How does the focus on tech for leisure (e.g., consuming apps like Instagram and TikTok) affect the economy? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
Answer by Lukasz Rachel, Assistant Professor at University College London (UCL), on Quora:
The dawn of the 19th century brought with it a revolution that dramatically reshaped the economy of the Western world. The reins of economic growth transitioned from land-based and agriculture-focused Malthusian technology to a neoclassical framework built around capital accumulation and improving factor productivity. An unprecedented rise in the living standards followed.
More recently, a different change in the nature of economic growth has occurred: innovation has increasingly centered on capturing the fleeting commodity of user attention. In this new era, products are cross subsidized and often free, with their real price paid in the currency of consumer attention, time, and data.
Concurrently, measured growth rates of output have generally been disappointing, except perhaps the brief pick-up in growth in the United States in the late 1990s and early 2000s. Meanwhile, billions of people changed the way they spend their time and interact with technology. Data shows huge increases in the amount of time spent on screen, although the phenomenon is so widespread one hardly needs data to know it is important.
In recent research I term this phenomenon Leisure Enhancing Technological Change. I am interested in several important issues, not least how best to conceptualize the new kind of technology that augments our leisure, what the incentives for developing those technologies are, and what the broader impact on the process of economic growth might be.
The first insight is that, unlike the improvements in traditional technology which raise households’ real wages, improvements in leisure technology might be better thought of as a shifter of preferences, raising the marginal rewards of leisure time. These have the potential to shift time allocation sharply, as we have seen over the past decade, and alter the overall welfare even as money does not change hands. When leisure technology becomes important, GDP becomes a less reliable guide to welfare.
But what drives the continuous development of leisure-enhancing innovations? From a macroeconomic perspective, the race for engagement seems to be related to the accumulation of intangible capital by firms in the economy. Some forms of intangible capital, such as brand equity that firms accumulate through advertising, are effectively transformed user engagement. As firms in the economy want to register in consumer consciousness, technologies that grab consumers’ attention are sought for and thus developed through profit-driven leisure R&D.
Numerous studies have now focused on individual-level effects of social media and other technologies of this kind. But longer-term macroeconomic impact can be just as important.
One effect is the shift between different types of R&D activity, with more of it happening in the realm of attention-grabbing products, and less in the traditional economy. Another occurs through changes in the time allocation patterns. Mainstream endogenous growth models link technological improvements with the pool of resources that are thrown at solving problems. To the extent that screen time replaces or distracts us from these productive activities, it can have an adverse impact on long-term growth (even as it could be positive for welfare).
In summary, the current technological revolution is powered by leisure-enhancements. These affect not only how much time we spend looking at screens, but also impact the macroeconomy at large.
This question originally appeared on Quora – the place to gain and share knowledge, empowering people to learn from others and better understand the world.
