Measuring the Paradigm Shift That is the Sharing Economy

There are several issues with economic measurements that exist today. It's a known loophole, for instance, that the flurry of rebuilding activity following a natural disaster positively affects GDP numbers. The situation on the ground is obviously different than what is being expressed in the numbers.

Emily Badger writes about the implications of the new sharing economy at the Atlantic Cities. :Looking at these through the lens of economic measurement highlights emerging errors that may make measures as they exist today more and more useless. Consider her assessment of what sorts of goods lend themselves to the "shared economy of stuff":

The shared economy of stuff works best with assets that are expensive to own and infrequently used, like camera and music accessories, or high-end home tools. SnapGoods sells itself with the slogan “own less, do more,” a nod to the idea that our culture increasingly values the accumulation of experiences over assets.

Economic measurement is built around discrete transactions. GDP is a stand in for personal utility because it's assumed that if I buy something, I (or perhaps my household if analyzing from that unit) receives the value. If I buy a lawn mower, my household receives all of the benefit from that lawn mower.

The utility of having a mowed lawn is approximated by the cost of the lawn mower. In a traditional ownership economy, this makes sense. As sharing becomes a part of the mainstream economy, it will become clearer that the core concept behind the new sharing economy is in complete opposition to this assumption. A lawn mower doesn't intrinsically provide utility. If my lawn can be cut by sharing a lawn mower with neighbors, or even a service, I get the exact same amount of utility that I would have gotten if that mower were sitting in my garage. As Emily further articulates in the article:

All of these models – alongside bikesharing, coworking spaces, shared nannies – are really at the end of the day about efficiency, even if the shared economy simultaneously speaks to our more altruistic motivations to do right by each other and the environment. Ownership, by definition, implies idleness. Whatever you own that you’re not using right this second may be going to waste. Or worse, you’re wasting scarce money on it.

I'd take Emily's insight further to say that introducing formalized sharing into an economy completely decouples ownership from utility. To say that another way, assume that an economy is measured purely by the amount of lawn mowers sold. As people begin to share more, less lawn mowers will be bought. According to economic statistics, the economy is tanking, but in reality people are receiving the exact same utility as they were previously.

Discussions about the merits of economic measures have been around forever; Bhutan makes headlines when it bases its well being on Gross National Happiness instead of Gross National Product. This particular societal evolution however could lead to one of the most egregious errors in economic data ever seen, and perhaps could lead to a complete rethinking of capitalism as a whole.

To be clear, just because we're sharing doesn't mean we're becoming communist, but the transition from an economy based on ownership to one based on experience represents a paradigm shift that has no comparison. Even the Industrial Revolution, which changed our economy in countless ways, left this basic assumption unchanged.

One would probably have to go all the way back to the transition from a hunter gatherer society to an agricultural one to find a comparison. The trade off of technological advancement was a loss of the traditional ad-hoc social organization that existed in tribal societies. In order to act in the larger units of settlements, we needed formal organization, strict division of labor, and in most cases, a concept of private ownership.

With the advent of social networking, technology has finally caught up with us. We can see the beginnings of a more natural form of interaction within larger units. Within dense cities, social networking allows us to interact with each other in a "tribal" way. Humans naturally want to interact this way, and it's exciting to see technology finally approaching a point that brings us back to our roots.