Tuesday, January 17, 2012

The Internet, Deflation and Depression

There was a story out last week that purported to show a correlation between time spent on the www and changes in brain physiology. I'm dubious.
As Britain's NHS News put it:
...Several news headlines have suggested that internet addiction can cause changes to the brain, but this description is inappropriate, as the study design did not look at changes over time. It looked at how the brains of problem internet users differed from those of people who did not report such a problem. Therefore, it is entirely possible that the heavy users had particular brain structures that made them susceptible to addictions, rather than that the internet actively changed their brain structures....
Further, the newspapers likened the changes to those seen in cocaine abusers but went on to describe something quite different from my understanding of what blow does to the reward pathways, overexciting the dopamine cascade until the various D receptors no longer react to dopamine and eventually leading to anhedonia. The big A is often concurrent with and like anxiety, may even kindle for depression.
Don't worry, be happy.
See also "Pleasure Dissociative Orgasmic Disorder"

Another story re: the internet reinforced a point that I've made over the years, most recently in last month's "Dear Paul Krugman: Research Suggests Deflation Does Not Lead to a Depression".

From Digital Due Diligence:
The Growth of the Internet and the Happy Recession
Most popular web-based businesses are deflationary. They substitute expensive forms of content consumption for cheap ones, they make it logistically easier to deliver discounts to people who will respond to them, and they create numerous financially cheap forms of social status. As more activity moves on to the web, the main effect on the economy will be broadly lower prices and less need for employment.
This theme was briefly explored in the excellent The Great Stagnation, but the full impact has yet to be realized. A booming Internet sector has an almost universally negative effect on prices:
  • The web makes entertainment cheaper: A crummy music experience is available for free, either low-quality music through filesharing, or music interrupted by ads. A great music experience is available for $10 per month via Spotify. Casual music consumers don’t care that much about their experience, and they’re pretty happy with the free product. Heavy music consumers care deeply about their music experience, and almost certainly spent more than $10 per month on it during the pre-Internet days. And music is hardly the only example. The most pernicious aspect of Internet entertainment is that it’s so easy to measure and so easy to mass-produce. So the moment something on the Internet gets fun enough to be competitive with the real-world analogue, it starts getting relentlessly improved until it’s vastly superior. World of Warcraft soaks up upwards of forty hours per week from serious fans, who pay about $15 per month for their subscriptions. Few other hobbies can consume so much time at such a low cost.
  • The web offers cheap social status: In the long term, this may have a bigger effect than the web merely making digitizable products cheaper. Social status games drive a huge amount of economic activity: people strive to get into high-paying, high prestige career tracks, to win promotions and attendant raises, to live in the best neighborhoods and send their kids to the best schools. Few status games lack some kind of economic output—people who play sports well below the professional level still get some job opportunities out of it. 
  • The Internet creates numerous social status games running in parallel to real-world social status games, but almost none of them have the same economic impact. Sites like Reddit and Digg use leaderboards to get users to compete. And the aforementioned World of Warcraft has complex social structures in which individual players manage teams with about the same attention-to-detail as a typical corporate middle-manager (in fact, many advanced World of Warcraft players will spend lots of time using Excel to optimize their game strategy). Given the opportunity to switch from a difficult contest for social status to an easier one, people will tend to opt for the most difficult contest they have any shot at winning. Thus, online communities tend to encourage marginal corporate climbers to be satisfied with worse career outcomes, so long as they’re still well-liked within their online subculture.

    Foursquare is an interesting take on this. Foursquare’s social status games tend to focus on going to business establishments, which often involves spending money. But for someone who really wants to get to the top of that week’s leaderboard, the path of least resistance is to check in without spending money.
  • The Internet offers easier access to discounts: the entire group-buying business is built on using discounts to shape customer behavior. This has always been a part of local commerce—a big part of the Sunday paper’s heft consists of coupons. But the game changes qualitatively when the cost of getting a discount in front of someone willing to act on it drops by an order of magnitude or more. This should put long-term pressure on the revenue per table at restaurants, or the revenue per attendee at yoga studios—any high fixed-cost, high gross-margin business is vulnerable.
  • Easy access to information makes price discrimination much tougher. Numerous businesses succeed by offering a superficially good deal to their least sophisticated customer segment. This gets harder when people get in the habit of reading up on their purchases online. The FlyerTalk message board, for example, is full of techniques for gaming credit card rewards plans and hotel upgrade policies. When bad deals are more obvious to consumers, this puts margin pressure on the companies that live off of them....MORE
So there you go, one condition need not lead to a worse condition, in either neurochemistry or economics although the latter can be depressing.