Sunday, October 30, 2022
An economy without stupid money
All over the world 2022 was the year which brought back inflation, after a 30-year hiatus. Inflation decreases the value of the money you have, or your fixed income. In order to rein in inflation, central banks increase interest rates, which means the money you don't have is getting more expensive. All in all the expectation is that the world will go into a recession, because there will simply be less money around. The big political problem is that is people who previously just barely got by, and now don't have enough money for essentials, like heating. But in this post I will look at the people who were doing reasonably well before inflation hit.
What we observed in the previous decades was things like the rise of crypto currencies as a type of investment with no underlying fundamental value, and considerably less safety nets than more classic types of investment. We saw people paying crazy money for collectibles, or pay $1,000 to a scalper for a PS5. And we saw the rise of video games as a service, with exploitative monetization tactics, and people spending thousands of dollars on a single game. I am calling all of the above "stupid money": It is the sort of spending or investing most people only do with money they don't immediately need for essentials. That isn't to say that there weren't people who got suckered into one of the above while having a hard time to make ends meet. But the biggest percentage of stupid money clearly came from people who didn't think too hard about how to spend their money, because they didn't have to.
Warren Buffet once said that "Only when the tide goes out do you discover who's been swimming naked.". I would argue that a recession with tighter money will affect stupid spending far more than essential spending. While stock markets are down, crypto assets are down a lot more. Collectibles are falling a value sharply too. And while we usually don't have all the data, games as a service appear to be doing increasingly badly too.
And maybe there is the positive side of the same coin: A lot of the bad trends in gaming have basically been companies chasing the stupid money. Why offer good value for money in a game if you can make millions with exploitative monetization, as long as there are enough whales? But if money is tight everywhere, the pay once to own game forever business model suddenly looks a lot better to consumers than Free2Play with loot boxes. Games as a service aren't financially viable if everybody decides to just play the free part. And scalping depends on there being a lot more demand than supply, so maybe in a year from now people will actually be able to buy a PS5 at MSRP in their local electronics store.