Why the Sharing Economy Is About Desperation, Not Trust

An anonymous reader writes "Wired recently ran a cover story about the sharing economy — shorthand for the rise of peer-to-peer rental services like Lyft and Airbnb — which they call a cultural and economic breakthrough. They say it has ushered in a 'new era of Internet-enabled intimacy.' An article at New York Magazine has another theory: that it arose because of the weakness in the real economy. Quoting: 'A huge precondition for the sharing economy has been a depressed labor market, in which lots of people are trying to fill holes in their income by monetizing their stuff and their labor in creative ways. In many cases, people join the sharing economy because they've recently lost a full-time job and are piecing together income from several part-time gigs to replace it. In a few cases, it's because the pricing structure of the sharing economy made their old jobs less profitable. (Like full-time taxi drivers who have switched to Lyft or Uber.) In almost every case, what compels people to open up their homes and cars to complete strangers is money, not trust.'"

Comments

tl;dr

[Anonymous Coward]

tl;dr Marx was right that an over-production would leave the majority in poverty, and the only economically sustainable solution is sharing. It's not "desperation", but an inevitable and rational necessity.

Re:tl;dr

[Beck_Neard]

Marx talked of productivity increases, but what Marx didn't live to see was how dramatically productivity would actually increase over the twentieth century, to the point where so many paid workers would simply be laid off. About the wealth gap, he turned out to be more right than he could have ever foreseen.

Re:tl;dr

[Opportunist]

The problem is not over-production, it is that for some odd reason we see production as the goal of economy. Problem is, the goal is not production, it's selling.

The goal is cheaper, cheaper, CHEAPER! We have to produce cheaper. Cheaper than the competitor, and even if there is no competitor, we have to produce cheaper. Not to sell it cheaper, as the market theory would demand, but to increase the profit margin. But hell, even if we WERE selling it cheaper, it would not make a difference. Because whether you sell something for 100 or 50 does not matter if the prospective buyer has NOTHING.

And that's the problem of our economy today. We're not lacking production. Far from it. There is by no means a shortage of anything. Anything but money on the consumer side, that is. We cannot SELL. Because there simply is nobody to BUY. Not that people wouldn't want our crap, if this whole sharing "culture" shows us anything then that there is a damn lot of want. But to turn want into need, money is needed.

The reason for the economic growth from after WW2 to the 80s was simply that people earned pretty well. Even and especially "unskilled" labor was relatively well paid and people could afford to spend. People even continued to spend after they could not really afford it anymore 'cause their wages didn't keep up with inflation. They borrowed, refinanced, maxed out credit cards... the economy only noticed that things go wrong after that, too, hit the limit.

And now we're in the shit creek we're in, because even if we started to pay people handsomely, it would take years to even notice since they now first of all would have to pay back their debt. You'd have to recover two decades of overspending, most likely with at least two decades of overearning. And it's very, very unlikely that anyone would want to make that "investment" just to get something as unimportant as the economy back on track.

Re:tl;dr

[Kjella]

Oh please, the Industrial Revolution was "the" killer for skilled artisans and craftsmen who were often replaced by unskilled labor operating machinery which incorporated the skill. Being self-employed and providing services directly became much harder, you had to be a worker at a factory because they owned the machinery and reaped the profits. Probably the worst time to be a worker was in the late 1800s and early 1900s when Taylorism was at its peak and it was all about how many seconds operation X took at the assembly line and it was all about dumb replaceable workers you could drag in from the street at subsistence wages.

It never really changed until Ford doubled the worker's wages in 1914 and from there was the golden age of the "skilled" worker, concepts like Kanban/Lean Manufacturing in the 1950s also focused on small cells of skilled workers providing much higher flexibility and lower defect rates than the big, long assembly lines. Then started a new cycle where the skill those workers had were incorporated into robotics, again forcing us to develop a new set of meta-skills because it can crank out parts with near perfect precision 24x7 and it was back to huge production lines. We still needed a lot of monitoring and repair though, because the first robots were rather dumb and did things rather mindlessly. Now those skills are being incorporated into electronics, and we're again looking for new meta skills. It all comes full circle again and again.

Re:tl;dr

[Opportunist]

Right now, the big scare is that we're running into a deflation. No, really. DEflation. Not INflation. Now, considering how bad inflation is (allegedly), deflation must be good, right? Wrong! It's even more feared than inflation.

Inflation only means that your money gets less valuable. That can be remedied: Simply stop printing money and jack up interest rates. Of course, that's easier said than done, but at least you can in theory do something against it. Deflation is not so easily cured.

The core problem is that inflation can actually be beneficial for an economy, since it tempts to consumption. If your money is worth less tomorrow than it is today, you better spend it now rather than later. With inflation, people free money into tangible goods, even if they're perishable and not lasting, because even as perishables they're more lasting than money. Deflation causes the opposite. The longer you hold money, the better for you since tomorrow it's going to buy more than it does today.

I don't think it needs too much of an explanation why this is poison to any economy.

Now, there are quite a few possible causes for deflation, and a few regulatory instruments that can cure it. In our case, though, there would not be such an instrument. If we really reach the deflation level, we're fucked for good. Game over.

One possible reason for Deflation is a shortage of money, plain and simple. If there's a shortage of something, it gets more valuable. The easy solution to this is running the printing press. Now, we've tried that and it only made matters worse, because now we have some kind of inflation without eliminating the looming deflation. Mostly because there was no shortage of money.

Another reason is that the goods available are simply not attractive and people rather hold onto their money than buying what's offered. The cynic in me would say that's dead on, but no. That was the case in the former east bloc occasionally (which actually had a rather curious mix of insane shortages and buttloads of crap nobody wanted), and their money experienced an odd "official" deflation with a rampart "black market" inflation. Not really the case here now either, people would buy.

The reason for this deflation is actually a shortage of money, but a shortage of money per person. Money is available, but it is pooled. Which is great for investment, but very bad for consumption.

And we really have NO shortage of investment money. People would love to invest. If you needed any proof of this, the issue of Greek bonds that sold like hotcakes (despite Greece's credit history and its near bankruptcy) just because of the guarantees the EU gave for them is an indicator. They offered just over 5% interest and were fiercely contested. There is plenty of investment money sitting around, desperately looking for an investment opportunity.

What is missing, and what makes this looming deflation so dangerous, is the lack of consumption money. Deflation is always an indicator of low money velocity. Now, the reason is this time not that people cling to their money and that they don't want to spend it, the reason is simply that they have NO money to spend. Worse, they are in debt. And just like savings, debt also increases with deflation, which would make the whole shit even worse since climbing out of the hole gets more and more difficult.

What makes this situation so very dangerous is that governments cannot really remedy it. There is very, very little a government could do to regulate it. Their main regulation instruments for inflation, i.e. money printing press and interest rate, fizzle in such an environment. Running the printing press still requires some means to distribute that money, and there is very little you could do that makes that money end up in the hands of people who could spend it and thus cure the demand side problem. People would not, could not, spend it. They have a debt to take care of. That money you print would instantly be guzzled away in those debt holes people are in a

Re:tl;dr

[orasio]

The only economically sustainable solution is to have a labor force that matches labor requirements. What Marx didn't foresee was the tremendous medical advances the world has seen in the past 100 years, allowing unsustainable population growth while the need to unskilled labor declines. No amount of sharing, unionization, or wealth transfer will help when there are billions of people with no demand for their labor.

Don't let ideology blind you. People don't need jobs.
People need food, shelter, medical care, and several other things. Jobs is one of the ways you can get those.
If there _are_ enough resources for everybody, probably we can come up with way to distribute them effectively, even one that doesn't need busywork. It's not an easy problem, but seems solvable.

Re:tl;dr

[drinkypoo]

There is plenty of investment money sitting around, desperately looking for an investment opportunity.

Almost. It's pathetically waiting for an investment opportunity, instead of creating one. Granted, creating one is made ridiculously difficult in this country.

What makes this situation so very dangerous is that governments cannot really remedy it.

Sure they can. They can unfuck taxation such that it comes from the pockets of those with money, and then they can spend the money on public works, raising employment and actually improving infrastructure, making it easier to make money. Done and done. Problem is, they're not going to do either of those things unless forced, let alone both.

Re:tl;dr

[complete loony]

We've given the power of the printing press to bank managers. They lend money that doesn't exist through the magic of double entry book keeping. We spend it to keep the economy going. And then we have to pay it back with interest. Except we aren't paying it back, we keep borrowing more.

During the 2007-2010 crisis, I was worried about deflation. It should have been worse than the aftermath of the 1929 crash. But it didn't quite happen. This time around it wasn't just businesses leveraged up to their eyeballs. When a business has to find cash to pay back their loans, they can slash prices on inventory, sell what they've got without ordering more and cut staff. All of this leads to a massive reduction in income, without managing to reduce debts much at all. In fact, since incomes fell so drastically, attempting to pay off debts caused them to rise.

While all those things did happen, this time around it was households holding a significant fraction of the debt. What is an individual going to do? Stop eating? Stop needing a roof over their heads?

Plus this time, we've managed to get everyone borrowing again. So the economy is back on track and heading upwards. We've recovered better than they did in the early 1930's. Here in Australia we managed to avoid a technical recession completely. Our PM at the time did everything he could to get spending money into the hands of every day people. He didn't give a cent directly to the banks, he didn't need to.

But we're not out of the woods, not by a long shot. Our mountain of debt is still there. On the average day in the 1930's the stock market was climbing, things were getting better. But then there was another crash. And the long term trend was still downwards. It was only with the outbreak of war and a massive spending spree on the part of the US gov, that debts finally reduced to sane levels.

History doesn't repeat exactly, but it certainly does rhyme. We're going to hit another crisis. The total debt level of the economy is too high for it to be otherwise. Some group of people out there are holding onto a lot of debt and are technically insolvent. At some point their creditors are going to notice and the whole stack of cards is going to tumble again. Who's it going to be? No idea.

Re:tl;dr

[DrLang21]

Deflation is relatively easy to deal with, but it would be political suicide to do so. The Fed keeps printing money and giving to to banks to lend out as debt. This only puts a lot of money in the pockets of the super rich who don't spend it. If you want to held deflation, take that money and give it directly to everyone.

Money, in the hands of people who will actually spend it, is the cure. We have seen examples in the past where the government just gives out an extra $200 to everyone filing a tax return. I got that money and spent it. So did a lot of people, and it was credited for creating noticable relief in the economy. Give me $40,000 to forgive all my school debts and I'll have an extra $500 a month to do something with. Sure I'll save some of it, but not all of it. I am sure the vast majority of other people would do the same. Hell I might even be able to save enough for a down payment on a house.

Sharing is common outside the west

[Beck_Neard]

In many countries in the world it's quite common for people to share stuff like taxi services and rooms and has been for decades. In many of these places the crime rate is far higher than in the United States. The huge contrast between the amount of distrust people seem to have for each other in America and the actual rate of crime (which is quite low and has been decreasing for decades) is pretty astounding.

Re:Sharing is common outside the west

[guises]

You seem to be lending credence to the hypothesis in the article: the less affluent you are, the more chances you're forced to take in order to get by.

Anecdotally, I've had a number of friends who had to go this route with AirBNB. All of them love the money, none of them love the strangers in their apartments. (Though it isn't all bad - they're generally nice people.)

Re:Sharing is common outside the west

[prefec2]

I know this is crazy, but you could share your apartment with one for free. And hope to get offered the same when visiting some place. This is called altruism and happened very often in the "distant" past.

Trust vs Desperation...

[bayankaran]

True, its about desperation, not necessarily an extra layer of 'internet trust'.
The US is unique in developed economies - luxuries are cheap...big screen TV, a car and so on. But necessities are expensive...healthcare, decent education, and to an extent housing.

"Necessity is the mother of invention"

[monkease]

...but I don't think that the only necessities are economic (...as both dyed-thru Marxists and Neocons seem to? I get that this is not you). While it's true the trigger for my involvement with "sharing"--from free-as-in-beer file-sharing to using Airbnb to potlucks to etc. etc.--may sometimes be economic, "because I can't afford to otherwise" doesn't actually make it in the top three of my reasons, now very much engaged with "sharing," for continuing in it.

The New Intimacy is new not because humans are different, but because more are more available than ever before. #internet

Economic "realists" are the children who built the world variously self-destructing.

Re:"Necessity is the mother of invention"

[udippel]

...but I don't think that the only necessities are economic (...as both dyed-thru Marxists and Neocons seem to? I get that this is not you). While it's true the trigger for my involvement with "sharing"--from free-as-in-beer file-sharing to using Airbnb to potlucks to etc. etc.--may sometimes be economic, "because I can't afford to otherwise" doesn't actually make it in the top three of my reasons, now very much engaged with "sharing," for continuing in it.

The New Intimacy is new not because humans are different, but because more are more available than ever before.
 

Perceive yourself being modded up 'Insightful'.

It is a new economic paradigm that currently evolves. Until recently, economics was based on the distribution of scare resources. And Marx didn't live to see this new aspect. Therefore, despite of his usefulness of his work in our days, his insights need to be accompanied by the only-evolving paradigm of managing an oversupply.
Combine this with the concept of the necessity of growth, and we all run into troubled times. Because the necessity of growth is by mathematical definition not linear but exponential. Compound interest, in case you don't understand the pure term.
Overall, an exponential growth is needed [so teach us the prevailing economic theories], while on the other hand an oversupply with decreasing prices [due to great leaps in productivity] kind of drowns us in mountains of consumables.

Oh please, Indeed.

[Anonymous Coward]

Then started a new cycle where the skill those workers had were incorporated into robotics, again forcing us to develop a new set of meta-skills because it can crank out parts with near perfect precision 24x7 and it was back to huge production lines.

That plant the laid off its workers only needs a handful of folks to maintain the robots. It's NOT a one to one transition. It's at least a 10 to 1 DOWNSIZING.

Now those skills are being incorporated into electronics, and we're again looking for new meta skills. It all comes full circle again and again.

Everytime the "circle" goes around LESS labor is needed.

Just where are those workers going to go because other industries are not absorbing them - the employment numbers proves it.

Look at today's big comanies - like Amazon. They have about 30,000 employees.

A couple of decades ago, a company that size would have had a million people of ALL skill levels working there. But automation has made things much more efficient. Cheaper for the rest of us, sure. But what to do with all the displaced workers? Retrain? For what?

All the new big companies only need a fraction of employees needed before.

EVERY industry is doing this. There is no indsutry that is increasing their workforce - none. Even medical is becoming more efficient and (ever so slowly) automating on the lower levels. And there's other changes too.

And that is what get's me about the fetish of policy makers who want manufacturing to come back to the US: it'll be done by robots.

In the 19th century, Western society went from on labor intensive economy (Agriculture) to another (Manufacturing). So, there was opportunity for transistion.

But today, new industries are going straight to automation (or off-shoring), old industries are doing the same, and there's a ever decreasing pool of jobs for people - and as a result, wages are declining in real terms.

Just making straight comparisons with the past and today and strugging off social and economic changes that is hurting the average guy is the wrong analysis and the numbers prove it.

Re:Oh please, Indeed.

[zippthorne]

It's not zero sum. After the layoff, the 9 other workers are freed to make something else. At the founding of the nation, something like 80% of the workforce worked in agriculture. Over time, mechanization and improved techniques have lead to the present day fraction of something like 2%. The 78% of the workforce didn't starve to death, they went and did other, more interesting things, and now we have airplanes, computers, movies...

Growth is not necessity

[Immerman]

Why is an growth necessary? To sustain our current economic models perhaps, but they are themselves a very recent anomaly dating back to somewhere around the beginning of the industrial revolution and the liberation of productivity from the number of laborers available. As you point out, all sustained growth is exponential, and that is unsustainable in a finite environment. And we're already bumping up against the limits of our global ecosystem so it must end relatively soon.

No matter what the economists want to believe, sustainable growth is an oxymoron and we're going to be forced to return to an economic model which presumes the entirety of production remains relatively stable. Individual businesses may still grow, but only at the expense of other businesses (competitors and/or those rendered obsolete) But there's no particular reason they need to grow at all. Even today there are plenty of small businesses that don't subscribe to the "grow or die" philosophy, and have instead simply grown until they reach a comfortable, sustainable size and then remain there indefinitely. And that's absolutely normal. In days gone past a master blacksmith could only grow his business to the limits of his own productivity - he might take on an apprentice or two to help out with the easier stuff, but it was his own skill at the forge that drove business.

Re:Growth is not necessity

[mlts]

The modern shareholder item where a company must grow no matter what... and if a company is well established, but not gaining new market, it is considered a hot potato and has to be dropped... This is a self-destructive philosophy seems to be fairly recent.

I think part of the reason why Dell went private is exactly this. The desktop/server/workstation market is not growing by leaps and bounds. Is it still lucrative? By far. Companies amortize their computers every 3-5 years on taxes, Moore's law allows more functionality in the same server and workstation space, and new real estate to expand server rooms is a lot more expensive than replacing existing servers for more bang/cubic centimeter. However, is it growing by leaps and bounds? Not really.

Another big issue is that companies that are stable end up getting bought out by others that have the "growth focus". This means that a product made by a firm for 20 years and is tried and true gets replaced by something cheap and shoddy because there is no stake in that one little niche anymore, so the larger firm can cut corners there without risking the stock value all around.

I've seen this happen fairly often in the RV industry. A small firm that has some useful widget gets bought out by a larger, "growing" company, and next thing you know, the well-made, made in USA item that was made to last a lifetime now is made overseas [1] out of a cheaper metal and manufacturing process... or is turned to craptastic plastic fresh out of an injection mold. Of course, the price doesn't go down. Yes, the larger company expanded and seized a narrow market. However, other than that one company, nobody else is benefiting from this.

As described above, exponential growth isn't sustainable. What does a firm do when they reach market saturation? Get bought up by a bigger firm that is "growing"? The result of this are a few companies owning a lot of market niches.

Finally, when a recession hits, the focus on growth can turn so-so times into a death spiral. A company may not be expanding in a sour economy... but it can be holding its own. However, with the growth mentality, no new market additions can push stock values down, causing that company to collapse. The car industry comes to mind here, because the first thing that happens in a recession is that people stop buying new cars, so automakers get hit hard in the stock market when this happens.

[1]: I don't want to bash China on this one. Generally, they try to make stuff to spec, and if a company specs "cheap junk", they will deliver "cheap junk". If a company specs high quality and foots the bill for the better materials/fit/finish/manufacturing processes, it will come off the ship that way.

Re:Old people can't do physical labor

[Immerman]

In terms of farming, absolutely. By optimizing away the common man's ability to be self-sufficient we've fundamentally altered the nature of the "game".

As for military spending, sure we need a certain level to keep the barbarians from our gates. Though outspending the next 20+ nations combined is probably overkill. But that's getting off topic.

As for taxes, there's lots of other ways taxes can be good for everyone. Roads for example. Dirt ruts can only carry you so far, and toll roads are unlikely to be cost effective. Free paved roads allow the farmer to get his produce to market in a timely fashion instead of having 80% of it rot along the way. Other infrastructure can operate similarly - so long as a 10% increase in taxes provides for infrastructure that increases your profitability by 20% almost everyone wins. Similarly with cleanup and policing (which could both be be conceived of as defense against the carelessness or maliciousness of your neighbors). Then there's things like medicine and eduction, which done wisely can be immensely profitable for all involved when socialized at a basic level. The costs of basic services are minimal when spread across the population, and most everyone benefits from both the direct education and the resulting facilitation of the poor-but-brilliant child being able to get a good start towards becoming an engine of societal advancement. Life-extension medicine is it's own thing, there's unlikely to be any great benefit to society from keeping an octogenarian or permanent invalid alive for an extra cuple couple decades, though one could debate as to whether the occasional Steven Hawking is worth the cost. Fixing broken bones and curing infectious diseases though - that's cheap, and everyone benefits, even if they never personally have cause to partake, since it's increasing the percentage of able-bodied individuals in your society (= decreasing freeloaders), and helping to avoid plagues.