The Experience Economy

In a strictly biological conception of economic behavior, mental experience drives material acquisitions. A feeling of hunger pushes us to acquire and consume food; cold temperatures, wind, and rain stimulate us to gain protective clothing or cover; sexual and family love cause us to copulate, reproduce, and acquire the material requirements for nurturing, protecting, and defending our lovers and kin. Mental motivations combined with the contingencies of daily experience drive our accumulation of material goods essential for long-term survival.

  

We humans in contrast to other species enjoy the privilege of ecological release, meaning that we needn't spend every waking hour in the satisfaction of our material necessities. This privilege comes to us by virtue of our special mental faculties that permit us to exploit nature's resources at uniquely high rates of economic efficiency. As a consequence, we can of course engage in the production of material goods well beyond our basic needs, or we can sit around and contemplate the beauties of the world around us, sing songs, or think the big thoughts. We can produce more than we need and use it to pay others to entertain us with stories or dance, teach us how to do mathematics, or to take us on guided nature walks. Economics doesn't distinguish between baking bread and presenting Shakespeare's Richard the III; both are economic goods for which people are willing to pay, and both offer mental stimuli and satisfaction. There is an important difference between them, however; bread is enjoyed in an act of physical consumption, and the pleasure of Richard the III is a perceptual and mental experience. The loaf of sourdough French bread I gobble down becomes unavailable to you, but we can both experience Shakespeare together without detracting from each other's pleasure. The experience of consuming a loaf of bread involves a using up of a material good, and the experience of consuming Richard the III doesn't. Experience requires stimulus from the physical world, but not necessarily a substantial physical transformation of that world. Experiences can be placed on a spectrum, heavily dependent on altering the material world at one end (eating bread and drinking wine), and not requiring any alteration at all on the other (enjoying a sunset). At one end you and I cannot consume the same exact material thing (a particular glass of wine), and at the other we can (the sunset).

Complications arise. We can share a Shakespeare play, but if the audience is too big, some of us won't be able to get close enough to perceive all the action on the stage. In sharing a physical phenomenon, crowding can be a problem. Too many people detract from the experience. In some cases, such as a rock concert, where audience reaction is part of the experience, too few people instead can be a problem. In wilderness hiking, where the act of it does little to modify the physical world, the sharing of it can detract from the experience if one is running into someone on the trail too often or if all the good camp sites are taken. In short, the number of people sharing an otherwise benign experience (i.e. with an innocuous physical impact) matters. In some case the more the merrier, and in some more is bad. 

We will need some language here to distinguish benign from physically degrading experiences. Let's call the later "entropic" experiences—they degrade the physical environment in some way, reducing it to a less organized state—and let's stick to "benign" for those that don't. We also need a clarification. While the direct enjoyment of a Shakespeare play is benign, its production is not. The stage, the costumes, and all the other necessary paraphernalia of making a play happen re-arranges the physical world just as does the making of a loaf  of bread. The difference between the two goods is that consuming the play is benign and the bread entropic. You and I can't consume the same loaf of bread but we can the same play. Some things in life are actually entropically free--you and I can enjoy the same sunset and the physical world is unchanged from what it otherwise would be. Of course if the sunset is over Sonoran desert mountains, you and I will have used up material resources in our travels and caused some physical entropy, but once on the scene the extra physical changes we cause becomes innocuous. Of course just walking around the desert will have some impact, but not much, especially if we step with care. 

Around the globalized economy of today entropic consumption continues to be a really big deal. In the affluent countries of the world, what many of us want is the experience of more, and of new and novel material possessions. We want big houses with big yards and lots of cool furniture, powerful and sleek looking cars, lots of high tech gadgets and entertainment systems, nice clothes, and great cuisine. In producing, acquiring, and using such goods, we massively rearrange the physical world. The resulting experience of enjoying all this stuff is heavily entropic, rendering us economic materialists through and through. 

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While entropic consumption and experience still rule the economic roost, physically benign experiences have always been with us and seem to be gaining in popularity in concert with the move to post-material values. We see this in the resurgence of downtown living making easier shared activities—concerts, plays, art exhibitions, people watching in parks, squares, and from sidewalk cafes, urban bike rides, using public transit, searching for reading materials in public libraries or bookstores, watching and playing soccer or baseball. Compact urban living greases the skids of encounters with others for shared experiences. Suburban living instead facilitates spread out, low density, entropic consumption in suburban housing, shopping malls, and on the highways. A shift from the latter to the former facilitates a move from entropic to benign experiences.

Some shared experiences inadvertently occur in the normal course of daily life in cities. Moving from point A to B means a sharing of a sidewalk, a tram or bus, a bike lane, or a roadway. Moving about puts us in sensual contact with other people, buildings, public spaces, landscapes, and traffic. Our method of moving about shapes our sense experience. Riding a bike is different than driving, walking, or taking a bus. Each has its exhilarations, pleasures, pains, and frustrations. Driving can be a pleasure without traffic and with scenic views, but on a traffic-congested street, highway, or expressway, it can be tedious and stressful. The later kind of experience can be avoided in a dense, walkable, bike friendly, public transit-oriented city, but less easily in a spatially expansive suburb. Some shared experiences are more consciously selected, such as hanging out on a park bench or at a sidewalk cafe or espresso shop, strolling through a museum or art gallery, sitting in a library, attending a concert or play, running or biking on a recreation path, or watching or participating in a softball game at a local play field. 

Shared experiences in public settings tend to be low entropy, low cost affairs where adding one more person to the sharing pool requires little in the way of added economic resources and brings little or no harm to others. The exception occurs where such an addition leads to overcrowding or congestion, detracting from the quality of the shared experience. This would be the case for driving when an added car slows traffic, or attending a crowded public concert where one can’t see the stage or an added police presence is needed to maintaining public order. The quality of some shared activities actually depend positively on the size and density of the sharing pool as Jane Jacobs tells us. Sitting on a park bench with nobody walking by isn't much fun; nor is strolling down a street without other people, or sitting in an empty cafe, or going to a ball game in a half-empty stadium.

A critical virtue of densely packed cities is the variety of shared experiences close at hand in comparison to the suburbs. In the suburbs, varieties of experiences are available, but to get to them one must drive, an energetically costly activity. Suburbs specialize more in private experiences requiring a privately owned capital stock, such as large backyards for outdoor activities, large homes filled with household amenities for indoor recreation and entertainment, and multiple motor vehicles for getting around. In densely packed cities, outdoor and indoor recreation and entertainment is more frequently found in shared public places, and fewer private motor vehicles are need for getting around. A substantial public capital stock is required in these places in support of a shared livability, but it's wear and tear is more a function of time than of use. In suburbs by contrast, the capital stock required, with the exception of schools and roads, veers towards the private—big houses and lots, parking lots, and shopping malls. 

The energy efficiency of low entropy compact urban living is well established. One might not think it off hand, but the compact cities of the world—New York, Paris, and Cairo—are among the most energy efficient, low entropy places to live. Fossil fuel energy doesn't go away as you burn it up, but it is rendered into highly dispersed waste heat. This is the essence of entropy. Burn a gallon of gas or eat a French baguette, and entropy increases. In central cities as opposed to suburbs, per capita gasoline consumption and motor vehicle related carbon emissions are substantially less. The same is the case for electricity and household heating fuel consumption and their associated carbon emissions. In central city apartments, one lives in less space and shares walls and roofs reducing building surface exposure and the rate of heat or cooling loss per unit area as opposed to spatially expansive suburbs with more spacious houses and much bigger heating or cooling requirements. In densely packed central cities one shares public transit and streets and sidewalks for biking and walking to a much greater extent than in the suburbs where the predominant mode of sharing is of roadways for energy intensive, privately occupied automobiles. Even if one lives in the central city and continues to drive, getting around involves shorter trips and less fuel consumption than living in the suburbs.  Whatever else one does, by choosing to live in a compact central city, one reduces the entropy associated with life's daily experiences.

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The 1950s teenage male dream when I was growing up in Seattle, Washington was obtaining a drivers license and buying a car at age 16. And it wasn't just any car, but one that was souped up, lowered, loud, and possessed of metallic paint and pin striping. For this I saved checks as a grocery store bag boy for two years. This dream today would seem quaint and definitely unfashionable. I suspect most teenager boys now would rather have a top-of-the line iPhone or gaming devise instead of a driver's license or car. In my day socializing took place in and around motor vehicles, and involved cruising around, racing, and hanging out in fast food parking lots. The leisure experience was highly entropic, burning up huge volumes of dirt cheap gasoline. In Seattle, we couldn't wait for the newly constructed freeway system to open up so we could drive at 60 mph or better from one end of the city to the other. Now, I suspect, a high speed internet connection is way more important for teenagers than driving around on freeways or anywhere else.

This impression finds support in statistics on drivers licenses and driving for young people. The average miles driven by Americans in this country peaked in 2004 at a little more than 10,000, and dropped 6% by 2011. The American love affair with the automobile appears to be on the wane, and the Millennials are leading the way. Between 2001 and 2009, the average miles travelled by car for young people (age 16-34) decrease from 10,300 to 7,900, a drop of 23%. Over this same period, the number of 20-34 year olds without drivers licenses increased from 10 to 15 percent. A downward trend in driving could well be a consequence of dire economic conditions created by the Great Recession of 2007-2009, but the reduction began before the recession hit, and so far driving has failed to pick up in the recovery. The driving decrease is no doubt partly fed by higher real gasoline prices that will likely persist in the long run, and also by a budgetary squeeze on Millennials caused in part by rising college debt levels.

Reductions in driving by young people may well originate instead in fundamental shifts in attitudes. After World War II, Americans bought into the dream of owning a single family home in the spatially expansive and auto-dependent suburbs. People wanted to drive and were perfectly happy with the necessity of a motor vehicle for getting from point A to B. For Millennials, the bloom is off the auto-oriented suburban rose, and they now look more often to densely packed, transit-oriented central cities as places to live. Recent surveys tell us that young people more than other age groups claim to have made conscious efforts to reduce their driving. The youngest and oldest age groups more than others prefer to live in so-called "smart growth" neighborhoods with a mix of single and multiple family dwellings and access to public transit, stores, restaurants, libraries, and schools within walking distance. The young especially prize nearby rail links and bus routes. The college-educated young and older empty-nesters, as we discussed earlier in this blong, foster much of the four decades old boom in downtown living in many central cities previously suffering rampant population losses. To put it simply, densely packed older cities today offer access to activities and experiences less readily available in the suburbs, and in those cities getting around by walking, biking, or taking public transit is often easier than driving. One can move about readily in the city without driving much, but to live in the suburbs without a car would be a serious challenge. 

In my youth social interaction required a car. To see friends one drove. The car was the admission ticket to the teenage club and an essential symbol of one's standing in the social pecking order. Today social life is increasingly an online affair. Communication is virtual and immediate and doesn't require physical travel. Through texting, Facebook, Twitter, and online gaming, young people much more than others socialize virtually rather than driving to meet their friends. When they do get together, they are more inclined than their elders to walk, bike, or take public transit, all eased by living at high densities in walkable cities with bike sharing programs and decent bus and rail systems. Getting around cities is also facilitated by smartphone apps that tell you when the next bus is coming or where the nearest bike sharing site can be found. When you absolutely need a car, you can rent one quickly through Zip Car or Cars to Go; ownership isn't required. 

Substituting virtual sociality for driving isn't an entropic free lunch. Huge energy-sucking data centers keep the internet running and make possible all the stuff we like to do on our devices. Keeping an iPhone charged for the average user over the course of a year requires about 24 kilowatt hours (kWh) of energy, a little less than the 33 kWh used up burning a gallon of gasoline. But when you add the average annual energy use for the internet, the per iPhone user energy requirement rises to about 388 kWh, a little more than a kWh per day. Driving 10,000 miles a year at 25 miles per gallon, however, requires a whopping 13,200 kWh. Entropically speaking, your iPhone and your car are not in the same ballpark. Substituting the internet for driving indeed reduces energy consumption.

Not all sociality occurs online for Millennials. When they get together, they want doing so eased by close proximity. Instead of living in spread-out, auto-dependent suburbs so loved by their elders, Millennials prefer more densely packed urban centers with abundant places to meet, such as cafes and espresso shops, and the convenience of getting to them by biking or walking. The suburban dream has lost its cache for Millennials who see their aspirations best satisfied in downtown living. This could change if central city education reform is slow in coming and Millennials opt for the suburbs to assure access to good schools for their kids just as their parents did. 

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The common dimension of the low-entropy experience economy is sharing. Some such shared experiences are open access (a concert in the park) and some not (a major league baseball game), some fully cover costs from admissions (movies in theaters) and some don't (museums), and for most fixed costs tend to be large relative to variable costs. User ownership of material goods is normally not important to the shared experience, the one exception being the sharing of roadways that requires the driver to possess a motor vehicle. In some cases, wealth matters for enjoyment of an experience due to high admission fees--i.e. the opera, a broadway play, or a first tier symphony orchestra. In some, status or self-expression display through fashion is a part of the package. In many, public sector supply is essential--i.e. streets, sidewalks, parks, squares, and libraries.

Museums provide an interesting hybrid case for shared experience. Some are public, some are private, and most receive some public funding. Their essential dilemma comes in their cost structure. Their fixed costs, those that don't vary with attendance, are huge relative to their variable costs. The essential thing that museums do is display their collections that are generally costly to acquire, house, and maintain. Letting in a few more patrons to see the collection usually doesn't cost much. If museums cranked their full operating costs into their admission fees, they would price themselves out of the market. Hence the need for outside contributions or public funding. Of course if you are a patron, museums unsurprisingly put a lot of effort into gaining your contributions through memberships or charitable giving. Memberships that give you free admission often look like a deal if you think you will attend more than two or three times a year and cost museums very little per visit. With free admission attendance becomes a self-fulfilling prophesy that you might avoid if you had to pay per visit. Remember, your membership generates revenues for museums at very little cost in wear and tear from your attendance. The larger  attendance figures from memberships will be a plus for museums as well in seeking outside funding, public or private. Because museums normally draw on a regional, a national, or even an international market, they do best located in urban centers where regional access is easiest and where hotels, restaurant, and other tourist facilities are abundant. Locals who, by virtue of close proximity, use their museums with relatively high frequency benefit from a regional and sometimes even national or international patron network that brings in funding to cover fixed costs and keep admission and membership fees in affordable bounds.

Unlike museums with much of their costs going to collection development and facilities, the performing arts are heavily labor intensive. Think of a symphony orchestra and all its musicians, or better yet an opera with not only performers on stage but an orchestra in the pit and and numerous stage hands behind the scenes. Such labor intensity leads to what economist William Baumol coined as the "cost disease." In a capitalist economy, through capital investment, educational progress, and technological change, labor productivity, the hourly volume of output per worker for the economy as a whole, advances 1-2 percent a year and is normally accompanied by an equivalent growth in the average hourly real (inflation adjusted) wage. In recent decades this has not been the case so much at the lower end of the pay scale, with the owners of capital taking a larger share of the total output pie and labor a lesser share for a number of reasons including globalization, weakened labor unions, and labor saving technological advance. The critical problem for labor intensive performing arts organizations is this: The annual salaries they pay for their employees will need to advance by 1-2 percent a year in order to remain competitive with other skilled occupations. An orchestra today uses roughly the same technology in delivering its product as did its counterpart a hundred years ago. In short, productivity does not advance in orchestras very much to offset the continuous rise in labor costs. A 1 percent cost advance per year would compound to 35 percent total increase over a thirty year period whereas the real cost of many competing goods would advance by much less because of productivity improvements. Orchestras, and performing arts organizations generally, face unusual pressures of rising labor costs not typical to the bulk of the economy. If admission fees rose at the same rate as labor costs, the public would tend to shift their spending to relatively less pricey goods. A saving grace fortunately helps to sustain symphony attendance. If symphony performances constitute a luxury good that people desire more of as their real spending power advances, then ticket prices can indeed be increased and patrons with growing wealth can afford to increase voluntary contributions. The balance between the two forces remains a challenge performing arts organizations will always face, and they, like museums, will always have to worry about covering their fixed costs for which admission fees can do only part of the job. 

Although Millennials are not found in abundance attending classical music concerts, they do undertake such creative activities as classical music performance, painting, photography, and creative writing at greater rates than their elders. While they engage more in the actual activity of the performing and visual arts, Millennials attend at a lesser rate than older patrons such "signature arts events" as jazz and classical music concerts, musicals, plays, and art museum and gallery exhibits. Between 1990 and 2009, total attendance at nonprofit professional theater grew from 15 to 30 million even with growth turning slightly negative during the economic recession and housing bubble burst of 2006-2008. Apparently a big influx of Millennials proved unnecessary for expansion of the audience for plays and musical theater. Other of the performing arts could, however, have used more younger patrons. Between 2007 and 2009, opera attendance dropped from 7.5 million to 4.3 million, and symphony orchestra attendance remained flat at about 25 million after peaking in 2006 at about 28 million. In 2009 average consumer spending on entertainment and reading equaled about $2,700. Those under 25 spent an average of $1,200 while 25-34 year olds spent $2600. Millennials spend less than there elders on entertainment as one would expect given their lower incomes and accumulated wealth, and, indeed, statistical analysis shows that income, positively affects individual attendance rates at signature cultural events along with age. Age plays an especially important role in explaining attendance at museums and classical music concerts. These activities depend more on older attendees than others such as jazz concerts and musical theater.

Nonetheless, the rate of attendance at "any live musical performance," not just classical music concerts, is much greater for Millennials than other adults. Millennials love music, just not necessarily the kind favored by their parents and grandparents. In 2012 the rate of attendance at a live musical performance was 41 percent for ages 18-24, 34 percent for 25-34, and 32 percent for adults as a whole. The three most popular venues in order for such performances were parks or open air settings, theaters or concert halls or auditoriums, and restaurants, bars, nightclubs, or coffee shops. Given their special affinity for digital technology, Millennials download music, books, and other cultural objects to a much greater extent than everyone else. In sum, Millennials access substantial amounts of culture digitally, engage in hands-on arts activities more extensively than older others, but attend key traditional cultural events, such as art museum exhibits and symphony concerts, at lower rates than the rest of the adult population. To repeat, Millennials do attend musical concerts of all types at a much high rate than other adults, but they don't do this so much at costly classical music concerts, but take advantage of free or low cost performances in parks, bars, coffee shops, and other venues. Despite their lower incomes, they are surprisingly more frequent participants in art object purchases than others, although no doubt at the less expensive end of the market. 

Given both their economic circumstances and special interest in shared cultural experiences, the attraction of Millennials to urban centers is unsurprising. First and perhaps foremost, the Millennials face an especially challenging job market brought to them by the Great Recession, and they are saddled with unusually high debt levels due to their college loans. In my day, college costs were relatively cheaper with state governments picking up more of the tab than currently. For these reasons, Millennials require an abundance of affordable rental housing more commonly found in central cities than suburbs. Urban centers are also better served than suburbs by public transit and are easier to get around on foot and bike easing the lesser interest among Millennials than their elders in motor vehicle ownership.

Even without their financial burdens, Millennials would choose more than others to live in central cities by virtue of their special desire for opportunities to both participate in and enjoy the visual and performing arts. Simply put, urban centers are where the action is. Artists of all types congregate in neighborhoods where they can best find affordable housing, work space, and venues for their creations and performances, and these occur predominantly in central cities. While the traditional arts institutions attract older empty nesters, younger adults seek out the more offbeat and less costly visual and performing arts available in local venues. Millennials access much of their social and cultural life with the touch of a finger online, but like all of us they periodically desire a live, shared, and physically direct experience of cultural activities, and they want them close at hand. 

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Shared experience in compact urban centers extends beyond conscious participation in cultural activities to the more ordinary task of both purposeful getting around as well as aimless but pleasurable wandering about. Both of course can be carried out in either spread-out suburbs or compact urban centers, but how exactly does the experience of moving around by car in the suburbs compare with using public transit, walking, or biking in the central city? A car is convenient and physically comfortable. You don't have to worry about being exposed to the elements in a car, and you can often easily and quickly drive right up to your final destination. But a car entraps you if you get stuck in traffic and isolates you from others around you. Such isolation can encourage destructive and antisocial behavior such as dangerous and uncaring driving and road rage. Biking gives you a lot of flexibility to go around traffic, exercises your body, and offers a unique visual and sensual experience induced by direct interaction with your spatial and physical environment. Such interaction has its own dangers, especially if you like biking fast or taking risks dodging traffic. Walking is a similar experience, but occurs at a much slower pace and puts you in more direct contact with others allowing for a certain amount of vicarious sociality and the occasional unplanned encounter with known others. Both biking and walking are especially problematic in bad weather, and walking especially takes too long for lengthy trips. Buses or light rail cars also offers opportunities for inadvertent social encounters, but more than one might want when crowding occurs or rambunctious school kids get on. The nice thing about mass transit is that one can read a book or play with one's cell phone while moving about without endangering others, or you can gaze out the window and daydream if you want. The big frustration with mass transit apart from crowding is excessive wait times and a system that doesn't always take you where you want to go. There is of course the "bus people," those who suffer lives on society's margins and sometimes exhibit undesirable behaviors, but who are also sometimes interesting to observe or even talk to. I am not sure how this all balances out in the end. If you want comfort, convenience, safety, or power, or to exhibit status, you better drive and pay the price of traffic congestion and social isolation. If you have a sense of adventure, give the other ways of getting around a whirl. The virtue of high density living is you can mix them all up and add variety to your life experiences.  In the last 100 hundred years, suburbs and motor vehicles won the competitive struggle for consumer loyalties. More recently, the choice of where to live and how to get around is shifting back modestly toward compact central cities and against motor vehicles, and the Millennials are leading the way. This amounts to a virtuous shift towards less entropic forms of life's experiences.