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Answer by Ustice22

You’re basically talking about the software industry. Meta isn’t special. Considering how big the video game industry is, not to mention digital entertainment, and business software, I don’t think we have anything to worry about there.

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by No77e
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Noah Smith, in this article, argues that the Metaverse could enable economic growth to increase a lot and sharply decouple itself from real-world resource usage. By creating markets in which we buy and sell immaterial things, world GDP would grow. 

He also says, rightly, that GDP correlates with the well-being of a nation. 

But there's a non-stated point: would creating huge markets in the Metaverse for buying and selling digital goods make us actually richer? What I mean is this: suppose that, thanks to the Metaverse, huge virtual economies get created and people get real money out of stuff they sell in these economies. But suppose that e.g., agricultural production output doesn't go up much. Does that mean that we're simply going to pay more for groceries, without being able to afford more of them? The more general question is: would real-world stuff simply get a lot more expensive, and so our well-being doesn't really increase besides us being able to afford digital goods and having richer virtual lives? (This must count for something, but I'm more interested in whether virtual economies somehow would trickle to the real economy and make us able to afford more physical stuff.)

This is not a leading question, I genuinely can't tell what's the right answer, because I don't feel confident enough in my knowledge of economics. Perhaps a way to rephrase is: what dominates here, inflation or virtual GDP growth? Is that even the right way of looking at the problem?

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If digital goods in virtual worlds increase GDP, do we actually become richer?
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Ben

62

I think you are slightly muddling your phrases.

You are richer if you can afford more goods and better goods. But not all goods will necessarily change price in the same direction. Its entirely possible that you can become richer, but that food prices grow faster than your new income. (For example, imagine that your income doubles, that food prices also double, but prices of other things drop so that inflation remains zero. You can afford more non-food stuff, and the same amount of food, so you are richer overall. This could happen even if food prices had gone up faster than your income.)

I think a (slightly cartoony) real life example is servants. Rich people today are richer than rich people in Victorian times, but fewer rich people today (in developed countries) can afford to have servants. This is because the price of hiring servants has gone up faster than the incomes of these rich people. So it is possible for people to get richer overall, while at the same time some specific goods or services become less accessible.

Maybe a more obvious example is rent (or housing in general). A modern computer programmer in Silicon valley could well be paying a larger percentage of their income on housing than a medieval peasant. But, they can afford more of other things than that peasant could.

[-]ChristianKl66


I think a (slightly cartoony) real life example is servants. Rich people today are richer than rich people in Victorian times, but fewer rich people today (in developed countries) can afford to have servants.

It's not really a question of developed countries. Singapore is a developed country and it's much cheaper to hire servants over there. 

Western ideas of equality and migration policy are what's making servants more expensive.

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1Prudhviraj Naidu
I think even if you open up Western countries, there are more productive areas where labour can be absorbed rather than household work.  Servants in Singapore are probably are a result of Singapore's migration policy. Let's say a developed country had a lax migration policy that allowed people to just come and setup a business, work or study or do nothing.  Then this would allow people to take risks such upskilling themselves and moving into more productive sectors of the economy in a similar fashion to the native population. Current migration policies tend to be restrictive as they tie down individuals to a specific job.  Switching jobs, upskilling yourself or starting a business becomes really hard without breaking immigration laws. Thus, condemning workers to the low productive jobs that they first got when they came into the country.  
2ChristianKl
The ability to do nothing assumes welfare policy for migrants. Singapore allows migration but doesn't provide welfare for the migrants which enables low wage labor like household work to happen.  The migrants might be better of than in their home country and the person who's employing them has a cheap servant. On the other hand, Western countries don't want those relations so they don't have migration without welfare that would lead to that.
1Prudhviraj Naidu
  How? It might be better to be homeless in US than having a house in Afghanistan. Job visa restrictions don't allow you to be homeless.  I simply mean allowing people to stay in a country when they are in-between jobs or looking for other jobs. Most countries only give you a fixed period like 30-days to find similar work, otherwise you are asked to leave.  If there were no job-specific restrictions, people can save up money for a time period or work in another job / employer other than the one stated on your visa.  Not arguing against this. But the migrant can't for example take out a loan and start a business due to visa restrictions or move to more productive parts of the economy.  See this as an example: https://www.reddit.com/r/h1b/comments/1l1lcwq/moving_to_india_after_15_years/

Dagon

31

Yes!  No!  What does "richer" actually mean to you?  For that matter, what does "we" mean to you (since the existing set of humans is changing hour to hour as people are born, come of age, and die, and even in a given set there's an extremely wide variance in what they have and in what's considered rich).

To the extent that GDP is your measure of a nation's richness, then it's tautological that increasing GDP makes the nation richer.  The weaker argument that it (often) correlates (not necessarily causes) with well-being (in some averages and aggregates) is more defensible, but makes it unsuitable for answering your question.

I think my intuition is that GDP is the wrong tool for measuring how "rich" or "overall satisfied" people are, and simple sum or average is probably the wrong aggregation function.  So I fall back on more personal and individual measures of "well-being".  This, for most people I know, and as far as I can tell, the majority of neurotypical people, is about lack of worry for near- and medium-term future, access to pleasurable experiences, and social acceptance among accessible sub-groups (family, friends, neighbors, online communities small enough to care about, etc.).

For that kind of  "general current human wants", a usable and cheap shared-but-excludable VR space seems to improve things for a lot of people, regardless of what happens to GDP.  In fact, if consumption of difficult-to-manufacture-and-deliver luxuries gets partially replaced by consumption of patterns of bits, that likely reduces GDP while increasing satisfaction.  

There will always be needs for non-virtual goods and experiences - it's not currently possible to virtualize food's nutrition OR pleasure, and this is true for many things.  Which means a mixed economy for a long long time.  I don't think anyone can tell you whether this makes those things cheaper or more expensive, relative to an hour spent working online or in the real world.

Ustice

22

You’re basically talking about the software industry. Meta isn’t special. Considering how big the video game industry is, not to mention digital entertainment, and business software, I don’t think we have anything to worry about there.

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[-]benjaminikuta52

This isn't anything fundamentally new, is it? You could have the same discussion in the past about say, books. Goods and services that exist only in the realm of ideas have been around for ages. 

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[-]JBlack30

GDP is a rather poor measure of wealth, and was never intended to be a measure of wealth but of something related to productivity. Since its inception it has never been a stable metric, as standards on how the measure is defined have changed radically over time in response to obvious flaws for any of its many applications. There is widespread and substantial disagreement on what it should measure and for which purposes it is a suitable metric.

It is empirically moderately well correlated with some sort of aggregate economic power of a state, and (when divided by population) some sort of standard of living of its population. As per Goodhart's Law, both correlations weakened when the metric became a target. So the question is on shaky foundation right from the beginning.

In terms of more definite questions such as price of food and agricultural production, that doesn't really have anything to do with GDP or virtual reality economy at all. Rather a large fraction of final food price goes to processing, logistics, finance, and other services, not the primary agriculture production. The fraction of price paid by food consumers going to agricultural producers is often less than 20%.

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[-]Richard_Kennaway2-1

There is a metaverse already. It's called Second Life and has been around for more than 20 years. Never huge, but never going away. It has a marketplace of virtual goods that residents of Second Life have created. The market deals in "Linden dollars", which can be both bought with real dollars and sold for real dollars.

But look at a few random prices at that Marketplace link. The exchange rate is stable at about L$250 = $1. A skirt for L$399 = $1.60. A massage table (with built-in animations) for L$1698 = $7. (Three times that for the version with built-in sex animations.) A tattoo for L$299 = $1.20. The most expensive car currently on the marketplace is L$50,000 = $200, but there are also plenty selling for under $1.

There are only a very few people who have made a living from selling things in Second Life. The number of spectacular successes might be countable on the fingers of one finger.

While I love Second Life, I do not see an economy of this sort growing to become a substantial part of the total economy. What, after all, is the value of these digital goods? They are decoration for an immersive social space, and game assets for recreational use within that space. They do have value, but the marketplace shows what that value is: $200 for a top-end virtual car.

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[-]ChristianKl20

A lot of the reason why Second Life isn't a big part of the economy is that Second Life doesn't matter in general. It has few users and little social significance.

In China you had dating apps where people could signal their wealth by buying the most expensive virtual good available. The number I found via google is USD 67.5 billion as the global virtual goods market in 2021.

People pay a lot of money for luxury fashion items. Whether those have a physical representation isn't the main point.

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[-]Richard_Kennaway20

I took the word "Metaverse" to mean virtual worlds, but perhaps this is narrower than the OP intended. A dating app where the users are there to find people to physically meet is not what I would call a virtual world. Broaden it that far and you might as well call LessWrong part of "the Metaverse".

But I am curious about these dating apps. What manner of virtual goods are these? Can you do anything with them other than showing that you bought them? That hasn't turned out too well for NFTs, "a complicated way of buying nothing" as Penny Arcade put it.

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[-]ChristianKl30

You can make an argument that current dating apps aren't metaverse-based but that doesn't mean that this is an inherent feature of dating apps. https://techcrunch.com/2021/11/03/match-group-details-plans-for-a-dating-metaverse-tinders-virtual-goods-based-economy/ sounds to me like something everyone would call metaverse.

Cryptopeople never succeeded in convincing a general population that owning expensive NFT is a positive signal. It was maybe perceived as a positive signal for a few nerds but saying "I payed 100k for an NFT" at a date was for most women more a signal for bad judgement than a positive signal.

They also lacked a way to get the NFT displayed automatically in social interactions, the way a virtual good in a dating app can be displayed. 

Virtual worlds make it easy to display virtual goods during social interactions. If the social interactions within the virtal world are high stakes then users are okay with paying more to increase their status in the virtual world.

I'm not 100 percent sure but I think I heard about the Chinese example from the early days of WeChat and it was the first business model that really worked for them.

In the Chinese example, signaling wealth was a very useful signal and thus that worked in a straightforward way.

If you on the other hand, have a virtual LessWrong conference (and currently such a thing is even planned) then I don't primarily care about the wealth of people I'm speaking with. If some users on the other hand had a badge that they could have only brought if they were at a CFAR workshop, I might be inclined to be more likely to chat with people who have the CFAR badge.

At a virtual EA global conference, EA charities could sell virtual goods that participants could then wear. I would expect that it would be a positive status signal at a virtual EA global conference if someone wears a virtual good that they brought for 100,000 dollar from AMF. People at EA global are th Bere for professional networking and the fact that someone essentially donated that money to AMF is a sign that they are a valuable person to network with.

Different virtual world events will have different qualities that are worthy to signal and you are going to have similar dynamics as meatspace fashion being an "insider" can mean that you know how to signal to other "insiders" that you are an insider by chosing the virtual goods you wear.

The kind of people who put Black Lives Matter on their twitter profile, might buy a Black Lives Matter virtual T-Shirt that's sold by the Black Lives Matter foundation. Then you also have marketing agencies that will pay influencers to wear certain virtual goods and in some scenarios that will make it a good social signal to wear the current goods that the influencers wear. It's all about how much signaling matters within the virtual world. 

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[-]No77e11

I'm in an uncomfortable situation of having a better-argued and more convincing answer than any of the comments here, but I'm unable to trust it fully. ChatGPT o3 gave it. The prompt was simply my post, title included. Here is the answer:

 

1. What GDP actually measures

GDP is value added at market prices. Statistical agencies report it two ways:

  • Nominal GDP – current‐dollar spending.
  • Real GDP – nominal GDP deflated by a price index so that what is left is (roughly) the volume of goods and services, not their price.

Because the deflators strip out economy-wide price changes, a rise in real GDP cannot be caused by “just paying more for the same tomatoes.” In other words, inflation and real-GDP growth are separated by construction.

Where things get messy is measurement: digital goods are often free or priced in hard-to-track ways, so the official statistics probably under-state their contribution to welfare rather than over-state it. Experiments that impute the willingness-to-pay for free online services show real growth would have been 0.1-0.2 pp a year higher in the 2005-15 period if that value were included Bureau of Economic AnalysisNBER.

2. How a big metaverse sector would affect the real economy

  1. New income and purchasing power
    If avatars buy my hand-crafted dragon skins for €20, I have €20 of extra income in the physical world. As long as the central bank keeps the general price level stable, that €20 really is additional purchasing power.
  2. Relative-price shifts, not general inflation
    Digital production is almost infinitely scalable, so its labour productivity will soar. In a competitive labour market that lifts wages everywhere, including in low-productivity, very physical sectors such as farming. Those sectors therefore become relatively more expensive—the classic Baumol cost-disease pattern VoxChicago Booth. Groceries, haircuts and housing might take a bigger slice of the average wallet, but that does not mean the economy has merely “bid up prices.” The extra spending power created in the metaverse simply shows up partly as:
    • higher nominal prices for resource-constrained goods, and
    • a much larger menu of cheap or free digital experiences that didn’t exist before.

  3. What happens to physical-goods consumption?

    • If supply is elastic (manufactured items, many foods) real quantities bought will still rise.
    • If supply is inelastic (urban land, trophy wine) real quantities bought may be flat and prices will climb.

    Either way, people are richer in utility terms because they now enjoy both their old physical bundle and a vast new bundle of virtual goods whose marginal resource cost is near zero.

3. Why real well-being can grow while resource use decouples

Economic growth has already been shifting from material to intangible output for decades—software, streaming, consulting, design. The metaverse would push that frontier further. Because these activities consume little energy, metal or land, GDP can rise without a proportional rise in resource throughput—exactly Noah Smith’s point. The OECD, IMF and others note that the challenge is not physical scarcity but statistical visibility of intangibles and data OECDIMF eLibrary.

4. Putting it together

  • Real GDP per capita would rise if the metaverse creates goods and services that people voluntarily pay for.
  • Physical-goods prices would probably rise relative to digital goods, but that is a Baumol-style shift, not runaway inflation.
  • Overall welfare rises because people get a larger choice set—most of it delivered almost for free once the first copy is produced.

So the answer is yes, we would genuinely be richer, even if the number of apples harvested per hectare barely changes. The gains show up partly as higher real incomes that can (within supply limits) buy more physical goods, and partly—as economists increasingly argue—as consumer surplus from wholly new digital experiences that standard GDP still struggles to count.

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