Is Social Media Killing The Economy?

Jay West
20 min readFeb 3, 2021

What’s the first thing you reach for when waking up?

Studies claim between sixty and eighty percent of smartphone users check their phones within 15-minutes of waking up. And a significant percentage of those go straight to their social media accounts.

But you probably know that, and it’s no surprise.

You know it’s addictive.

You know social media causes increased anxiety and depression. You’ve felt it. You’ve witnessed it in others. You’ve probably thought once or twice of quitting if you haven’t quit already.

You also know it’s a source of endless misinformation and crazy conspiracy theories. And that your comments, shares, and likes are being used to build a profile of who you are. An avatar with your exact same thoughts, opinions, fears, and desires.

A digital you.

And you’ve probably lost a friend or two down a social media hate-hole. A digital abyss swarming with misplaced anger and manufactured hatred. An altered reality where communication from outside is no longer possible.

There’s a lot wrong with social media, and there are a lot of studies to prove it.

But they’re only scratching the surface. Telling us what we already know. Confirming the symptoms of what we suspect is a much bigger disease.

It’s what’s next that should scare you.

We’ve had brief flashes of social media’s impact on society as a whole, and on democracy.

Jaron Lanier, author of Ten Arguments for Deleting Your Social Media Accounts Right Now says,

“If we go down the current status quo for, let’s say, another 20 years… we probably destroy our civilization through willful ignorance. We probably fail to meet the challenge of climate change. We probably degrade the world’s democracies so that they fall into some sort of bizarre autocratic dysfunction. We probably ruin the global economy. Uh, we probably, um, don’t survive. You know, I… I really do view it as existential.”

Jaron Lanier — The Social Dilemma

Tristan Harris of The Social Dilemma, co-founder of the Center for Humane Technology and former Google Design Ethicist used fewer words…

“Checkmate on Humanity”

And yet, no one is taking these dangers seriously.

Not really.

There are no serious plans to make social media better for society.

Changes like that don’t happen because someone’s privacy is at risk. They don’t happen because teens have more anxiety and depression. And they don’t happen because someone wrote a post about it or made a documentary.

They may get the conversation started (and they have) but significant changes from the top usually only happen when those who have power are affected personally.

And at the moment, there are no incentives to change. At least none that compete with the economic benefits of social media.

But what if that changes? What if social media was killing the economy?

To be fair, our overlords are not the only people motivated by money. Most of us are.

Social media might be addictive, it might cause social problems, and it might cause alarming rates of anxiety and depression.

But could it really lead the world’s democracies into autocratic dysfunction, ruin the global economy, and destroy humanity as Jaron Lanier suggests?

Social Media: The Force & The Darkside

Challenges in our economy cannot be pinned entirely on social media. In fact, social media on its own isn’t bad. But it is an amplifier.

When something is bad for the economy, social media does a good job of making it worse.

It turns the dial up on everything, which means it’s also a force for good.

The Arab Spring began in the early 2010s and on January 25 th,2011, hundreds of thousands of Egyptian protestors assembled in Tahrir Square, launching a revolution that was scheduled and coordinated using Facebook, Twitter, and YouTube.

I watched it on the news, and it was the first time I remember thinking social media was something more than a way to connect with old friends and share pictures of your kids.

It was a real force for good. Far more significant than many of us gave it credit for. A way to give underprivileged and average people a voice.

In 2009, social media also played a major role in the Moldovan parliamentary election protests.

… and the Iranian presidential election protests.

In 2014, the Ukraine’s Euromaidan Uprising.

As social media matured, it leveled the playing field for small businesses and local professionals competing with big names, big brands, and big box stores with big marketing budgets.

It helped coordinate and deliver global natural disaster relief.

Social media was on a role…

And then there was that time in April 2013 when Reddit caught the Boston Bombers…

… or at least that’s what the world originally thought.

In the days that followed, the darkside of social media was exposed.

A Social Media Witch Hunt

We learned that Reddit had fueled an online witch hunt and wrongly named several people, including a missing 22-year-old named Sunil Tripathi as the bomber. Thousands of (probably) well-meaning but angry people went after him on the Facebook page his parents had set up, calling him a terrorist.

Imagine grieving over your missing son and turning to social media for help, only to get harassed by thousands of people accusing your son of injuring two-hundred and sixty people, and murdering three.

Maybe social media wasn’t the force for good many of us thought.

The truth is, most (if not all) Redditors involved in that witch hunt were trying to help, and Reddit certainly did not intend any harm.

Reddit contributors also helped organize housing for stranded people and deliver food to police and hospitals.

Social media, like any weapon, can be used for good and bad. And the bad is really bad. Existentially bad.

For all the good social media provides, the upside can’t compete with the destruction of society. “Checkmate on humanity “.

The Arab Spring began a little more than ten years ago, and what appeared to be a powerful new tool that would benefit societies around the world, turned out to be one of, if not the biggest threat.

Taking It Up a Notch

Facebook CEO Mark Zuckerberg on April 10 th,2018 testified before a joint Senate Judiciary and Commerce committee on the company’s use of and protection of user data.

An important topic discussed was whether Facebook played a role in inciting violence in Myanmar, allowing hate speech to spread that ultimately contributed to the Rohingya genocide.

Later in 2020 and 2021 social media was used to sow doubt in the results of the US election which lead to the riot in the capital on January 6th, 2021, which lead to 5 deaths, hundreds injured, and 955 people charged.

Currently, 458 charged rioters have plead guilty, and the leader of the Oath Keepers and associates have been convicted of seditious conspiracy.

There is no question that social media played a major role in these riots to overthrow the US government.

Companies like Twitter, Facebook, Snapchat, and YouTube all took quick action to suspend then-President Donald Trump’s account in an effort to stop further misinformation and incitement.

Whether social media companies should suspend people’s accounts is an important discussion, and right or wrong, there may be legitimate arguments on both sides.

But what’s not up for debate is that suspending the former President’s accounts was a recognition of responsibility by social media to say at least some of what happened is a result of authority figures using their platforms.

If they didn’t feel that way, they would’ve left it alone.

And there would be no debate.

A year later, Elon Musk bought Twitter and the debate continues.

The impact of removing Trump from their platforms lead to a 73 percent drop in misinformation about the US election according to research firm Zignal Labs.

That’s not small.

In fifteen years of social media, give or take, we’ve gone from posting on “walls” and “poking” friends to full-blown insurrections, revolutions, and genocide.

The Myanmar conflict that Facebook is accused of inciting lead to the largest human exodus in Asia since the Vietnam War. Now they are dealing with a military coup and Facebook plans to be more proactive regarding the spread of misinformation.

Social media’s ability to rip apart a society is not a theory, and it’s not a “what if” being whispered behind closed doors. It’s real.

Is this a taste of what’s to come?

There are some goodwill efforts by these platforms to make things better, but it’s not like anyone is rushing to make real fundamental changes that’ll prevent something even worse from happening.

Clearly, these companies wield tremendous power, and like puppet masters pulling strings, they can be used to manipulate nations, shape societies, and pit individuals against one another.

Now, social media platforms are not malevolent organizations run by dictators out to destroy the world (at least, I don’t think they are). There are fundamental flaws in their business model for sure…

… but the turmoil caused by social media so far has come from people using these platforms to amplify their agendas. To spread hate and misinformation.

In a capitalist free-speech democracy, though, we can’t stop them. And we’re not even sure we should stop them because that, too, would have unintended and potentially catastrophic consequences.

So what do we do? Which is the lesser of two evils?

Social Media Storms Wall Street

It seems like it started in 2020. I noticed I was bombarded daily by ads selling day trader investment courses. Maybe you were too.

These are not professional ads from reputable schools recommending courses in math, business, economics, finance, and banking.

They’re online courses, mostly by “gurus” claiming to make you rich. Sure, there are also some legit courses that’ll teach you how to become an individual investor. A non-professional or retail investor.

But as we all know, there’s a lot of garbage and bullsh*t.

It’s a trend that exploded in 2020. In 2019, retail investors made up roughly 10% of all stock market activity. In 2020 it was nearly 25%!

Now amplify that with social media.

In January 2021, the fast-growing subreddit community WallStreetBets, with over 8 million members at the time, appeared to be ground zero for what some are calling a war against Wall Street short-sellers. This “war” caused the stock of retail chain GameStop to shoot up by 1000 percent.

Source: CBC/Bloomberg

But this massive rise in their stock value is not supported by fundamentals. In fact, some consider GameStop to be the Blockbuster Video of gaming. A store that sells physical discs and cartridges in a world that’s going digital, doomed to extinction.

GameStop’s demise is not guaranteed. With tragic examples like Blockbuster to learn from, they are a lot more proactive and responsive to technology and trends. But not so proactive and responsive that its stock price is worth hundreds of dollars.

In the first week of January 2021, it was trading between $17 and $18. On January 28th it went as high as $483.00!

The war between retail and institutional investors hasn’t stopped there. Companies like AMC Theaters, Nokia, Blackberry, and Koss are just a few others who’ve been dragged into it.

Their stock is also being pushed through the roof by individual investors collaborating on social media to execute a short squeeze, causing these stocks to rise which is forcing traders on Wall Street who bet against it to buy.

At the moment, this is costing Wall Street billions and it appears home traders have the upper hand, but when the dust settles, it’ll likely end in heartache.

Many bought stocks hoping their rise would continue. Some bought at the peak. At the time, I wondered too if I should jump on the wagon. My gut told me otherwise, but it’s hard to watch others get rich while feeling as though you missed out.

Let me begin with a disclaimer: I’m not an expert. I’m only sharing my opinion on what I thought would happen to those stocks based on the same news and information available to everyone.

At the time, I decided not to buy. There were a few reasons I expected Gamestop to crash, and they seemed obvious to me…

  1. I didn’t think Wall Street would sit back and take it. I have no idea what they would or could do, but I expected they could probably do something. They have seemingly endless resources and many intelligent people who are skilled at screwing people.
  2. GME was not worth its price at that time (hundreds of dollars). Not even close.
  3. Prices would inevitably slide, and it seemed unlikely that millions of individual investors (many with their retirements on the line) would hang on trying to punish Wall Street. Faced with severe losses as they watched it fall, I (and many others) expected people to jump ship.

The price did start to fall but was surprisingly resilient.

Using Social Media to “Stick it to The Man”

This new market paradigm is not necessarily bad (although for some individual investors, it probably will be).

For many retail investors, though, it’s not even about the money. At least, that’s what they say online, and I’m certain that’s true for some.

It’s about exposing corruption on Wall Street and the manipulation of markets that bankrupt companies and funnel billions into the pockets of hedge fund managers and banks.

They are sticking it to the man.

And social media is giving retail investors the power to do online what institutional investors have done for decades in back rooms and restaurants. Talk, share ideas, and coordinate actions.

On Wall Street, it’s known as an “idea dinner” where ideas on how to profit from stocks are shared. In the real world, it’s a way for big investors to coordinate moves (and potentially manipulate the market)… which is not okay.

It’s difficult to prove though, so when Wall Street does it, there are few, if any, consequences.

Now that individual investors are doing the same thing using social media, or at least perceived to be doing the same thing… the institutions, the SEC (Securities and Exchange Commission), some media outlets, and lawmakers are losing their minds.

But there’s an important distinction to be made between the pros and the joes

Unlike Wall Street, whose conversations are held behind closed doors and secret, discussions online among retail investors are out in the open, completely transparent for anyone to see.

And again, it’s different because, for many, it’s not about the money.

It’s about exposing a system of corruption and, in some cases, retribution.

But with $70.87 billion on Wall Street getting wiped out in a matter of weeks, both the House and Senate were quick to act, announcing on Thursday, January 28, 2021, they’d be conducting hearings.

This is the kind of uncertainty and magnitude that can set off a chain of events taking the entire stock market down. And the economy.

Thankfully this situation didn’t do that, but will social media bring retail investors together in this way again?

Almost two years later, the collapse of the FTX and BlockFi are threatening the future of cryptocurrencies. Billions of dollars again are in the wind.

While not caused by social media directly, the subtle influence of easy riches and FOMO that spread on social media arguably contributed to it.

In other words, it’s hard to imagine an FTX or BlockFi even existing when financial news “gatekeepers” didn’t have to compete with social media influencers and opinion news.

Today, those institutions are chasing headlines and followers too, and due diligence is breaking down. There’s no time for due diligence.

Picking Winners and Losers

Many who’ve argued viciously for years against regulation on Wall Street are now calling for new regulations.

Of course, they are. 🙄

It proves an important point…

The debate of which is better… more or less regulation, is a strawman argument. It ignores the fact that less regulation can (and usually does) impose limits on one group of people just as much as more regulation imposes limits on a different group of people.

It’s not about whether there should be more or less regulation; it’s about who the regulations favor.

And that’s what’s going on here.

If Wall Street lobbies for new regulations, it’ll be for their own benefit. And by design, these proposed regulations will likely disadvantage retail investors, and thus more regulation (not less) will effectively clear a path for Wall Street.

On the other hand, if new regulations (or the status quo) benefit retail investors while hand-cuffing Wall Street, more regulation (not less) will eliminate roadblocks and open the playing field for individuals. A field some are calling a new normal.

If that happens, Wall Street won’t be protected against the actions of individual investors using social media.

It’s the decentralization of markets. History in the making.

History Repeats Itself

It might be history in the making, but we’ve seen this movie before.

Blockbuster Video at one time had 60,000 stores and was at its peak, valued at $5 billion dollars.

But… like Wall Street dismissing (and even screwing) the underdog, Blockbuster ignored Netflix.

Now Blockbuster is extinct (they went bankrupt in 2010), and you know what happened to Netflix. They are now worth several times more than Blockbuster ever was.

A decade before that, we watched as peer-to-peer file sharing decentralized and decimated the music industry. The music industry fought for new regulations, but their days were numbered.

Today anyone with a laptop can produce, distribute and sell their own music online, just as they can with their own videos.

Blackberry and Nokia underestimated Apple, and the iPhone, for all intents and purposes, ended them.

Kodak was over-confident and, for some reason, didn’t think digital photography could send them into bankruptcy, but it did.

Sears and other retailers took a “wait and see” approach. They watched as Amazon became an empire, and they became a memory.

Today, big-name celebrities are competing with YouTubers, TikTokers, Instagram influencers, and podcasters.

Attention has been decentralized and democratized.

Now it’s happening to Wall Street, and they don’t like it.

But it’s been happening for a while. Like the titans of other industries, they were, for the most part, ignoring tectonic shifts under their feet, which were changing the game forever.

But Wall Street is far bigger than music, movies, and digital photography.

The demise of Blockbuster and Kodak never had a chance of taking down the entire economy. It wasn’t even a conversation.

But the stock market? Break it, and the economy crumbles.

A New Irrational Reality

The stock market needs more uncertainty and more instability, said no one ever.

So… will the regulators crack down? And if so, how will they do it?

It’s been years since the Gamestop short squeeze, and nothing has happened. Congress is too busy investigating insurrections and elusive laptops.

Can they stop people from discussing stocks on social media, “sharing ideas,” and collaborating?

Like so many challenges we have with social media, that doesn’t seem possible.

If they figure out a way to do it, will they do it fairly and also drop the hammer on institutional investors with stronger rules and punishments to prevent “idea meetings”?

Or, will they protect Wall Street by making it difficult in some way for the little guy to access the same information and tools as the big guys?

What about new fees to slow the influx of new investors?

No matter what happens, someone is going to win, and someone is going to lose. Any form of regulation will likely disrupt the markets and the economy.

But even without new regulations, the game is different. It’s more volatile.

There are millions of new investors entering the stock market now, each involved in countless discussions online. They’re arriving at different conclusions and discussing various investment strategies.

Trading now involves many levels of experience and knowledge, ranging from utterly clueless to absolute genius.

In other words, countless new variables are being added to an already unpredictable market which will lead to more irrational movements and volatility.

I’m not saying the decentralization of the markets is bad. In hindsight, it was probably inevitable. But to look at it objectively, I also think it’s too early to say that if it’s not bad, it must be good.

Decentralization and democratization are not always good, even if they sound like it.

Should we open up the highways to anyone?

Like letting everyone drive a car, regardless of whether they know how or if they know what the rules of the road are. Just punish them after they cause a wreck instead of qualifying them before they drive in the first place.

How about surgery being sold as an online course?

Jimmy Cuts offers free scalpels if you sign-up for his free appendectomy webinar in the next thirty minutes.

What about air-traffic control?

Download a free app and make money from home directing airplanes.

Of course, we shouldn’t do those things.

The truth is, opening up the markets to anyone and everyone sounds like a good idea, but we don’t know what the long-term impact on markets will be.

Or the economy.

Ideologically, it sounds like it should be a good idea. Power to the people.

No individual investor on their own can take down the market anyway. And besides, who can say the current crop of Wall Street fat cats are worthy protectors of markets and economies?

But when you take millions of individuals and amplify their voices with social media, you get a group of people who can do serious damage.

Let’s put that another way.

You might get a group of people who WANT to do serious damage.

And it’s not like the fundamentals of the market are strong. Wall Street is already detached from Main Street, and it’s arguably a house of cards just waiting to collapse.

I’m no authority on markets, and I’m not an expert trader, but there are many who are. Most say it’s not a matter of if the stock market crashes but when and how.

With $70 billion already lost, are the situation WallStreetBets, FTX, and Blockfi the black swan events we’ve been warned about?

Just the first dominos to fall?

Will retail trading and social media devolve into a sewer of lies and misinformation like politics has? Hijacked by bad people and foreign adversaries with destructive intentions to take the economy down?

Regardless of if, when, and how the crash happens, the rise of retail investors and their use of social media will lead to more volatility, gambling, distrust, and serious losses by amateurs who can’t afford to lose. None of this is good for the economy.

The power of social media to accelerate systemic change in the market is something we’ve never seen before, and as good as it sounds in theory, to play the devil’s advocate… it could also deliver one big blow that sends the economy into a tailspin.

But social media is causing far more havoc in other areas of society.

The War on Reality

An irrational reality is one thing… but a full-scale war on reality is worse.

It’s impossible to ignore how algorithms and individually curated feeds have distorted reality and led to destructive echo chambers. But it’s much worse than that.

Deliberate misinformation is flooding social media, stoking rage and hatred.

In part, it’s a seemingly harmless algorithm trying to provide us with the information we want as individuals.

But let’s not kid ourselves. There’s a profit motive here, which is not evil or wrong… but it does create a significant disincentive to turn the ship around.

And when you add deliberate disinformation with various malicious motives, it threatens our ability to communicate with each other. And to say it threatens is putting it mildly, as if this is something that might happen in the future.

But it’s happening right now, and it’s been happening for a while.

And how can we have a functioning economy if we can’t communicate and agree on an objective reality and truth?

People are no longer exposed to diverse perspectives, and even when they are, they can’t see through their own biases. In fact, the thought of accepting opposing views can make people physically ill because it attacks their identity.

So we are drawn to information that validates our existing views.

This has made it challenging to have productive conversations and reach a consensus on important issues. Not to mention it has destroyed families and friendships.

In a world with constant turbulence and mistrust, our dependency on social media has created parallel realities. But not just any parallel realities. Increasingly extreme parallel realities.

And this can potentially put our fragile economy in a precarious position.

As algorithms fight for our attention, they trap us in our comfortable validating communities packed with increasingly extreme content and promoting radical views that transcend the digital.

They manifest in the real world, leading to political extremism, religious fundamentalism, and conspiracy theories.

This is a volatile brew simmering beneath the surface, and it will probably not turn out well for us. I think (although I could be wrong) that most people expect it to erupt. And in some cases, it already has.

So riots and violent escalations are not crazy ideas at this point. The temperature is rising, and it’s getting harder to see how this is good for anyone.

And that unrest leads to real-world consequences.

Beyond the potential destruction of public and private property, damage to vital infrastructure and the fear of going outside will undoubtedly impede economic activities.

The public purse is already being pushed to its limits. What will we do, print more money for emergency response, law enforcement, etc.?

Not to mention repairing the damage done.

As violence escalates, businesses shutter, jobs dissipate, and consumer spending declines.

Maybe I’m being hyperbolic, and I can certainly recognize that. But are we not playing with fire?

And is it getting any better?

Are we coming closer together?

If so, it certainly doesn’t feel that way. It feels more like our individual realities are pulling us further apart and many of us can even feel it within our own homes.

Effects on Investor Confidence

Faced with uncertainty and risk, domestic and foreign investors will hesitate, depriving businesses of the capital they need to grow. Uncertainty is not a friend of investment.

And tourism, trade, and overall market confidence will shudder under a relentless attack on democracy, which is arguably happening as we speak.

People can’t even agree on what democracy is or who is fighting for it. And some groups have openly expressed a disinterest (if not disdain) for it.

Currently, we ignore it for the most part and hope for the best. We’re certainly not taking it seriously.

We hope it’s a nothingburger, and that all will work out in the end because, in our lifetimes (in the Western world, at least), it always has.

But I don’t know about you. From where I sit, the storm rages on. It exposes and exacerbates social division, and the inevitable result of this is societal destabilization.

It doesn’t necessarily take it down on its own, but it makes it significantly more fragile and susceptible to other pressures like rising income inequality, corruption, mistrust in our institutions, emotional stresses, etc.

Extremism and The Workplace

When people can’t agree on a shared reality, it also causes instability in the workplace. Of course, people don’t change who they are and leave their extreme views at home.

They may temper them and adhere to workplace norms, but people’s extreme views, anger, and even illegal activities appear on social media, putting companies in challenging situations.

How many people over the last decade or more have lost their job from doing or saying something stupid on social media.

Sure, in some cases it’s because people don’t think before they act.

But in others it was a result of deep anger and hatred towards institutions and/or groups of people, and they felt that expressing that anger and hatred was more important than their job.

Of course, I’m not saying that anger and hatred aren’t sometimes justified and people shouldn’t defend themselves, but this was not a widespread issue prior to social media.

At least it wasn’t out in public. Undoubtedly, many employees have felt alienated or unable to express their views at work openly long before social media. But the chasm between realities where those views exist was not as big.

We may have disagreed about methods and solutions to problems, but we at least shared a single truth.

Likewise, how many businesses have now faced reputational risks for “taking sides”?

A friend of mine works for a company that’s going through that very thing right now. I won’t say exactly who or which company because it occurred as a result of a video that went viral (and I don’t want to fan the flames).

But the point is, as I’ve mentioned earlier, this is having real-world economic consequences.

In addition, division and political polarization can make it difficult for companies to attract talent. A worker might refuse to take a job for a company that does not align with their values or supports a particular politician or set of views.

Sure, this has been an issue in the past with companies doing environmental damage, for example, or putting people’s health at risk (tobacco companies) … but the divisions today are not the same.

It’s no longer about a company doing something objectively wrong that most people agreed with. Its political ideologies, the media you watch, the talking heads you follow, the politicians you support, and so on.

And companies are moving out of state for many of these reasons, leaving poverty and unrest behind.

In fact, we have elected officials attacking companies over issues that shouldn’t, and in the past haven’t, had any place in either government or business, but they play well on social media and they rile the base.

So, fires are stoked over egos, power, or whatever, with zero concern for the economic fallout and collateral damage.

Again, maybe it’s nothing. Maybe we’ve reached peak divide and from here we’ll start coming around the campfire again and singing songs.

However, it’s equally likely that all of these detrimental effects that social media platforms have inflicted on society are like millions of economic papercuts. Not worrisome on their own, but the relentless damage they do day after day over time erodes our ability to function collectively.

Originally published at https://gighustlers.com on February 3, 2021.

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