The next economic revolution?

What happens when much of life is "free" (or at least of little cost)? Economics has traditionally been based on prioritizing scarcity and allocation. Now we seem to be moving to an era of abundance (if not over-supply). The next economic revolution has been creeping up on us.

Traditional economics assumed that much of what we wanted was scarce and so it was necessary to give priorities to key products and services. New right economic rationalism was based on the assumption that humans were rational actors seeking to maximize their expenditure. Their needs and wants exceeded what they could easily afford.

We are now seeing an abundance in some areas. Technology, globalization and changed social thinking have been key factors. They have worked together and so may be difficult to identify individually.

For example, 50 years ago I had a university vacation job selling encyclopedias door to door in Boston. Aspirational US parents wanted their children to have access to good books. Now people use Wikipedia free of charge and so don't buy encyclopedias.

Today's children expect to be able to read articles online for free (such as in Online Opinion) and not buy newspapers. Once people have become accustomed to receiving free information – and now there is so much of it – that it is difficult for mainstream newspapers to try to put their newspapers behind paywalls.

During the COVID crisis many people became accustomed to working from home and communicating via email and Zoom. The risk here is that people who can work remotely could be replaced by others in low-cost countries (such as India and the Philippines) who could provide similar services. This is good news for Indian workers but bad news for Australian ones.

There will also be a lot of free desk space when the economy fully recovers because people may want to work more from home and so have less need for a regular use of an office. This could be bad news for commercial property investors.

There is even speculation that the high price of inner-city housing may start to come down because can people work from their new homes in the regions or on the beach. One of the biggest boosts to Australian productivity last year was working from home, and so not having to waste time and fuel travelling into the city.

The "platform economy" such as Uber and Airbnb means that people can maximise the use of their resources (such as cars and spare rooms). This means good news for the environment since we are making greater use of existing resources (an Airbnb room which has been standing vacant is now making money).

Additionally people are becoming psychologically adjusted to making use of something without necessarily having to own it. For example, for many young people owning a car was an important rite of passage on the way through to adulthood.

Now cars are simply a means of going from A to B, and people are focussed on the output (the journey) and not the means (their own car). I teach young Americans who – for the first time since World War II – are not quite so obsessed with buying a car. The car industry faces a troubled future.

The "sharing economy" means that people are less fussed about individual ownership. For example, a group of homeowners in one area could purchase a lawn mower to share between them. This is maximal use of resources but a reduced overall demand for lawn mowers. Manufacturers of lawn mowers may also face a troubled future.