The economy continues to move slowly and economists seem as uncertain as ever about the causes and what to do. Months ago, I began to wonder – could this possibly be the first “exodus recession”? In my first book I sketched out the idea. Suppose economic activity moves from the real world into the virtual world. Human happiness is unaffected or even goes up, however, the goods that produce the happiness are now produced and consumed in a virtual environment rather than the real one. Measurements of economic activity, being all based in the real economy, would begin to show weakness. I argued that contemporary political and economic control systems do not tolerate much weakness, thus, there might well be some sort of crisis in the real world, for no good reason, simply because production and consumption was going “off the books” and into virtual environments. One term for this would be an "exodus recession" - an economic downturn caused by the movement of human attention and energy into virtual environments.
Are we in an exodus recession right now?
The sensitivity of the state of the economy to our cultural understanding of the state of the economy is greater than ever. We live today in a world where the health of the economy is a widely-reported and narrowly-followed pseudo-fact. Business people focus like laser beams on employment figures, GDP growth rates, and so on. If the GDP growth rate falls from 3% per year to -1% per year – Ye Gods! It’s the end of the world! The impact of such changes on the happiness of an individual person is minimal by itself. But when we read about such things, we all react. Hiring doesn’t happen. Purchases are not made. Lo and behold, the drop from 3% to 1% becomes a drop from 1% to -2%, unleashing another round of anguish. People start to lose jobs – which DOES affect their happiness, a great deal.
The central government responds with stimulus and quantitative easing, none of which will work unless we all believe that a stimulus or QE is just the thing to make everyone believe that the economy is turning around. And if we all have some kind of pessimism about the long haul, if we believe that none of this is going to work, it just won’t – whatever Lord Keynes said.
In such an environment, even a little thing, if persistent, could touch off a prolonged mood of pessimism. Is it possible that the virtual economy is that thing?
George Will recently wrote about the increasing speed with which our experiences are going digital. Using data from Robert Weissenstein, chief investor for Credit Suisse, he notes that “In 2001, the iPod arrived. Less than a decade later, the number of employees of music stores has declined from about 80,000 to 20,000.” And “Three million iPods were sold in 2.5 years; 3 million Kindles were sold in two years; 3 million iPads were sold in 80 days; 3 million iPhones were sold in three weeks.”
Let’s construe the notion of “virtual economy” quite broadly: If you receive an experience by yourself through a machine that runs on digital technology, without doing or buying anything physical (other than press a few buttons), it’s virtual. To download a song and listen to it on your iPod is virtual; to go to a concert is real, to buy a CD and play it is real, to play your own instrument is real. The difference I want to highlight is in the physical nature of the economic transaction. The virtual transaction does not require the movement or alteration of anything physical. Not even physical money changes hands. The real transaction involves material being created, moved, consumed, all by human hands.
Using these concepts, there’s some evidence that an exodus from the real to the virtual is not only already underway (as I argued in my second book) but that’s it’s gotten big enough to affect our sense of a whether the real economy is healthy or not. In support, here’s a series of random judgments about the state of the real world.
TV viewing is down among 18-34 year old males, and movie attendance is flat. Meanwhile, more and more time is being spent online or playing videogames. If you want to get 80 hours of fun watching movies, you need $1000. You can get the same fun from a game for $50. Spending time online or playing videogames simply involves less expenditure in the real economy.
Human eyeballs see a lot fewer ads than they used to. As noted, some people are watching less TV. For most others, the TV they’re watching is increasingly DVR’d or Hulu’d, that is, stripped of ad content. On the internet, we avoid ads easily – they are usually in the periphery, and if not we can click them away, or surf to something else. Advertisers have made an industry on the presumption that ads make people buy things. If they are right, it follows that fewer ads would result in us buying less. Ads are less and less a part of our daily experience. HBO’s success with a show about evil advertisers is perhaps apt now, because we feel we finally have gotten the upper hand on these miscreants. The net result of our power over advertisers, according to their own model, would be a weakness in general real-world consumption.
Facebook is a great way for people to connect. In some FB games, you can buy someone else a beer. You can poke them, write on their wall, friend them. None of this causes anything in the real world to be moved or changed. There are 500m people on FB, hundreds of millions more on other, similar social networking sites. If you’re friending people on FB, you’re ever so slightly less likely to be sending them a real Hallmark card, ever so slightly less likely to write them a note on paper, ever so slightly less likely to give them a call. That’s probably not going to turn around, either. Our ability to socialize online puts a crimp in our general need to move stuff or change stuff in the real world.
People who spend time online don’t have to worry about what they are wearing. Suppose that some percent of a given day can be spent in pajama’s, the rest must be spent in decent clothes. For decent clothes, you need a whole and varied wardrobe. For PJ’s, you need a few comfy ones. Now increase the amount of time that can be spent in PJ’s. The demand for decent clothes falls, if ever so slightly. The internet allows us to do all kinds of stuff in our PJ’s – so it must have an ever so slightly dampening effect on the market for fashion.
One could go on. It is possible, slightly, that there’s a general weakness in consumer spending simply because, to get our social, emotional, informational, and needs met, we just need fewer movies, fewer beers, fewer trips, fewer shoes, fewer things in general. What if the world of human beings suddenly became converted to the idea of consuming less stuff? Why, there’d be a recession, of course. Less buying means fewer jobs and less investment, which means economic contraction. It would mean a general pessimism about the prospects of business.
If our culture suddenly went Green, for example, we would have a recession but we would also understand its cause. We would know that a dissatisfaction with materialism led to economic weakness. But if this conversion to less consumption came from a different and more obscure source, how would we identify it? What if real world consumption refused to grow not because people were becoming hippies, but because they remained selfish materialists who had, however, come to enjoy virtual matter? If an exodus recession were underway, what would the world look like?
For one thing, the general pessimism about the economy in an exodus recession would not extend to the industries that produce virtual experience. Indeed, the video game and social networking industries are booming right now. Computer and digital entertainment hardware and software – doing quite well, thank you. Bold innovations in devices happen every year, and the number of apps is skyrocketing.
Another aspect of an exodus recession would be that consumers, in general, would not be expressing much general pessimism about being consumers. There’d be no sign that people had given up on the idea of buying and selling things. They’d be as interested in money, the economy, and jobs as ever. However, they would consistently say that they’re slightly less interested in buying a washing machine than they were last year. You don’t have to do as much washing when you spend more time living through your avatar. They’re going to be slightly less interested in a car because they’re not going to go driving around quite as much. This has nothing to do with malaise or lack of government stimulus or the conversion of a culture to moderate spending. It begins with people buying digital stuff instead of real stuff. And indeed, we find in the recent US election that people are very interested in jobs and the economy. Yet collectively they seemed to react less powerfully than expected to efforts to stimulate their real-world spending. This would make sense if people are turning their consuming energy to mp3s, FB gadgets, and Xbox Live Achievements. Having a new road is not going to have much effect on an economy based on digital goods.
These are all conjectures, of course. It’s a what-if. Is it possible? I thought we would not see a real-world recession caused by the removal of consumption energy into virtual environments until sometime in the far future. But I didn’t think about the possibility that the term “virtual environment,” in its economic meaning, might expand to environments as diverse as Hulu and Facebook. Are people now spending enough time fiddling around with digital stuff that their interest in physical stuff has weakened to the point that it catalyzes an ongoing cycle of economic pessimism? Perhaps not. But some trends certainly point in that direction. Even if this is not the first exodus recession, one wonders how far off that first one may be.