Oil prices took another nasty spill this week, closing at a six-year low of $126 (U.S.) a barrel. In past eras, Alberta’s economy was inextricably linked to petroleum prices. Every time oil tumbled, it brought down the province with it.
Special to The Globe and Mail
Published Friday, December 5, 2014
It's time again to break out the holly, eggnog and cheerful reindeer lawn ornaments. But another yuletide tradition is also upon us - one that doesn't seem very jolly at all. Today's children are being buried in a Christmas avalanche of toys, games and electronics.
I'm not a parent myself, but almost every parent of young children I know is trying to deal with this problem. Entire rooms in their homes - ones we used to call the "living room" or "family room" - have been turned into toy warehouses. The Lego and Transformers and Disney princess dolls that were once contained within the lowly rumpus room have now taken over entire wings on the main floor.
What's caused this explosion of toys? Are today's parents trying to buy their children's love? Are they really just fulfilling their own childhood desire for more toys?
Psychologists and parenting experts will have their theories. But simple economics can also shed light on our culture's insatiable lust for toys.
One plausible explanation is marketing. The advertising industry knows very well the power of selling to children - and if the kids can be convinced that they need the latest doll, video game or Zoomer Dino, the parents will shortly be convinced, too. Marketing to children has, in fact, proven to be so effective that there are laws against how and when toy marketers can practise their skills. Children are unable to distinguish between when the cartoon ends and the advertising begins.
But marketing efforts alone don't explain today's toy binge. In the 1970s and 80s, there were just as many toy ads during Saturday morning cartoons. Blockbuster movies such as Star Wars and E.T.
also came with huge marketing efforts that bled out of the movie theatres and into the toy stores.
The real reason why we've heaped mountains of toys at the feet of our children is simple: price. Mass-produced toys at the beginning of the plastics age, which would have started in the 1950s, came from industrial U.S.
cities. By the 1970s, a lot would have been manufactured in Taiwan or Japan. In 2014, though, almost all of the mass-manufactured toys come from China or other low-labour-cost Asian countries. That has driven down price significantly.
Over the past 30 years in Canada, prices in the all-item basket of goods and services that make up the consumer price index have slightly more than doubled (+104 per cent). Certain prices have shot up more significantly, such as property taxes (+183 per cent), city transit (+265 per cent) and parking fees (+344 per cent).
But toy prices have barely risen at all; the index for toys and games is up only 19 per cent since 1985. And home audio and video electronic prices have actually fallen 47 per cent. In fact, in a brief search of items within the consumer price index, I couldn't find any single category of goods with lower inflation than toys, games and home electronics.
One of the main tenets of economics is that the market price sends strong signals. This is no more evident than in the toy market. Since the price of toys makes up a smaller portion of a typical family's budget, we're gorging on them like never before.
The quality and craftsmanship of contemporary toys, of course, pose a problem in comparing prices three decades ago. My LiteBrite from when I was a kid isn't the same as the cheap, flimsy ones sold today. (Then again, my iPod is much better than the cassette tape player I had in Grade 5.)
This trend in low-priced toys and electronics may be about to reverse. Labour wages in China are now starting to rise, and along with them manufacturing costs.
Transportation costs are also higher (notwithstanding the recent drop in oil prices). This could signal that the tidal wave of cheap toys and games is destined to come to an end.
Yet isn't this for the best? I'm no Grinch, and I love watching the excitement of a child tearing paper off a gift. But cheap and overly plentiful gifts won't be remembered - or loved. Even an economist can tell you that.
Todd Hirsch is the Calgary-based chief economist of ATB Financial and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.