The Collaborative Consumption Trap

What happens when we all share the clothes off our back?

The “Sharing Economy” is ascendant, with increased attention being paid to Airbnb, TaskRabbit, UberX, and others. Champions like Thomas Friedman sees collaborative consumption as “ a new avenue for the middle class to create wealth and savings.”

In opposition to these views, are those who see these companies as part of a larger techno-libertarian movement that sees “every regulation [as] an impediment to the efficient functioning of a market economy.”

This debate is familiar — mapping onto existing views about the role of government, the potential of disruption, the future of work, etc. As we rehash old fights we’re missing something — something we’ve seen before.

What happens to our financial safety net when we are already renting out our couches, giving rides after work, and running tasks on the weekends just to stay afloat?

In The Two Income Trap, Elizabeth Warren and Amelia Tyagi described how middle class families became more financially vulnerable when both parents entered the workforce. It’s counterintuitive at first — receiving two paychecks should make families more financially secure, not less.

As middle class families started sending two parents into the workforce, they had more income, but were still competing over the same limited resources (homes in decent school districts, spots in college, etc). This drove prices up, and the rising costs of real estate, child care, education, healthcare, and taxes more than consumed the additional income generated by a second paycheck. Warren and Tyagi empirically demonstrated that dual-income families had less discretionary income in the early 2000s than single-income families had in the early 1970s.

And with both parents in the workforce there was a reduced safety net. In times of need, single-parent households had latent resources to draw upon. When the working parent was laid off, or became sick, the stay-at-home parent could take in additional work at home, or could enter the workforce. Further, with both parents in the workforce, it was twice as likely that a paycheck would disappear due to layoffs, injuries, or illness.

Thus the two-income trap. If middle-class families only sent one parent into the workforce, they fell behind. Sending both let them keep up, but it introduced higher risks. Compounding these problems were the impacts on single-parent households. They had to pay these rising fixed costs without the benefit of a second paycheck.

We might be heading into the Collaborative Consumption Trap. What if we find ourselves running in place in a Red Queen’s Race, as this additional income disappears into rising fixed costs like rent? I already know people who can only afford to pay their rent by renting out their place on Airbnb. For them, they have no choice but to participate in the Sharing Economy just to stay in place.

I don’t know how we can prospectively determine how those gains will be distributed — but my instinct is that people driven to the point of renting out the clothes in their closet are not in a great bargaining position. And even if some gains materialize — the safety net becomes weakened.

What happens when we’ve already tapped these resources and we lose a job? Not only does the sharing economy tax our safety net, it requires our time and energy to drive, clean, run errands, etc. If we’re already doing this just to stay afloat, how will we generate new revenue in a crisis?

And what of those who don’t rent out the clothes in their closets — will they fall behind the way single-parents have?

I am a consumer of many of these services — and they’ve made my life better. I would fight any attempt to shut them down — and that wouldn’t make this problem go away. The argument here isn’t that these companies are bad companies or the people who work there are bad people. This is about an impending change in our economy.

Modern economic life is characterized by unpredictability — all of us face the possibility of losing employment, becoming sick, having to take in a relative, plus any number of possible crises that reflect the instability of post-crash America. Of course these risks are not borne evenly, but there are vanishingly few who can say that they are immune to short-term shocks.

The sharing economy will continue to monetize latent resources to an extent never before possible. While this may push us closer towards a hypothetical society-wide Production Possibility Frontier it will also introduce instability at the household level. And things will go bad eventually. What then?