Is The Internet Bad For The Economy?

Since the earliest days of Amazon.com I have been buying shelf loads of books from this innovate Internet business every year.  Then I stopped going to record shops and bought my CDs from them too.  Later on I bought running shoes, electronic gadgets, printer ink, and anything else that was convenient.  I buy a lot more books because of Amazon.com’s heavily discounted prices, no state sales tax and free shipping on orders over $25.  Now that the economy has taken a fall, I’ve got to wonder if my buying habits helped in knocking it out?

None of my favorite bookstores have gone under, but they’re struggling.  All my old record stores are dead.  So is the place where I bought my running shoes.  And all the small computer shops I used to visit have disappeared.  My state is hurting from low revenue, mostly gotten from sales tax rather than an income tax.

I buy a lot of audio books.  Audio books used to be $25-150 on cassettes and CDs, but I get them for $9.54 each at Audible.com as a digital download.  I never would have bought many titles if I had to pay the old prices, but if retailers now sold them for $15-25 a book, and Audible.com didn’t exist, I would buy 3-4 titles a month.

I used to buy 2-4 CDs a week.  Now I buy none because I pay $120 a year for unlimited listening on Rhapsody.com.  I used to buy a lot of software, but most of the programs I use today are free.  My wife and I used to collect DVDs, but now we have Netflix.  We used to pay for photo prints to give to people, but now we email copies.

I’ve got to ask:  Is the Internet hurting our capitalistic system?  I love the Internet.  I would never want to give it up.  But survival in this world depends on economic activity.  And comfort and security depends on everyone having a job and the economy doing well.  A 2% rise in unemployment, which we’ve recently experienced, has brought fear and misery.  What will 10% do to our sense of well being?  Do you remember the early 1980s?  People are talking about this financial crisis being the worse since the Great Depression.  1932 had a peak of 25% unemployed.  I have no way of imagining that level of bad times, and I don’t think anyone under 95 can really remember what it was like either.  We really don’t want to go there, and need to consider doing almost anything not to.

We all need to be conscious of our economic impact.  Spending frugally, staying out of debt, making careful purchasing decisions, and all those lessons financial advisors taught us might not be the right thing to do right now.  Would spending a few dollars more for each book and paying the sales tax be a better choice for my local economy than ordering from Amazon?

This afternoon my wife and I wanted to watch a movie together, but there was nothing on at the theater we wanted to see.  So we thought we’d go by Target and buy Kung Fu Panda.  It was $19.99 plus almost $2 in tax.  I could get it from Amazon for $15.99, a savings of almost $6.  But we decided to wait a couple of days for when it comes in via Netflix.  The rental cost would be less than the tax, thus saving over $20.

We didn’t buy Kung Fu Panda.  We just didn’t feel like spending $22 for something so trivial in these economic times.  If Kung Fu Panda would have been on sale for $12.99 we would have come home with a new DVD.  I wanted to help the economy, and considered a 4 DVD set of Dexter Season One for $17.99 plus tax or a 6 DVD set of Northern Exposure Season 6 for $14.99, both of which seemed like excellent buys, but I’ve been spoiled by Netflix.  Why buy something to own when I only expect to watch those shows one time?

See, the Internet has turned me into a bad consumer.  It’s saved me a lot of money, plus it’s more efficient because I don’t have to maintain a physical copy of something that would clutter up my house.  But I’ve deprived a local business of income, took jobs away from the local economy, and reduced the tax revenue of Tennessee.  My gain is a loss for my community.

Either we have to design an economic system with the efficiency of the Internet in mind, or we need to go back to our old ways.  I’m reminded of an old science fiction story.  I can’t remember the title, but it was about a future where the poor had to consume on schedule, while the rich were free to consume as needed.  An example, the poor had to change their shirts several times a day to keep production up in shirt factories. 

Do we really want an economy where people need to buy DVDs rather than rent so more people will have jobs?  Or buy a new gas-guzzling SUV every three years.  I’m sure you get my drift.

Well, the answer might be yes.  If we want to keep the old economy going.  And we might until they invent a new economy.  This is all very hard.  What if you could buy a car that would last 300,000 miles, and used little or no gas, being mainly powered by solar panels on your garage’s roof.  What does that do to GM or Exxon?  If environmental technology, ET, becomes just as efficient as information technology, IT, what does that do to the economy?

What if I took the money I saved by using the Internet and spent it on renovating my house with local labor, buying from local suppliers, but with the goal of making my home more energy efficient?  Will that help the new economy, or just delay the death of the old economy?  I already bought a new SEER 16 HVAC that’s saving me hundreds of dollars a month on energy.  That’s $9300 that went into the local economy, but now my monthly nut to the utility company is smaller.  I could start spending money on insulation, better windows, better appliances, and all of that will add to the economy.

Eventually, I’ll have a very energy efficient house, and I’ll start putting much less into the economic system.  It’s like switching from buying DVDs to renting them.  At some point being efficient leads to less economic activity.

Yes, I think the Internet is bad for my old local economy, and bad for our old national economy.  What’s needed is a new economy.  It’s called a steady-state economy, one that’s not based on growth.  Is the financial crisis that has come down on us going to be the metamorphosis that we must endure before becoming butterflies in a new economic world?  Will Barack Obama return to old tricks to solve our new problems?  Or can he be Copernicus seeing the Ptolemaic economic solar system with new vision?

We can always go back to a wood-chopping, horse and buggy world.  We could turn off the Internet.  This financial crisis may force many to give up cell phones, Internet and cable TV.  Without the Internet, most people will have little need of a personal computer.  Going backwards is possible and may happen.  We may have to prop up the old economy, but is that what we want?

It’s very important that we all pay attention.  In the next few years, a lot of decisions are going to be made.  Where are you going to throw your support?  Every dollar spent is a vote.

JWH – 11/15/8

8 thoughts on “Is The Internet Bad For The Economy?”

  1. I had this thought recently as I have been trying to get my Christmas shopping done. Amazon is my friend this holiday season and I have bought 85% of my gifts from them so far (and I am almost done). While at Toys R Us this weekend I got to thinking about how much I have saved by buying everything from Amazon. And then it occurred to me that toy stores depend on Christmas to make their largest sales. How much am I and others like me going to affect their bottom line this year?

    Off the topic of internet shopping, but I have even made changes to the way I shop for groceries. I go to Aldi’s first and get as much as I can there- for a huge savings. Then I go down the street to Kroger to finish my shopping list. This has saved us a ton. But there is the bigger picture: our neighbors- who we are very good friends with- the husband is a truck driver for Kroger. They have Kroger stock. How are the changes I and I am sure many others have made to the way we shop going to affect their income down the road? What if that was my family? Could I even afford to keep doing all my shopping at Kroger now even though I knew it may or may not affect my future?

  2. I’m not sure online shopping is what hurt our economy. I think more than anything it has been the ease of getting ridiculous amounts of credit and a lot of greed that caused us to be where we are.

    I do believe that internet shopping has hurt businesses. On the flip side the people that work at the Amazon warehouses, etc. have jobs because of that, so the question is, is there a 1:1 correlation between jobs lost and jobs gained? I have no idea. Are more books bought now because of Amazon than would have been if the internet didn’t exist? I would tend to think so and that translates into more money in the economy.

    It is a good and interesting question to consider.

    “We all need to be conscious of our economic impact. Spending frugally, staying out of debt, making careful purchasing decisions, and all those lessons financial advisors taught us might not be the right thing to do right now.” That is such perfect advice. That is exactly what we need to be doing. The sad thing about that is a return to debt free living and being frugal is going to hurt a bunch of people because of layoffs, etc. I don’t know the answer but I certainly hope that answers are coming.

    I know I have been working on being more frugal. One thing that would cause me to buy all of my books from brick and mortar stores (whereas I probably still buy 75% there) is that if I would not let my spending get away from me and would only buy books after I’ve read the last one. That is a habit that needs to be a huge part of my 2009. I need to make some accountability pacts with other book crazy friends of mine so that I can call someone when I’m feeling tempted beyond reason!!!

  3. Carl, I didn’t mean to imply that the Internet economy is the cause of our current economic crisis. I’m just asking if if the efficiency of Internet commerce is adding to the unemployment lines. Right now tens of thousands of people are getting laid off every month. If the economy was thriving, it probably wouldn’t matter that Internet could sell products cheaper than brick and mortar stores. But in this economic downturn, every job counts.

    To fight our way out of this problem will require restoring consumer confidence, and lowering the unemployment numbers. If you have extra money, spending it now is a way to help the country. But, as I pointed out, that’s the way the old economy works. It’s based on ever expanding growth.

    What I think is needed is a steady-state economy. One where we have enough jobs, or the hours of work are divided better, and where the economy is not driven by consumerism and growth. Keeping people in jobs by selling lots of stuff like cars uses up dwindling resources. What’s needed is more jobs that are environmentally neutral.

    Teachers for example. What if we lowered the maximum classroom size to 12 students, we’d probably have to double the number of teachers. We need more people working in hospitals, retirement homes, schools, police beats, etc. But those jobs cost money, rather than make money, so it’s not likely to see more of them.

    Jim

  4. It is hard because spending now by consumers is part of what is needed and yet I feel that part of what we all need to do as well is to use this time to eliminate the habits that cause so many of us to use and overuse credit. I know it isn’t healthy, especially in the long term. I stop and look at what I spend in credit card bills every month and think if I just had half of that to put into the economy I would be doing my part! ‘Extra’ money just isn’t a reality anymore, especially if we need to save more for retirement to somehow balance out what has happened to our retirement saving with this crisis.

    I know things have to get better. Or at least I have hope that it will get better. Until then though your last post did have the unintended consequences of making me think that it may be better for me to invest my entertainment dollars in the local economy rather than places like Amazon.

  5. I was really pondering this and so I went and looked for an article to see how much research has already gone into this. (this is the first article I found)
    Very well written commentary.

    My thought was how it has been affecting LOCAL economy. There is no doubt that the internet has provided new jobs as Carl mentioned, but let’s face it the internet is about efficiency. Technology in general has and always will create less need for manpower.

    It is how the internet is affecting local economy as you mentioned at the beginning of your article. We are taking business away from local vendors and sending our money to vendors who frequently aren’t even providing jobs to US based employees. Many of the factories are even in foreign countries.

    I agree that a new economy is what is needed, something that takes into considerations technology and how it has changed in the past 100 years our consumerism. Especially in the past 10-15 years. Now that we are in a recession it is the perfect opportunity.
    I feel this is a completely different subject than the credit issues and the mortgage crisis. They may be holding hand way way way down the line, but yes our actions are directly affecting “Athletes Foot” and “Virgin Records”, and “blockbuster”. Even in NYC, (where I live) Fresh Direct has gotten an edge on local grocers.

    It is a subject that really should be further investigated, researched and reported on.

  6. I’ve read the comments here and I think they are interesting. My family owns a small local business and we can’t afford to keep many obscure items in stock. We used to do special orders. Now when I provide that option a customer just says they can order it themselves.

    And as said before, less manpower is needed for the internet. Its why a lot of online businesses can provide the same items at a fraction of the cost. The internet is also a great arena for consumers to search for the best deals between local businesses (and not just internet ones), causing the competition for pricing to be really heavy. This is all great for the consumer but its really putting a dent in all local buisinesses’ revenue. Its a tough topic because people want a good price and who can blame them?

    Local businesses constitute a large portion of our economy. People complain about giants like Wal-Mart and stores like them but hardly anyone is willing to spend an extra few bucks to help their locally owned businesses.

    I’ve been thinking about this topic recently and this was the first place I’ve found.

  7. The internet is destroying the local retail job market, the local retail businesses, local, town, city, county, state, and federal taxes that pay for our under appreciated way of life, and the local shopping districts of towns and cities. Money is being funneled away from the local neighborhoods, towns, cities, counties, states, and worse to other countries. It is also bad for the environment with twice the shipping costs, shipping to warehouses then shipping to the distributor, then shipping to the online buyer. Then the high costs of shipping returns. It’s great for UPS, Fed-Ex and the poorly run post office, but not for us or our local area.

    Think twice before you purchase on the internet where you are sending your money. In the long run you don’t save money, you lose money causing higher taxes to run your local services and local, city, county, state and federal governments. You cost jobs, and your local businesses bankruptcy’s, and blight of vacant buildings, vacant social gathering places, and much much more.

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