The Consumer Web is Deflationary | Hacker News Reader

The Consumer Web is Deflationary

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46 pointsbyrneseyeview24 comments

I think just about everything in this article is accurate, but that it ultimately doesn't matter, because the particular class of goods that are subject to this is rounding error on an economic sector which, if you compared it to e.g. fixed income securities, would resemble a pimple on the nose of a particular emperor depicted on one coin of the vast horde that a dragon sleeps on.

Here's an interesting experiment for you: guess what portion of the US economy is video games, movies, music, and consumer Internet services put together. Now graph that against "Of the last 20 people you talked to, how many are white men between the ages of 12 and 24?" I think that graph shows a markedly upward slope. I also think that it does not asymptotically approach the right answer.

You could do a spiritually similar experiment with, e.g., cosmetics/beauty aids, wedding services, etc and young ladies. Or healthcare, if you're looking for a gigantic underestimation.

It's a small fraction of the real economy, but a large and growing fraction of waking hours. It's hard to measure the consumer surplus created by high-quality entertainment, but it's clearly enormous if people are willing to devote multiple hours per day to TV (or, if they're in the demographic you mentioned, games and the Internet).

If that activity is <.25% of GDP and ~5% of waking hours, it might imply that our measurements are out of whack, not that it's insignificant.

Plus! The rise of online dating might cut into the cosmetics market, by reducing the necessary baseline of attractiveness. If people meet their mates when they're standing in line at the grocery store, looking good in the grocery store has a direct, positive impact on lifetime happiness. If people meet their mates on OKCupid, it's okay not to care too much about personal appearance at other times.

It would be informative to see a pie chart of the US economy, broken down by sector. Unfortunately, I'm at work, and don't have the disposable time to concoct such an interesting diagram...

Fulfilling psychological and social needs are a huge part of the consumer economy. bigger houses , branded cars and brands in general , going to pubs and restaurants and vacations , everything that has to do with design.And entertainment. all those are there to fulfill psychological and social needs.

The web offers a cheap alternative , that's rapidly improving(google+ hangouts for example), for fulfilling psychological and social needs.

Just increasing energy, raw material, food, etc. costs increasing can produce net inflation, even if everything else gets progressively cheaper due to automation, scale, and computers.

Energy hasn't been increasing in cost ( not even gasoline in the US, really - although it's a messy dataset ). Raw materials and food are "marginally free" - it almost costs more to figure out how much more you need than to produce it, so long as there is no speculative run on the commodity.

The Internet (apparently) produces much more consumer surplus than it sinks in cost. I'd say it's deflationary because:

1) 1980s models of radio are completely infeasible. 2) 1980s models of television programming are pure-cost infeasible. 3) Cable TV is dependent on movie-replacement shows like "Breaking Bad" and sports. 4) There's a strong probability that theater-movies will follow the same curve as CD sales did with Napster, and soon.

The only things that are not essentially deflationary are housing, education, government and healthcare. Housing might be teetering on the brink of deflation. Education... who knows? And healthcare is likely to see something like deflation as status-oriented (read customer-perception quality stuff) gets squeezed out.

Government? Who knows?

Gas is over $4 per gallon, and people drive longer distances due to housing issues and the decline of public transportation. I drop $100 every time I go to whole foods, and I go a few times a week.

Gas was $1-2 per gal until fairly recently (a few years ago), and food has gone up in both price and demanded quality.

2001-2007 was the majority of the increase, but that is due to the recession 2008-2011 and ongoing, at least outside tech.

I agree the big commodity bubble was a bit of an exception, but if you took away the recession, headline inflation, if not core, would be way up.

I believe Tyler Cohen's "The Great Stagnation" arrives at a similar conclusion, but I'd like to see hard numbers. In regard to entertainment, it'd be interesting to see a nomalized total $/hr comparison of various activities. For example, compare a standard movie in a theater to playing Dragon Age. That'd be roughly $15/hr (adding popcorn) vs. (120 hrs game play / ~60$ for the game) ~$.50/hr. That seems impressive, but .50/hr is still much higher than the 0$/hr that free broadcast television offers. I'd be curious to know how all these different types of media consumption shake out in the long run.

That's a really good question. I have no idea what the ad revenue per hour of TV watched would look like, but Quora might know:

http://www.quora.com/What-are-some-typical-ad-revenues-per-p...

(Edit: I came up with a very rough estimate of $.20 of ad revenue per person-hour of TV time. I have no idea how accurate that might be.)

That seems to be the same number Kevin Kelly provides for TV: http://www.kk.org/thetechnium/archives/2011/03/your_attentio...

Very interesting. How many ad impressions do you generate during an hour of web browsing? 100? 500? That's $0.10 - $0.50 of revenue at a $1CPM.

If you buy a console just to play dragon age... 460/120 = 3.83. A console with 3 games: 580/360 = 1.61.

Edit: edited out stupid "on par with movie" comment.

I agree with most of the article. However the author suggests that the net reduces the ability for sellers to price discriminate. I think it helps both sides, and the outcome is in doubt. On the one hand it enables faster and broader flow of price information, but on the other hand it reduces the anonymity of the buyer. I think what we will see is an arms race between buyers sharing information and sellers creating all sorts of ways to individually vary the discount they need to offer.

In order to vary the discount without making customers angry you have to change the product , not only the price. For many products , that's pretty difficult to do.

Maybe, but then again, loyalty cards with tiered rewards do that. Making customers do work to signal their price point does it (e.g. coupon clipping). Bundling can do it too. Essentially, sellers have to add complexity to keep the discrimination going. Meanwhile consumers have little supercomputers to help undo the complexity. Hence the arms race analogy.

It seems that it sucks if your retirement portfolio consists of the industries being undercut and you need things like medical care. AirNurse, CrowdDoctor & 99medicines are unlikely to drive med prices down.

There are disruptive innovations in healthcare. You can use medical tourism and save a lot. There are other.

But disruptive innovations are usually pretty slow. they take a decade or more.

Just invest carefully.

The interesting thing about this is that pretty much every point in the article can be read as: the internet changes consumer markets to be more like the idealized markets in economics textbooks.

Just a random observation, but it might be something for serious economists to look into.

cheap social status is an oxymoron (social status is zero sum) unless the status is perceived instead of real.

I'm not sure that's true. Any time you ask what someone's social status is, you have to qualify that question to within a particular group. If you expand the group to "everyone on the planet", I think you're talking about fame, which seems different to social status.

I have a significant bias from reading "Overcoming Bias" by Robin Hanson. His "math" is to attribute to status-seeking anything where there's a ... demand curve that doesn't make sense. It's all relative. So "cheap social status" might be substituting working on open source instead of accruing your first billion. It's cheap-er, but still not cheap.

The web offers cheap social status

That is a very interesting observation. I wonder if it will make most people happier in the long term.

From a 2008 European study of 18000 people: "people that are connected to the Internet are considerably more satisfied with their lives.”

http://www.virtualhappiness.org/2008/02/wellbeing-and-intern...

It would be completely and totally awesome if all status were relegated to the Web. I would estimate the probability of that at at around 0.1%. People who were denied status on the Web would try to find some other means.

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