How We Got Here: From Economic Shock to an Extraction Economy

Enshittification did not suddenly appear because corporate executives collectively decided to make everything worse. It developed within a much larger economic transformation—one involving pandemic stimulus, inflation, supply shocks, war, political instability, deregulation, tax policy, corporate consolidation, and increasingly powerful companies operating in markets where customers often have surprisingly few meaningful alternatives.

The story arguably begins before COVID-19, but the pandemic dramatically accelerated it.

The COVID Money Flood

When COVID-19 struck in 2019, the United States deliberately flooded a collapsing economy with money.

Under President Donald Trump, Congress passed the roughly $2.2 trillion CARES Act, while the Federal Reserve cut interest rates to near zero and undertook extraordinary measures to keep credit and financial markets functioning. The objective was understandable: businesses were closing, unemployment was exploding, financial markets were panicking, and policymakers feared another Great Depression.

The intervention helped prevent economic catastrophe.

But enormous amounts of fiscal and monetary support were injected into an economy whose productive capacity was simultaneously being restricted by lockdowns, labor disruptions and factory closures.

More stimulus followed in late 2020 and again in 2021, all from the original plan under Trump.

The result was an extraordinary economic experiment:

Consumers had enormous purchasing power at precisely the moment the world's ability to produce and transport goods was impaired.

Federal Reserve researchers subsequently found that countries providing larger fiscal stimulus experienced stronger inflationary pressures, while Fed research has identified both pandemic supply disruptions and surging demand as major contributors to the inflation that followed. (Federal Reserve)

It would therefore be too simplistic to say Trump "caused inflation," just as it would be inaccurate to assign the entire inflation episode to Biden. The emergency response began under Trump, additional stimulus came under Biden, the Federal Reserve maintained extraordinarily loose monetary policy, consumers dramatically changed their spending patterns, and worldwide production systems were simultaneously breaking down.

The inflationary fire had several sources.

Then the Supply Chains Broke

COVID exposed something else about the modern economy: decades of optimization had produced supply chains that were remarkably efficient under normal circumstances but remarkably vulnerable under abnormal ones.

• Factories closed.
• Ports backed up.
• Semiconductors became scarce.
• Shipping prices exploded.
• Labor shortages appeared.

Consumers who could no longer spend normally on restaurants, vacations and entertainment redirected enormous amounts of money toward automobiles, electronics, furniture and other physical goods.

Demand surged directly into constrained supply.

Federal Reserve Chair Jerome Powell later described the pandemic inflation as the product of a historic surge in goods demand colliding with disrupted supply chains and labor shortages. (Federal Reserve)

Companies discovered something during this period that would have consequences long after the original shortages disappeared:

Consumers had become accustomed to higher prices.

Once a market accepts a new price level, businesses have little incentive to voluntarily restore the old one.

War Poured Fuel on the Fire

Then Russia invaded Ukraine.

Energy, grain, fertilizer and commodity markets were disrupted. Oil and natural-gas prices surged. Transportation became more expensive. Agricultural inputs became more expensive.

Those costs propagated throughout the economy.

The Federal Reserve specifically identified the Ukraine war, commodity prices, energy costs and continuing global supply-chain problems as important contributors to the inflation surge. (Federal Reserve)

Inflation therefore became a feedback mechanism.

• Fuel became more expensive.
• Transportation became more expensive.
• Food became more expensive.
• Manufacturing became more expensive.
• Workers demanded higher wages because their living expenses increased.
• Businesses raised prices to cover higher costs.

And consumers increasingly stopped knowing which price increases reflected genuine costs and which reflected companies discovering that the market would tolerate higher prices.

Tax Cuts, Deregulation and the Concentration of Wealth

Another part of the story predates the pandemic.

The 2017 Tax Cuts and Jobs Act dramatically reduced the corporate income-tax rate from 35 percent to 21 percent while also changing individual, estate and business taxation. Supporters argued that these changes would encourage investment, increase competitiveness and stimulate economic growth.

Critics argued that the benefits disproportionately flowed toward corporations, shareholders and wealthier households.

That debate matters because enshittification isn't simply about inflation.

It is about power.

When wealth and market power become concentrated, large corporations gain greater ability to determine the conditions under which consumers participate in markets.

Deregulation can encourage innovation and reduce unnecessary government interference. But inadequate competition policy can produce the opposite outcome: industries in which a handful of enormous corporations possess tremendous leverage over workers, suppliers and customers.

The evidence on economy-wide concentration is more complicated than political rhetoric sometimes suggests—the FTC and Justice Department have themselves cautioned that broad national concentration statistics do not automatically establish declining competition in specific antitrust markets. (Federal Trade Commission)

But the underlying danger remains straightforward:

Markets only discipline companies when customers have meaningful alternatives.

From Competitive Capitalism Toward Oligarchy

This is where economics intersects with politics.

For decades Americans have increasingly fought cultural and political battles while enormously consequential questions about market structure, corporate power, taxation, labor, housing, healthcare and competition have often received less sustained public attention.

• Culture-war politics can divide people who otherwise share remarkably similar economic frustrations.
• Republican versus Democrat.
• Urban versus rural.
• Immigrant versus native-born.
• Religious versus secular.
• Left versus right.

Meanwhile, many Americans across those divisions complain about remarkably similar things:

• Their grocery bill is higher.
• Housing is unaffordable.
• Insurance costs more.
• Subscriptions multiply.
• Customer service gets worse.
• Software becomes less reliable.
• Fees appear everywhere.
• Local businesses disappear.
• And enormous corporations become even larger.

It is reasonable to debate whether "oligarchy" is the correct description of the American economy. The United States still possesses competitive industries, entrepreneurial businesses and substantial consumer choice.

But the concern behind the word deserves serious attention.

When economic and political power become concentrated among relatively small groups of corporations and extremely wealthy individuals, markets can gradually stop behaving like the competitive markets described in economics textbooks.

Instead of companies desperately competing for customers, customers increasingly find themselves navigating ecosystems controlled by companies they cannot realistically avoid.

And that creates fertile ground for enshittification.

What Is Enshittification?

Writer and technology activist Cory Doctorow popularized the term in 2022 to describe the gradual deterioration of digital platforms as companies shift from attracting customers to extracting as much value as possible from them.

Although Doctorow originally applied the concept primarily to internet platforms, the idea describes something much larger happening throughout the modern economy.

Stage One: Make Something People Love

Most successful companies begin with a simple problem: they need customers.

That creates powerful incentives to provide value.

A new streaming service offers inexpensive subscriptions and few advertisements. A technology company provides excellent software and support. An online marketplace charges sellers low fees. A social network simply shows users posts from the people they chose to follow.

The company needs consumers more than consumers need the company.

Competition reinforces this behavior. If the product becomes expensive or unreliable, customers can leave.

So businesses compete through price, quality, service and innovation.

This is capitalism functioning largely as advertised.

Stage Two: Make Customers Dependent

Success gradually changes the relationship.

The company develops an enormous user base. Businesses build operations around its platform. Consumers accumulate purchases, playlists, photographs, contacts, histories and subscriptions.

The inconvenience of leaving increases.

Businesses experience this even more dramatically.

A company may have millions of dollars invested in software, infrastructure, employee training, integrations, databases and processes surrounding one vendor.

Changing vendors might theoretically be possible.

Practically, it can become enormously expensive.

The customer has become locked in.

And once customers cannot easily leave, the incentives facing the company begin to change.

Stage Three: Extraction

Eventually management discovers something important:

• Improving the product isn't the only way to increase profits.
• The company can extract more money from the customers it already has.
• Subscription prices rise.
• Advertisements multiply.
• Previously free features become premium features.
• Customer support is reduced.
• Employees are cut.
• Products are bundled together.
• Interfaces increasingly promote services customers never requested.
• Marketplaces increase seller fees.
• Streaming services introduce advertising into subscriptions that originally existed specifically to eliminate advertising.
• Software companies move perpetual licenses to subscriptions.
• Products become increasingly difficult to repair.
• And sometimes quality simply deteriorates.
• The customer isn't necessarily receiving more value.
• The company is becoming better at extracting value from the customer.

The Hidden Form of Inflation

This creates something resembling another form of inflation.

Traditional inflation is easy to recognize:

Yesterday: $10

Today: $13

But there is another version:

Yesterday: $10 for a good product

Today: $13 for a worse product

The official price increase is 30 percent.

The customer's actual loss is greater because quality declined simultaneously.

This might reasonably be called quality shrinkflation.

A software application that costs the same but requires employees to spend additional hours troubleshooting failures has effectively become more expensive.

A customer-service department replaced by an automated system that forces customers to spend an hour solving something previously resolved in five minutes has transferred labor from the corporation to the consumer.

A hotel eliminating daily housekeeping hasn't merely "streamlined operations." Part of the service previously included in the price has disappeared.

A retailer replacing staffed checkout lanes with self-checkout has transferred part of the checkout process to customers.

The monetary price may remain unchanged while the total cost of consuming the product increases.

Why Doesn't Competition Fix It?

In theory, another company should appear and offer a better product.

Sometimes that happens.

But modern markets frequently contain enormous switching costs and barriers to entry.

Technology platforms benefit from network effects. Cloud providers require massive capital investments. Entertainment companies control valuable intellectual property. Airlines operate through limited airport infrastructure. Telecommunications companies require enormously expensive networks.

Meanwhile, consolidation has left some industries with relatively few major competitors.

That can produce a dangerous economic condition:

The customer is unhappy, but every realistic alternative has similar problems.

When switching becomes difficult, customer dissatisfaction loses some of its economic power.

The traditional feedback loop—

Bad product → customers leave → revenue falls → company improves product

—can become:

Bad product → customers complain → customers develop workarounds → customers keep paying.

That fundamentally changes corporate incentives.

Wall Street Can Reward the Decline

There is another uncomfortable component.

A company doesn't necessarily need to make customers happier to produce excellent quarterly financial results.

Imagine a corporation eliminates 10,000 employees, reduces customer support, increases subscription prices 15 percent and introduces another advertising tier.

• Customers might hate every decision.
• But expenses decline and revenue increases.
• The next earnings report could look fantastic.
• Executives receive praise for improving margins.
• Investors celebrate.
• The stock rises.
• From the customer's perspective, the company became worse.
• From the financial market's perspective, management became more efficient.
• Both observations can simultaneously be true.

This creates one of the strangest contradictions of the modern economy:

A company can become increasingly successful financially while becoming increasingly unpleasant to do business with.

Technology Makes Extraction Easier

• Digital products have made this process extraordinarily sophisticated.
• Companies can conduct experiments on millions of customers simultaneously.
• How many advertisements will users tolerate?
• How much can subscription prices increase before cancellations accelerate?
• Which features can be moved behind another subscription tier?
• How difficult can cancellation become before regulators intervene?
• How much customer support can be automated?
• How much functionality can disappear before customers actually leave?

Companies possess enormous quantities of behavioral data allowing them to determine not simply what customers want—but how much deterioration customers will tolerate.

That is a very different form of market research.

The Problem Isn't Profit

Businesses must make money.

Employees need salaries. Investors expect returns. Infrastructure costs money. Research and development require capital.

Profit itself isn't the problem.

The problem begins when an organization's primary path toward additional profit shifts from:

creating more value

to:

extracting more value from an increasingly captive customer.

Those strategies can look identical on a quarterly earnings report.

Over decades, however, they produce very different companies.

One creates better products.

The other slowly consumes the goodwill, quality and reputation accumulated during earlier generations.

The Great Economic Warning Sign

Perhaps the most important warning sign is when consumers begin saying something increasingly common:

"Everything is getting worse."

That statement shouldn't automatically be dismissed as nostalgia.

Consumers may actually be observing a structural change.

Higher prices combined with smaller portions, fewer employees, weaker customer service, additional advertisements, mandatory subscriptions, unreliable software, disappearing ownership rights and increasingly complicated products represent different manifestations of the same economic incentive.

Each individually seems minor.

Collectively, they represent a transfer of value.

And the greatest danger comes when companies discover that customers have nowhere else to go.

Because healthy competition asks:

"How can we make customers choose us?"

Enshittification asks a very different question:

"How much can we take away before they finally leave?"

When enough industries begin asking the second question, the problem is no longer simply a few bad companies.

It becomes a warning about the health of the marketplace itself.