a watcher of the industry, I find that some trends just canít be ignored.

ē Energy prices: Gadgets use electricity. Each one might have a small power draw, but they add up, and even though that cost isnít as obvious as paying $4 a gallon at the gas pump, itís still there. For home electronics, turning off power strips can eliminate the watt or two drawn when items arenít in use. For rechargeable and portable toys, you might want to invest in a solar or hand-crank charger. Heck, then you can use stuff outside.

Energy prices affect your wallet before you ever power up your electronics, though. Most of them are made in China, and shipping stuff around the world takes a lot of oil. That certainly ainít cheap.

ē Oh yeah, China: You might have heard about a fairly severe earthquake over there. Leaving aside the human misery and such, Iíll just crassly mention that while resources are going toward recovery, factories making our stuff might not have the highest priority. That constrains supply, bumping prices up. Itís been seen before in the manufacture of computer memory, where slight disruptions can lead to wild swings in prices.

Thatís a short-term effect. Long term, as standards of living across that region improve, wages must go up, meaning higher costs to the ultimate buyers: us. Companies routinely move production facilities to cheaper labor markets, but thatís not sustainable as more and more countries scrabble their way out of abject poverty. I know, bummer.

ē Natural resources: Oil isnít the only resource that will eventually dry up. Electronics rely on the unique properties of a whole bunch of elements and materials, from copper and silicon to beryllium and thallium. Recycling old products definitely helps, but thereís only so much of that stuff in the ground. Supply and demand dictate that prices for things people want in excess of how much there is have to go up.

All this isnít to say this yearís gadgets arenít generally a better value than last yearís. But the curve isnít so steep anymore, and one day it could start heading the other direction.