This issue is brought to you by Aave GrantsDAO: 
Top Stories
“He is well paid that is well satisfied.”
The Game of Life
I do my best to stay humble, but it’s just a fact that I was by far the best player of both Atari and Nintendo in the highly competitive neighborhood I lived in as a kid.
I hung up my controllers when I got to college and found out there were plenty of other, more fun things to do.
But video games have advanced quite a bit since then. I learned just how much recently when my son reeled me back in with Hades, the 2020 game of the year.
I was immediately absorbed by the terrific art, orchestral music and engaging storyline.
Among other advances since my 1980s heyday, the game helpfully tells you how much playing time you’ve logged.
My Hades total? 140 hours.
The only other activity I’ve ever dedicated 140 hours to is sleeping.
So I get why kids don’t age out of gaming anymore: The games have gotten too good.
In fact, they’ve gotten so good it may now be creating problems for the Fed.
Dropping Out
If anything is making Jerome Powell lose sleep at night, it’ll be the job market. (Either that, or staying up too late playing Fortnite with his FOMC pals.)
Headline unemployment is low, but total employment remains below pre-pandemic levels: There are plenty of jobs on offer, but people aren’t taking them.
It’s not a new phenomenon. The labor force participation rate has been edging lower for two decades, from 67% in 2000 to 62% now — that’s a shortfall of eight million people.
Importantly, the rate has been falling faster for men than for women and faster for younger men than for older men. (The 60+ cohort is actually working more, even.)
These trends accelerated after the Great Financial Crisis, and early evidence suggests the pandemic may be having the same effect.
Higher wages have so far been less effective than you’d expect in luring workers back into the workforce, particularly young men.
A 2018 paper suggested video games are to blame.
It’s difficult to disentangle cause and effect here. Are more young men unemployed because they’re playing video games? Or are they playing video games because they’re unemployed?
But the thesis that gaming is at least partly to blame sounds plausible to me.
Games are more fun than they’ve ever been, and work may be less necessary than it’s ever been.
How can work be less necessary? In part because young males are finding their cultural capital and social status online.
In her 2013 book Every Cradle is a Grave, Sarah Perry explains that work is about more than just making money:
“The ultimate point not only of income, but of intelligence, beauty, and many other material and non-material goods [is that] they may be traded for social belonging…We want income because we want to be able to get the attention of others.”
The internet has made it easier than ever to get the attention of others: You don’t even have to leave the house.
In the era of non-stop Zoom calls, the signaling value in where you live or work is greatly diminished.
Cultural capital and social belonging, formerly earned in cities, on sporting fields and at work, is now earned equally in parents’ basements, on Discord groups and Reddit forums.
Knowing what “tendies” means now has as much cultural value to some as knowing what trendy drink to order at an East Village cocktail bar.
All of this adds to the difficulty in luring people back into the workforce.
Which is a problem for the Fed.
In the short term, at least, it makes inflation more intractable. If modest raises don’t attract enough workers, employers may start offering immodest ones, which could lead to a wage-price spiral.
The medium term looks better, as a tight job market will accelerate automation, which is deflationary and good for productivity.
But in the long term, it raises questions about the government's ability to collect the tax revenue necessary to address income inequality.
Passing the Buck
The Employment Act of 1946 committed the government to “creating conditions under which there will be afforded useful employment for those able, willing, and seeking work.”
In 1977, Congress passed that particular buck to the Fed by instituting the dual mandate.
But the Fed cannot simultaneously curb inflation and also incentivize gamers to put their controllers down and return to work.
So what should the government do when people are no longer seeking work?
We could go the China route and treat people like children by imposing screen time limits on the entire population.
That is not likely to fly in the US, however; if young men want to spend all their time playing video games, they should of course be free to do so.
But there are negative externalities to consider, namely, lower tax takes and higher income inequality.
The academic answer to both those problems would be a Pigovian tax on video games.
Because taxing Fortnite accessories won’t do much other than make people mad, what’s the alternative?
Perhaps crypto gaming.
A Fun Tax
Crypto and NFTs allow time spent gaming to be taxed like time spent working. If you’re a dedicated enough gamer to earn cultural capital by it, Web3 gaming will enable you to earn capital gains by it, too.
When game scores are measured in tradeable crypto, the government will be able to tax the most skilled gamers (like myself) and raise the funds needed to address income inequality.
Like a vaccine, a dose of crypto gaming may be the thing to inoculate the economy against the negative externalities of video gaming.
But it won’t be easy.
If men are explicitly dropping out of the job market to play games, expect resistance to the idea of turning those games into jobs (already evident in the hostile reaction to gaming NFTs).
And as our identities get tied up in NFTs earned in the Metaverse, expect people to spend more time there and less time at traditional jobs.
Governments will, therefore, have to figure out how to recoup all the payroll and income taxes that are not being generated.
Taxing crypto earned in gaming may be the best way to do it. Find this newsletter helpful?
Share it!
This issue is brought to you by Aave GrantsDAO:
DeFi represents a powerful wave of innovation that has so far been inaccessible to traditional financial institutions. . . until now.
With Aave Arc, you’re able to supply cryptoassets to earn yield or borrow assets against their supplied collateral through a simple whitelisting process.
Alpha-riddled DeFi experts, yacht parties, NFT galleries, metaverse experiences and sunny shores. It's all at Permissionless this May.
250 tickets released today. Get yours before they're gone.
What's Trending
Was this email forwarded to you? Join over 110,000 investors who read this newsletter. Sign up for free. Update your email subscription preferences
here.
Written by @bgilliam1982 and @aaronhasapen.
Copyright ©2022 Blockworks. All rights reserved.
|
INTRODUCING BLOCKWORKS RESEARCH: INSIGHTS YOU CAN’T INVEST WITHOUT
