The "Eat, Drink, and Be Merry For Tomorrow We Die" Economy
Digitalization of money and COVID-induced fatalism are shifting consumer psychology, perhaps permanently
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The “Eat, Drink, and Be Merry For Tomorrow We Die” Economy
I recently booked a house on AirBNB just north of Boston for a mini-reunion with my college friends later this summer. In a matter of minutes and with mere taps on my phone I had paid $1,000 to someone I have never met to stay at their house, my friends had each sent me their portions through Venmo (a cash sharing app), and I had initiated a transfer of those funds into my checking account. Boom, done, Swampscott here we come.
With each step of the process a confirmation alert popped up on my screen, updating me on the seamless transition of my dollars to the Massachusetts homeowner, my friends’ dollars to me, and those dollars into my bank account. No one wrote any checks; I’m not sure I would even be able to find my checkbook and I’ve never once “balanced” it. No one put anything in the mail; I don’t think we even have stamps and envelopes in our house. And certainly no one handled any actual physical currency; I can’t remember the last time I needed to use actual dollar bills and coins to pay for something in a store.
(Sidebar: a couple of weeks ago, my seven-year-old had a very loose tooth. It could have and probably should have come out with even a small wiggling and tug. My wife and I realized in a moment of panic just before bedtime that the tooth fairy that particular evening did not have any coins in the entire tooth fairy house. At the risk of the tooth falling out on its own overnight and ending up who-knows-where, we persuaded our very inpatient son to let the tooth set there for one more night. It came out the next day and by then the tooth fairy had located some hard currency for under the pillow that night. So there are a few things that have not yet gone digital, at least for now. One or two of the farmers at our the local farmers market used to require payment in cash, but they now all have Square devices attached to their phones and iPads in order to swipe credit and debit cards. My guess is they realized they were leaving a lot of business on the table on Saturday and Sunday mornings at the market because, after all, who carries cash anymore?)
The Rise of Digital Dollars
Scott Galloway noted recently on the Pivot podcast that the smartest minds in the world are not holding court in the halls of government. They are not even in academia, mostly. The densest collection of brainpower is consolidated in places like Silicon Valley, huddled together to engineer ways to separate consumers from their dollars as frictionlessly as possible. The ability to design and engineer apps that can get a consumer from viewing an item on a screen to buying it is a lucrative skillset.
According to the Baymard Institute, online buyers cancel in-process orders about 70% of the time. The percentage of incomplete orders is even higher on mobile devices. The concept is known in the e-commerce world as “shopping cart abandonment.” Retailers that have been able to get buyers from start to finish as quickly as possible and with few roadblocks are the winners in an ever-expanding e-commerce landscape.
Nowhere has this been more true than Amazon, which patented its one-click buying process in 1999 and then aggressively sued other companies like Barnes and Noble when they tried to do something similar. Amazon also licensed its technology to Apple, reaping a large windfall in the process. And of course that technology was beneficial to Apple especially in the heyday of buying music through the Apple Store. One-click online purchasing is now an industry standard (Amazon’s patent expired in 2017) but Amazon and Apple remain leaps and bounds ahead of their competition.
The point is that it is really easy to buy things online. And it’s not just the one-click buying. Companies have entire sales funnels built into the infrastructure of their websites and supported by precise marketing campaigns via email, text, and app alerts, all of which are intended to strengthen ties with customers and keep them buying. At least half of the texts my wife receives, I think, are from companies like Chipotle, Target, and TJ Maxx. She is an extraordinary coupon-er. In exchange for the discounts she gets, her name and contact info apparently end up on the contact lists of every wishful retailer from here to Katmandu that wants a sticky customer.
As money has become digital, it can start to not even feel real. This is what online gambling sites like DraftKings and Barstool Bets are counting on. Once you have an account set up, it is abundantly easy to add more money to it. Dollars within these sites blend with “crowns,” “tickets,” “tokens,” and other so-called rewards and it can become easy to forget that with each bet you’re actually putting real dollars at risk. Online investment sites can feel similar as it is quite easy to buy and sell stocks, mutual funds, ETFs, and other assets online through sites like Vanguard and Etrade and low-dollar-amount upstarts like Robinhood.
To be sure, Amazon and ETrade and others have been around since the 1990s. But the pandemic has led to a surge in online consumer activity. Even after a decade of annual double-digit percentage increases in online retail purchased, e-commerce jumped by 44% in 2020, undoubtedly driven by quarantines and COVID restrictions:
As time goes by and more and more young people come of age who have never known anything but online retail, e-commerce sales will only continue to climb. The pandemic has also sparked older people to shop online who may previously have been either reluctant to buy online for privacy or security reasons or who lacked the technology skills to do so.
But Why Did the Economy Hold Up?
It’s safe to say the economy is in a weird place right now. Supply chain issues, tight labor markets, restricted travel and quarantines: the world is still sorting through a global disruption unlike anything we have ever known before. But at the same time, asset prices have rapidly appreciated. Stocks are at or near all-time highs. Prices of commodities and materials have skyrocketed. Real estate is on fire. At a time when the global economy should have arguably been in meltdown, asset prices have surged. What happened?
There is a strong case to be made that stimulus programs like individual checks to most Americans (twice!), business relief programs like forgivable PPP loans, and enhanced unemployment benefits essentially propped up the economy long enough for the impact from COVID-19 to be absorbed and dealt with. Global governments and regulatory bodies like the Fed here in the United States have also kept interest rates at historically low levels, which has allowed consumers and businesses to borrow or refinance existing debt at attractive rates, saving significant interest costs for years to come and fueling new economic activity.
I would submit, however, that along with the digitization of money and the increasingly rapid shift to online retail where transactions are incredibly easy, the other factor at play over the past 18 months that will have a lasting impact well beyond the passing of COVID-19 (if it ever does completely go away, which it very well might not) is a general sense of absurdity if not fatalism about the state of the world. The reality of COVID-19 has been a part of this, but it’s also that this pandemic happened to occur at a time of unprecedented wealth inequality around the world including right here in the United States, which has fueled both a desperation among people to acquire greater levels of income and assets and a fatalistic frustration of wondering what even matters anymore.
Certain anecdotes and events over the past 18 months will be studied in not just economics textbooks but psychology and sociology books for years to come. Case in point:
In March 2021, a piece of digital artwork by an artist known as Beeple sold for $69 million. According to an article from The Verge, “The auction’s winner doesn’t get much: a digital file, mostly, plus some vague rights to present the image.”
A New Jersey deli with one location was valued at more than $100 million on the New York Stock Exchange in February. The CEO is also the CFO and Treasurer, plus he coaches the high school wrestling team.
Stocks in companies like GameStop, AMC, and Dogecoin have fluctuated on extreme volatility with prices significantly detached from any underlying values of the companies themselves. The rise of so-called “meme stocks” have some wondering if the stock market will ever be the same.
There have been stories of houses selling for $1,000,000 over asking price, potential buyers paying competing buyers to walk away, and even one homebuyer offering to name her child after the seller.
Bitcoin, an actual decentralized digital currency, swelled in price from around $7,000 at the outset of the pandemic to over $60,000 in April 2021 (it has since fallen to $30,000-$35,000). Fluctuations in cryptocurrencies like Bitcoin have been purportedly influenced by single tweets by Elon Musk and other influencers and investors.
All of these stories do have technical explanations, but they are also completely absurd. And they not only are evidence of absurdity, but perpetuators of it as every time something ridiculous happens it is amplified and spread by ubiquitous social media, further driving our collective behavior into a frenzy. Absurdity begets further absurdity.
And who can really blame someone who is sitting at home in quarantine or is bored by their stay-at-home job and may be frustrated that they are not making as much as they think they should for not dropping a few hundred dollars on GameStop stock or Bitcoin or Dogecoin or any one of a number of flavor-of-the-month investments out there. FOMO is a thing too (Fear Of Missing Out), and every time someone sees a friend, family member, or high school acquaintence posting on Facebook about their latest investment success, it creates that restless need to try to follow suit.
A comparable historical example can be found nearly 400 years ago when the price of tulip bulbs in Holland increased so fast and by so many orders of magnitude that ordinary citizens quit their jobs and poured life savings into tulip speculation, many losing everything they had in the process. In his noteworthy book on the episode, Tulipmania, historian Mike Dash noted a certain “fatalism and desperation” in the Dutch citizenry at the time to take part in the chaos, which was fueled by stark inequalities in wealth between the nobleman class and the working class and, interestingly enough, by the presence of the Plague in this area of Europe in the years prior. Dash says:
In the seventeenth century almost all Dutch artisans worked long hours for low wages. When the day’s work was done and they could finally go home, it was to cramped and sparsely furnished one or two-room houses that were in such short supply the rents were high…to people trapped in an existence such as this, the idea that one could earn a good living by planting bumps and sitting back to watch them grow must have been irresistible.
How similar that reads to today, making it unsurprising that the price charts for things like Bitcoin, Dogecoin, and even lumber are so similar to that of Dutch tulip bulbs in the 1630s:
The majority of Millenials today, a generation I count myself a part of, came of age during the Dot Com boom and bust, experienced September 11th as a seminal event at a crucial age, started to get jobs just as the 2008 financial crisis hit, have been unable to build assets the way previous generations have, and are now facing decades of national debt run up by our predecessors that may or may not ever get paid off, a growing climate crisis, and never-ending political gridlock. And top it off there has been the pandemic. As billionaires like Richard Branson and Jeff Bezos fly off into space, it’s not surprising that people might be temped to drop a few dollars on Bitcoin and try to ride that rocket ship to the moon. I know of a handful of younger people who took their stimulus checks and transferred it right into their Robinhood stock trading apps to play the market (with mixed results).
“If I get it, I get it.”
Throughout the pandemic especially early on there were stories about young people traveling on spring break and just living recklessly in general with an “If I get it, I get it” attitude. While undoubtedly brazen from a public health standpoint, this attitude does underscore for many the greatest absurdity of all over the past 18 months, which is that all around us there is a deadly virus that could infect and potentially kill any one of us or a family member. That is such a heavy concept that it is difficult for many to even internalize. Wild speculation on crazy investments has perhaps been a psychological escape, made all the more possible by the ease and speed of transactions through digital money. “What does this even matter,” is an attitude that comes to mind among many investors over the past year. According to a study by Yahoo Finance, 28% of all American adults invested in GameStop or some other viral stock in the month of January alone! Undoubtedly many of these investors had little idea why the stock prices in these companies were rising so fast or that there was real potential that these rapid increases would reverse.
As COVID-19 eases (although, to be sure, it is NOT over), I don’t think the toothpaste gets totally put back into the tube. In other words, we’re not going back to a pre-COVID world of slower transactions and physical currencies. Online retailers are not going to voluntarily clutter the purchasing process for goods and services to give consumers more time to think about it as they stare at their phone or laptop. And the stock market may never be the same as armies of online investors rush in and out of random stocks that are vulnerable to speculation. Consumer psychology has shifted through all of this, perhaps permanently so.
For now, however, consumer confidence is at its highest levels since the beginning of the pandemic. Stock markets remain near all-time highs. Consumer activity is generally brisk and there is evidence that certain supply chain issues are starting to settle themselves out. People are feeling hopeful even as COVID remains at the proverbial door.
So eat drink and be merry, people, and enjoy the ride. But also remember that every good axiom has its inverse and as Warren Buffett, one of the most successful investors of all time has said, be fearful when others are greedy. And there is a lot of greed out there right now.
Ben Sprague lives and works in Bangor, Maine as a V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com. Follow Ben on Twitter, Facebook, or Instagram and subscribe to this weekly newsletter by clicking below.
Author Notes and Weekly Round-Up
The phrase “Eat, drink, and be merry for tomorrow we die” is derived from the Bible in the Book of Isaiah 22:13. Music fans of a certain age might also recognize it from the Dave Matthews Band song “Tripping Billies,” which happened to play on a Pandora station as I was making dinner earlier this week, instantly giving me the framework for this week’s article.
For a more comprehensive overview of Dutch Tulipmania, you can read my 5/9/21 article on the topic by clicking here.
From UPenn’s Wharton School of Business: had an interesting article on Why Amazon’s ‘1-Click’ Ordering Was a Game Changer
John McDermott writes in Esquire about how an army of Reddit users changed the stock market forever.
And lastly for something different but related, Katie Baker of The Ringer explores Dave Matthews Band’s sophomore album, which featured Tripping Billies among several other classic DMB songs.
Got news tips or story ideas? Email me at bsprague1@gmail.com