An article uploaded to Vox.com by Timothy Lee earlier this week, “Pokémon Go is everything that is wrong with late capitalism,” has caused quite a stir, since it was fairly critical of the “Pokémon Go economy.” Given the popularity of the game though (and our concern that some players would be alarmed that their lighthearted entertainment was somehow destroying the economy) we wanted to offer a different perspective to some of the points made in the article.
In fact, we think that Pokémon Go actually represents the best of capitalism. In less than a week the game has topped 15 million downloads and the 21 million active daily users spend an average of 33 minutes a day playing. That amounts to over 11.5 million hours of playing per day, and those numbers only look to increase. The app doesn’t cost anything to download and play, which means that Nintendo and Niantic (the game developer) are essentially giving away tens of millions of dollars of value to the eager players.
We know that’s a bold statement. But this is why it’s true: A person’s time is scarce and valuable. Every moment they spend playing Pokémon Go they could instead be doing something else. The fact that they’re voluntarily choosing to play means that the benefit of playing is more than the cost.
Economists call this the “consumer surplus” — the difference between a customer’s willingness to pay for a good or service and the price that it actually costs. It’s a measurement of the dollar value gained by the consumer in the exchange. If a person was to buy a game of bowling for $5 that they value at $7, instead of playing an hour of Pokémon that they value at $3 for free, that person would lose out on value that would have made their life better.
So even if the average consumer surplus is only a measly dollar an hour, consumers are getting $11.5 million dollars of value each day. The fact that customers are buying special items to use in the game, spending upwards of $1.6 million each day, implies that the value players receive from the game is actually higher.
The article laments that local economies are harmed because people are turning toward forms of entertainment that don’t have high production costs, like movie theaters or bowling alleys that need expensive buildings or numerous employees selling buckets of popcorn. What the article misses is that the economic activity associated with traditional entertainment options represent the costs of providing the entertainment. The reality we have now is much better, since we not only gain the value of the entertainment, but we have the money we would have paid for it to purchase other things as well. It’s almost like getting something for nothing, and our lives — and the economy in general — are better as a result.
This is the core of economic growth — decreasing the scarcity of goods and services that limits our lives. The article makes it seem as if economic growth comes from simply spending money. This view can lead us astray because it ignores the importance of entrepreneurs, whose role is critical in the creation of new products and services that improve everyone’s well-being.
Pokémon Go is actually a great example of this. The game developers and their investors thought that they could make something that customers might like and they took the entrepreneurial risk to create the game without the certainty that it was going to be a success. Obviously, it was a good gamble, but I’m sure that even they are amazed at the results. Imagine if the game development funds had been used to build a couple bowling alleys instead. Wow. What fun.
Think of what would have been lost to society if entrepreneurs didn’t have the funds and the freedom to take that gamble. And their success has spawned a sub-industry of “Poképreneurs” who are selling drinks and providing rides to Pokémon players. Economic growth — and our increased social well-being — depends on this kind of permissionless innovation.
In short, Pokémon Go represents the very best of capitalism because it’s premised on voluntary exchange — no one is forced to download the game, players can stop playing at any time they like, and if they value the special items available in the game store they can buy them to enhance their fun. Furthermore, the entrepreneurs who had the foresight and the guts to dare to make the world a better place are being rewarded for their accomplishment. Most importantly, that success only comes about because they have made people’s lives better in the process. That’s something Team Rocket could never learn to do.
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If you’re interested in a longer, more detailed economic discussion of the Vox article, check out our follow-up article on the Neighborhood Effects blog!*