Upside-down photograph of San Francisco’s skyline

Welcome to Flush-Down Economics

How startup and tech splurging has changed America

Philip Dhingra
May 1, 2020 · 6 min read

If the 1980s saw the advent of trickle-down economics, the 2020s are witnessing the dawn of flush-down economics. As the coronavirus crisis is making clear, Americans are becoming more dependent on freebies subsidized by venture capitalists and investors. If you’re using Zoom for free, if you have a free subscription to Disney+, or if you’re getting “free” delivery from DoorDash, then you are the beneficiary of flush-down economics. What was once the quaint over-spending by so-called unicorns, such as Uber, Lyft, and WeWork, has now become a way of life.

So far, flush-down economics has been a barely noticeable lifestyle boost. It has manifested, for example, in random discounted rides from Lyft and Uber; it has meant an under-enforcement of account-sharing by streaming services like Netflix or Spotify. When retrospectives of the 2010s arrive, they’ll inevitably play scenes of scooters clogging up city sidewalks. Pangs of nostalgia will greet Americans as they reminisce of the simpler, pre-coronavirus days when our biggest concern was Silicon Valley using American streets as a focus test for mobility products. But in 2020 and beyond, we can only expect to see these products and services grow exponentially.

The origin of this cash glut comes from the 2008 Recession when the Federal Reserve cut interest rates to zero in a move to stimulate the economy. At that point, the government was effectively giving away money, which led to the most significant injection of cash into corporate America in history. By November of last year, as cited by the Washington Post, corporate debt had swelled to nearly ten trillion dollars.

What was meant to be a temporary move has now become business as usual. While the Fed had resumed raising rates in December 2015, they slashed them back to zero in March of this year, when American deaths from the virus surpassed 100.

The theory of zero interest rates is that easy access to money will encourage companies to invest and thus grow the economy. In practice, we end up with an awkward flurry of so-called unicorns — companies with billion-dollar valuations — as well as already grown-up tech companies like Amazon and Netflix, who are out-spending each other in a vain attempt at monopoly.

Upcoming battlegrounds

It’s not just the delivery space that will see a happy marriage between subsidy and crisis. Teletherapy and telemedicine are booming as everyone shelters-at-home. Enable My Child, for example, has seen a surge in demand for online pediatric therapy during the Pandemic. They currently charge $80/hr., which is a discount from brick-and-mortar rates, and which can be explained by the $1.2 million they raised in 2017. We can expect fundraising rounds of $10–50 million for companies like theirs in the coming years.

Virtual learning was supposed to become the Next Big Thing a few years ago, around the time when Kahn Academy blew up. But maybe that was too early. Students who had attempted to enroll in virtual classrooms over the past decade have occasionally encountered signs saying, “this classroom is full,” which is odd for Internet businesses. Suddenly, post-COVID, the same classrooms can now fit 40,000 students. The next two years will likely determine who will be the e-learning juggernaut, so we can expect unicorn fundraising to arrive there as well.

Innovative brokerage apps like Robin Hood may go beyond zero commissions and offer cash-back on the first hundred trades for new users. Already, they offer new users a free, single share of a randomly chosen stock. Given they raised nearly a billion in venture capital, they can afford to subsidize user on-boarding. The promise of owning a platform is so tantalizing to venture capitalists that they’ll flush billions down the drain to train consumers on novel ways of spending their time and money.

Who does it affect?

What about jobs?

Whether there has been an overall increase in jobs or not is debatable, but at the very least, the kinds of jobs Americans are getting has changed forever. By racing to spend billions, companies like Amazon and Uber have demanded workers fast, with no strings attached, which has led to the on-demand cottage industry. Amazon warehouse workers, for example, are often older adults who spend most of the year living in mobile homes but pick up a few shifts during the holiday season. Conveniently for government, these gig workers are not counted as under-employed or “no-longer looking for work,” which is why we have the paradox of record-low unemployment and an opioid epidemic afflicting large swaths of what can only be imagined as under-employed America.

Another impact on the labor market, albeit a smaller one, is in creating zero-skill jobs for recent grads. Even though these tech-enabled startups are supposed to scale their operations in the cloud, they still invariably need bodies in the office. These disposable kids — and they’re usually in their low-to-mid 20s — are meant to be hired quickly, with the least amount of risk. The service associates (i.e., receptionists) at WeWork, all seem to have college degrees, which gives them a minimum level of cultural competency to maintain the corporate brand. Alongside these receptionists are social media strategists (i.e., tweeters), content strategists (i.e., copywriters), facility supervisors (i.e., janitors), and launch coordinators (i.e., party planners). All these positions are essentially glorified internships, and they’re concentrated in creative class hubs, but it’s still worth highlighting if this trend expands outside of young hipsters. If we can expect to see ten times more unicorn spending over the next fifteen years, bodies will have to be hired for more random stuff, providing work for people who otherwise would be saddled with student debt while resigned to working as baristas.

The photographer Edward Burtynsky has an analogy that applies here. When he sees a skyscraper, he can’t help but also see the “inverted skyscraper”-shaped hole in the ground from where the building came. (This fascination led him to produce his award-winning photographic series on quarries.) Likewise, for every tower of cash that lands in a startup or tech company’s lap, it must result in a billion-dollar deluge somewhere else. For most of us, it just means discounted streaming or low-cost or “free” delivery. But for some of us, flush-down economics is increasingly becoming a way of life.

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