Is Spotify Tanking the Economy?

For centuries, economists had tangible objects to count to determine the strength of countries’ economies and trade growth. Now, with more and more products being available online, there are less things for economists to count. Additionally, it’s no secret that the global economy isn’t particularly steady right now.

An article from Business Insider suggests that perhaps the reason behind worldwide stagnating growth and productivity can be blamed on tech companies, such as Spotify, and their provided services.

“Our economy is less and less dependent on factories churning out physical objects, and more and more dependent on non-tangible, virtual goods and services…if Spotify, based in Sweden, sells a subscription to someone in the UK, that ‘export’ is unlikely to be picked up in the trade measurement data. Even if it is detected in Sweden’s tax data, it won’t be reported and factored into Swedish GDP or months or years”.

Business Insider then points out that the transaction will barely be recorded in the UK, either. Someone who used to pay £30 each month for CDs now only spends £12.99 a month for a subscription where they have access to exponentially more albums. And that’s if they pay for premium, because we can’t forget about the free version.

“That consumer is now £17.01 richer every month than she was before — but her extra wealth isn’t reflected in the macro data that the Bank of England uses to set interest rates, or the import data that the government uses to set spending policy”.

It’s a tricky thing for economists to navigate, just like everything else in the digital revolution, and HSBC global economist James Pomeroy recently published a paper looking at this exact problem. He currently argues that “the increase in digital services like Spotify — and Apple and Google and Facebook and Amazon and on and on — put downward pressure on prices and inflation…[and that] central banks interpret a lack of inflation (or deflation) as a sign of impending recession, something that needs to be tackled with extra cash liquidity”.

Perhaps, Business Insider speculates, this deflation does not signal a recession, but instead “a product of the relentless efficiency of tech services like Uber, Airbnb and Spotify”.

This whole situation is fascinating, and I really recommend you read the original Business Insider article. As we figure out how to navigate this still new area of the global economy, we shouldn’t be too quick to throw companies like Spotify under the bus. They could prove more beneficial to our economies than we can imagine sometime in the future.

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