A post by Hamlet Au over at New World Notes, refers to an interesting, but off base in my opinion, article by Edward Castronova over at Terra Nova. Basically Edward Castronova ponders whether people spending more time online has the potential to be an important factor in a real world recession. The answer of course, is yes it does, but not for the reasons Edward Castronova seems to cite.
I’m not even going to attempt to get into a discussion about Keynsian economics, I’m not an economist. However, the Edward Castronova article does mention Keynsian economics, so if that’s your bag, I recommend you read the full article, I’m going to look at this from a different angle, where I feel Mr Castronova is somewhat missing the point is when he says things like:
“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.”
I fail to see how time spent online is any different to time spent at home reading a book, watching television, watching a DVD, listening to the radio yadda yadda yadda. The fact is that during the last few centuries we’ve heard the argument that x will cause chaos for the economy, we can go back to the Industrial revolution if we want, we can probably go back further, and yet we come out of these changes the other side, with new industries emerging and new items selling.
Clothing is not going to take a hit because people play video games or Second Life, clothes will take a hit because people have less cash in their wallet. The reasons people have less money in their wallet can be numerous, they could have lost their job, taken a pay cut or be spending their money elsewhere, such as online, but in the case of the latter, that means the money is still being spent, which is a key factor in the economy, one door closes another opens.
An example of this was recently highlighted by Forbes as they published an article about Second Life’s Stiletto Moody. This article talks of how Stiletto Moody has sold over $1M worth of virtual shoes in three years, $1M, that’s an impressive figure. This money is unlikely to all be new money, some of it will be money that people previously spent elsewhere, but it’s a sign that virtual worlds can add to the economy, for those who feel virtual worlds will lead to less consumer spending this is a slap in the face.
We are in the midst of a virtual revolution, or a digital revolution is probably more accurate, with virtual worlds part of that digital revolution. I can now order goods online, I often do, I don’t need to drive to the store, this saves petrol and car maintenance costs, but it also means that as I’m saving those costs I can spend that money elsewhere, or put it in the bank for a rainy day, the money isn’t lost. There have of course been ways of ordering goods without leaving the house for decades, mail order catalogues have been around for a long time, the internet just made the option more appealing and far more feature rich.
The car of course has been an important factor in a changing economy, cars mean people can go to out of town shopping centres, often to the detriment of the local shopping centre. When I was a lad my shopping centre had two newsagents, a furniture store, a menswear store, a supermarket (which wasn’t so super by today’s standards) greengrocers, butchers, a cake shop, a hardware store, a cafeteria, a bank and a laundrette amongst others, a freezer shop arrived in the late seventies, as people started to be able to afford bigger freezers for the home, the frozen food market expanded. Most of those stores have gone, to be replaced by charity shops, general stores, an off licence (which used to be called outdoors and attached to pubs), a tanning salon etc. The Laundrette of course fell victim to the fact that people could afford to buy their own washing machine and during the years a video shop came and went as the video boom came and went.
The seventies and eighties of course also saw the rise of home computing, this was all starting to happen over thirty years ago, I was playing pong over thirty years ago, just under thirty years ago I was playing Manic Miner on the Sinclair Spectrum, whereas my sister had saved pocket money to buy singles and albums on vinyl, I was spending my money on cassette tapes with computer games on them.
All of these factors are missing from Edward Castrronova’s piece, the fact that life has changed umpteen times with different products and services rising to the fore to the detriment of other products and services and this is again happening now, people spending money on virtual goods to the detriment of other areas, I fully expect to see less travel agents in the high street over the next few years because it’s so easy these days to browse and book a holiday online, only niche travel agents will prosper on the high street, we’re also seeing this with games and music stores, you don’t need to go to the store to purchase an item, although many people still do.
I’m pondering whether to buy the next expansion pack of World of Warcraft as a physical copy or by downloading a digital copy from Blizzard, the more digital copies that people buy, the less boxes needed for products, which in turn has a detrimental effect for mail companies as there’s less need for deliveries, this is what happens and has been happening for eons.
Going back to the main thrust of Edward Castronova’s article, yes a real recession could be caused by virtual environments, but not so much because of the virtual environments themselves, the reason will be more to do with business not adapting to virtual environments or not expanding into virtual environments to capture the interests of the consumer, the real cause of recession will be the same as always, lack of money and confidence in spending, it won’t be because people are using virtual environments, virtual environments are likely to be an integral part of the next economic boom. Edward Castronova does point out just how important confidence in the economy is from a business and consumer perspective, if we have little confidence in the economy, then yes it is likely to be in trouble.
However some things keep going way beyond their expected usage, the floppy disk for example, the VCR has been in decline for years but hung on in there and as I was driving back from Villa Park today after watching Villa batter Manchester United in the second half and still only end up with a 2-2 draw, I turned on the radio, and Buggles were wrong, video didn’t kill the radio star, it’s still alive and well, it has just changed with the times, no longer do I hear the cheesy klaxon when a goal is scored, but I still hear adverts, promotions and radio presenters, the world spins on, despite the revolutions around us.