Pokémon Go is not an indictment of late capitalism

by on 13 July, 2016

unnamedStephan Livera rebuts the arguments that “Pokemon Go is everything wrong with late capitalism”:
Contra the arguments presented by Timothy B. Lee in Pokémon Go is everything that is wrong with late capitalism, Pokémon Go is not a good reason to believe that modern day capitalism has failed us. I’ll quote liberally from Timothy’s article:

If you were looking to have fun with some friends 50 years ago, you might have gone to a bowling alley. Maybe you would have hung out at a diner or gone to the movies.

These were all activities that involved spending a certain amount of money in the local economy. That created opportunities for adults in your town to start and run small businesses.

This is based on the notion that in order to benefit, people have to spend into their local economy. But the real reason we are able to progress forward is not merely due to consumer spending going up (this is putting the consumption cart before the production horse). It is because of savings and capital accumulation. This capital accumulation enables us to make things in more productive and efficient ways. We’re getting more for less!

It also meant that a teenager who wanted to find a summer job could find one waiting tables or taking tickets at the movie theatre.

The fact that people are not spending into the local economy because of Pokémon Go doesn’t mean the local economy is starved out. It means that people can save on their entertainment costs, and then go spend on other things. Which might include their local economy, or it might not, depending on their choices.

When you spend money on items in the Pokémon Go world, it doesn’t go into the pocket of a local Pokémon entrepreneur — it goes into the pockets of the huge California– and Japan-based global companies that created Pokémon Go.

This cuts both ways. It means that there is also more global opportunity. Nowadays, it is easier for a person to learn valuable skills such as programming and entrepreneurship, which can be valuable across the globe. They could get employed by a software company, or go it alone and build software or other web businesses on their own. Note this isn’t limited to young people, many people in established careers have successfully retrained into a technology career.

But the Pokémon Go economy also has some real downsides. One has to do with regional inequality. Nintendo and its partners are rumored to be earning more than $1 million per day from Pokémon Go. That money is flowing away from small and medium cities and toward big technology companies concentrated in big cities.

Regional inequality is not necessarily a bad thing. When we seek profits, we are incentivised to go and do the things that serve more human desires. Think back to the industrial revolution, and how it drove poor, starving farmers to work in the big cities for better pay. Was this ‘regional inequality’ also a bad thing? Pokémon Go, smartphones, and internet companies are just another example in the process of ‘ideas having sex’. This is a big part of what led to the Great Enrichment as outlined by Deirdre McCloskey and others like Matt Ridley. This Great Enrichment has led to huge and global poverty alleviation.

Companies like Google, Facebook, and Vox Media are drawing ad dollars that previously went to local newspapers and television stations.

One door closes, and another one opens. Traditional newspaper journalism jobs are decreasing (see this by Mark Perry), but digital marketing is very much on the rise.

In contrast, a lot of internet-based businesses are so ethereal that they barely create any jobs in most markets.

Similar to above – one door closes, and another one opens. As Frederic Bastiat said, we should instead “Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.” It’s not about making jobs, it’s about making progress for the consumer, because we are all consumers.

When businesses are able to bring the cost of goods and services down, this enables more jobs to be created in other areas anyway. It’s just not so obvious upfront where those jobs are coming from, but they are being created. In our nature as humans we always want more, it’s just a question of whether entrepreneurs are enabled to go out and make those things.

And Pokémon Go seems unlikely to produce very many opportunities for complementary local businesses.

Really? Even on this point there’s reason to disagree. See Pokemon Go Is Driving Insane Amounts of Sales at Small Local Businesses. Here’s How It Works. People can drop lures to entice business, they can organise Poketours, they can offer discounts. Just because we can’t individually think of ways to monetise, doesn’t mean that other people out there won’t find a way.

And this seems to have severed the traditional link between capital accumulation and economic growth. Since 2008, the US economy has been awash in cheap capital…. And in the rest of the country, people are struggling to find any productive investment ideas. So interest rates keep falling as people increasingly despair of finding ways to get high returns from their savings.

Where I think Timothy is going off track is confusing cheap credit for cheap capital. Bona fide capital accumulation requires saving, this requires us to withhold our consumption in the present so that we may consume more in the future. Printing more money tokens is not foregoing current consumption, it is merely creating more paper claims to the same capital stock.

If anything, this kind of monetary experiment encourages capital consumption as opposed to accumulation. Think of fiat money inflation as tricking entrepreneurs in regards to the true price of capital. It encourages malinvestment into projects that seem profitable, but are actually not viable given society’s current capital stock, capital structure and true consumer demands. Here’s a one minute video explanation of the problem with central banks creating artificially cheap credit:

The other is to think harder about managing demand. There may be more that central banks can do to boost demand.

As I interpret him, Timothy seems to be a fan of Scott Sumner and market monetarism. I’d fundamentally disagree with that approach, instead preferring the Austrian economics understanding of how an economy grows and why it doesn’t. As above, the problem is not one of demand or consumption, it’s one of production and the need to save.

If that doesn’t work, then more direct income redistribution may be called for — taxing rich people in high-growth areas to fund expanded government services, wage subsidies, or even cash payments to people in slower-growing parts of the country

Unfortunately this would stop the process of markets reorienting themselves so that entrepreneurs could better serve consumers. This kind of redistribution acts to slow people from readjusting to where the jobs and genuine consumer demand are.

Tax hikes hurt society and slow its progress. If anything, the policy prescription should be to lower taxes, thus raising individual incomes. See Michael Potter’s CIS work on Australian taxes. I did a post on this here, and I particularly like section 6.3 of the report:

impact of taxes intl evidence.png

Though I don’t play it, Pokémon Go is not a negative reflection of society. If anything, it represents a fantastic achievement with net positive implications for society. The combination of technologies and inventions to create a compelling real world augmented experience will surely serve as a building block for future ideas and careers. This is all part of the process of “ideas having sex”, and of humankind’s Great Enrichment story.

Timothy has outlined how one door is closing, but I don’t believe he has paid sufficient attention to the myriad other doors opening

Stephan is a corporate internal auditor with a passion for communicating libertarian ideas. He blogs at www.stephanlivera.com where this article was originally published. 

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