A Consumption-less World?
As new generations retreat into online virtual worlds, will consumption rates plunge?
When physical toys had the power to transport us into magical worlds.
My friend
launches an intriguing provocation: we might be heading towards a consumption-less world. Not a world with no consumption, but a world with much less consumption than we’ve become accustomed to, say 80% of disposable income rather than the 90-95% that has been the norm in the US for the last thirty years. Luca recalls the magical sense of expectation he experienced as a kid on a much-awaited trip to a toy store; and contrasts it with the blank stare and the “nothing” he gets when he now asks his young daughter what she would like as a gift.From this, Luca draws two observations: First, since younger generations spend much of their time in virtual worlds, their desire for material things is much diminished. Second, even in virtual worlds their appetite for consumption is limited — people do not simply lust after virtual muscle cars and branded sneakers for their avatars instead of real ones for themselves. And if that’s the case, he posits, as new generations reach their peak consumption years, overall consumption rates in advanced economies might fall significantly.
Can you spot the difference?
My knee-jerk reaction was skeptical. I need to be careful, however, because here I am prone to amusing inconsistencies. Try to convince me that younger generations care more about the planet or social justice, or want more purpose in their jobs, or desire experiences rather than things, and I will laugh dismissively and say they are no different than previous generations. Yet a minute later I will grumble that younger generations no longer have any critical thinking, or sense of history, or grit, and are lamentably different from previous generations.
Marketing gurus and futurists are keen to affix catchy labels and proffer simplistic predictions. We were told that millennials did not care about owning houses. A handful of years later, millennials were hailed as the driving force behind the housing boom (see here and here). Once they got jobs and saved a bit of money, their desire to own a home turned out to be no different than in previous cohorts.
On the other hand, times do change, and there is no doubt that the shift from physical to virtual realities is a very significant one.
Virtual worlds have already swallowed up a large share of human time and attention, with no visible effect on consumption rates. However, the simultaneous spread of social media and smartphones is more recent and has had a disproportionate impact on younger generations, who manifest a significantly higher incidence of anxiety, depression and suicides, as I discussed in a previous post — it may well be the case that as they grow older, they will display fundamentally different economic behaviors.
The skeptic’s corner
Still, here are a few arguments for skepticism.
New generations have had a more comfortable start in life, courtesy of a few decades of economic growth. I’ve seen plenty of kids who’ve been showered with an abundance of gifts that my friends and I could not have dreamt of at their age. Ask them what they want, and they might well not have an answer, because all their wishes have been preemptively granted. Luca says in the blog that’s not true for his daughter, but for many other kids it is. (Not for all. Income inequality plays an important role, as it did for past generations.) As they grow up, they’ll discover new wants and needs like all their predecessors.
The rise of influencers runs counter to the idea that virtual life will displace consumption. Influencers make a living by persuading virtual worlds denizens to buy physical stuff — and well over half of Gen-Z aspire to become influencers.
Consumption in advanced economies is dominated by services. In the US they account for about two-thirds of real personal consumption expenditures, though their share declined somewhat starting in 2014 and experienced a step-down with Covid. Virtual worlds are ripe with opportunities for more services, especially for younger generations with their insatiable appetite for consultants, counsellors and therapists.
Source: US Bureau of Economic Analysis
But what if…
If Luca is right, though, the implications could be momentous — here are a few thoughts:
A shift to significantly lower consumption rates could represent a healthy step away from the wasteful “fast-everything” economy where clothes, appliances and gadgets of every kind get thrown away and replaced with shocking speed. If you care about sustainability, you should welcome such a shift.
Electricity would become an ever-increasing share of overall consumption. The fast expansion of virtual worlds, where AI is set to play a major role, will require massively higher amounts of power. Whether that demand can be satisfied, and how, will be an interesting test — and might offset any sustainability benefits from lower goods consumption.
Some goods-producing industries would shrink — identifying them at an early stage will be an important challenge for financial investors. An interesting ancillary question is whether consumption would experience a similar restraining effect in emerging markets (pent-up demand for goods should be greater, but the spread of virtual worlds might be even faster.)
Lower private consumption (as a share of disposable income) means higher savings. These might either feed a productive investment boom, or result in a new savings glut, pushing us back into a world of low interest rates and low potential growth. If overall consumption declines, the latter scenario appears more likely, in my view.
Lower consumption rates would tend to blunt the impact of traditional macro policy tools. On current trends, I fear many governments would be tempted to increase the scope of public spending even more, to replace private consumption. Given the dismal inefficiency of most government spending, this would depress potential growth further.
These are just some preliminary considerations, and I would welcome Luca’s thoughts as well as your reactions.
Sci-fi vs dis(mal)-sci
Luca closes with a reference to Ready Player One, Ernest Cline’s sci-fi novel, and an open-minded sci-fi mindset is probably best suited to tackle the underlying big question: what major economic implications can we expect from our (unhealthy) shift to virtual life?
Enjoyed the out of the box thought. If I may join you there, wouldn't less consumption mean less need for money, ie, a higher preference for leisure over work (instead of higher savings), opening a whole different set of considerations?
"Lying flat" trend points in that direction, but also the preference of millennials and following cohorts toward working the minimum possible. This could be due to a different sense of work life balance than we had, in turn possibly amplified by the perception that population aging means they'll have no money anyway from the burden of social taxation. Climate anxiety contributes to this sense of no future.
Automation, as human labour substitution, may be coming in at just the right time. This is likely not a coincidence as some of the preference you note for online games and apps probably feed plenty of new ideas for those developing AI.
It is incredible how reality converges with what sci fi books of the 60s had described for the future of society. The other interesting question then is: what else are they saying we haven't paid attention to yet?
Marco
Provocative as a;ways. No data but from years of observations the shift to virtual world and online shopping has impacted volume in the following way. Product placement influences additional and UNPLANNED purchase (never leave a grocery store with just the bread and milk and Costco whew) but on Amazon regardless of click bait and pop ups you purchase just what you need. Not sure of magnitude of impact on overall consumption but targeted purchase with just in time delivery is a new world