Macroeconomics and Cameras

This is always difficult, but I've tackled the micro/macroeconomic landscape as it pertains to our camera gear before, and it's probably a good time to update my thoughts. I do these articles because readers of this site are constantly trying to time and juggle purchase decisions. Buy now, or buy later when it goes on sale? Buy from Brand A or switch to Brand B and why? Are the things I've already bought losing value more slowly or faster? Should I hold on to older gear or not?

As in all things in economics, there are plenty of theories and models, but theories are just that, and models are often incomplete or not able to deal with all the moving parts correctly. Thus anyone—including the current US President and Congress—that tells you that A will result in B is really dealing with expectations based upon assumptions and some form of model, and thus likely to be wrong. How wrong is the question.

Currently in my In Box are a lot of comments relating to the so-called import tax that is being proposed. If I'm not mistaken, the US is the only large established economy that doesn't have some form of tariff/consumption tax on all imports. What's being proposed—a 20% tariff on imports—in some ways would put the US more in line with what other countries have been doing. However, such tariffs are effectively a consumption tax, and therefore regressive. They don't penalize the producers of products, they penalize the consumers of products.

The naive reaction I'm getting in my emails and messages from site visitors is that such a tax would greatly hurt the camera business, which is already ailing. Many are assuming that a 20% border tax means camera prices would go up 20% in the US. That's not true. First, any such tax as currently proposed would be on the wholesale cost at the border—what NikonUSA pays Nikon Japan, for instance—not the retail price of the camera. Note that the way the Japanese companies are structured, there's likely a fair amount of wiggle room in how they price things to themselves (and a lot of wiggle room if they overlook a few other federal laws and hope not to get caught). 

At the simplest possible model of what would happen, it would be likely that dealers would get caught being squeezed once again. Retail prices can't really go up much, if any, if we want to keep sales volume relatively intact. If wholesale across-the-border pricing goes up to the subsidiary, the subsidiaries are going to look at where they might be able to recapture that. It's those in the middle that likely get hurt. Dealers are one target. Customer support is another. 

But realistically, that model is far too simple. If, as many expect, the US is going to increase domestic spending and decrease income taxes as well as change our customs practices, we know from the past what will happen. Many remember the Reagan era entirely wrong, as Paul Krugman correctly pointed out. Virtually all macroeconomic models predict that under the whole of the current proposals floating around Washington DC at the moment: (a) interest rates will go up -> (b) capital will flow to the US -> (c) dollar will gain against other currencies -> (d) trade deficit will go up. (-> is a shorthand for "therefore")

That (c) suggests camera prices might not actually go up much in the US, if at all. But if you're borrowing money to buy them, your eventual total cost will go up. And you might not get as much support for what you purchased. 

And we haven't even gotten to the Law of Unintended Consequences (or LUCk, as I like to call it). Changes as large as the ones currently being proposed always have plenty of unintended consequences. Something happens that wasn't expected. Sometimes that's a good thing, sometimes that's a bad thing.  

Despite the above, I don't think my purchasing advice changes from my previously published advice: 

  • Cameras and lenses are not investments, don't try to treat them like an investment
  • If you need something, buy it
  • If you want something and can afford it, buy it
  • If you can wait until the obvious sale times (Christmas, February, Father's Day/Graduation, product near end-of-life, etc.), then wait
  • Know that the Japanese makers like to use model updates for either (a) resetting the price bar to what it was, or (b) increasing it
  • Be careful of taking on debt to buy things; we've been at historic lows, and that will almost certainly change for the worse

The formula you want to consider is basically this: VALUE = WORK + ENJOYMENT / TOTALPRICE where TOTALPRICE also includes any interest charges, losses due to switching, maintenance, and other costs you incur beyond the price you paid the dealer. Only you can tell me if the VALUE for any given transaction is high enough to meet your requirements. 

A few have hit me with "[the supposed changes about to be made] will inspire someone to start making cameras in the US again." Hmm. With what parts? Virtually everything that's in our cameras these days is not something that we make here in the US. So the parts would be subject to any border tariff, and thus the supposed benefit of manufacturing in the US would be greatly, if not completely, diminished. Seems unlikely to me. 

It doesn't matter what side of the political fence you sit on, changes that get made during ruling party transitions have implications that you need to take into account. But again, nothing that's being proposed at the moment changes any of my basic purchasing advice in the bullets, above. It may well happen that when the changes are actually completed we can see their actual impacts that my advice might have to change a bit. Still, at the moment, there's no need to panic about camera pricing, nor any cause to believe that prices will somehow increase or decrease in any meaningful way.  

I do assign my own "value" ratings to products I review (on the summary pages: cameras, lenses), if you care to look. But note that those are based on what I perceive to be "average value" (three stars). One and two star products have less than average value to me, four and five star products have more than average value to me. 

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