The New Economy Is All Around Us, But…
There is no doubt that the new economy exemplified by the sharing, gig and circular models has the potential to release much capacity that until now was frozen in idle investments. Conceptually, therefore, this “new economy” should reduce new-car purchases, new hotel-room construction and other types of investments, while boosting the productivity of existing assets. However, I discussed the matter with a friend who is both active in the hospitality business and an early investor in Uber. He was adamant that I not underestimate the number of mini-entrepreneurs who purchase new cars just to become full-time Uber drivers, or the number of residential or vacation units that are being purchased to be rented full-time.
Moreover, since the income earned by many sharers and gig workers really supplements their regular incomes, many of them do not realize that their gigs or rental incomes qualify as separate jobs. While the additional income from these activities is usually reported to the IRS, the activity may not be correctly captured by various employment surveys.
Just as importantly, the effects of the virtual economy do not fall evenly across the economic spectrum. The lower your income, the more likely it is that you are paying a greater portion of your salary for essentials such as food and healthcare. In that case, you live principally in the physical economy, where the cost of these items has been rising. This segment of the population may be able to get some gig jobs to supplement their incomes, but it generally does not have the money to invest in an Uber car or an Airbnb unit.
This may explain why many people who do not participate in the new economy have the feeling that we still have not fully recovered from the Great Recession, while others actually feel fairly comfortable. Declining prices and additional incomes accrue to participants in the virtual economy, whose members generally are already better off. Two economies, two perceptions of economic reality, but a common GDP.
The truth is that, despite massive research in the last few years, it is hard to gauge the current size and impact of the sharing, gig and circular economic phenomena on GDP, employment and even incomes. But this should not stop us from trying. As Einstein reportedly said, “If we knew what we are talking about, it would not be called research.”
Volatility, Schizophrenia And Bad Breadth
To my mind, attempting to steer an economy on the basis of aggregates or averages that merge individual sectors with very disparate strengths amounts to trying to tune a carburetor while wearing boxing gloves. The result is likely to be too much stimulus for the strong sectors and starvation for the weak ones. And attempts to try to correct these excesses are likely to worsen the volatility of both economies and financial markets.