Nominal GDP would definitely fall when people move their time "spending" from labour transactions (i.e. working hours) that add to GDP, to spending time instead. So if you measure economic activity by GDP, this alternate working approach would appear to "collapse" the economy.

And the degree to which people who make desirable "stuff" also subscribe to this new lifestyle, the more expensive that stuff will become. Supply is reduced, therefore the price will rise until demand falls and supply rises (because the price is higher) to match one another. In effect, a population following this approach will have lower purchasing power for desirable stuff than a control population stuck in the rat race. Or to put it another way, they will be poorer, and may suffer from envy.

So IMO the approach is currently only realistic for a certain subset of the population - those whose labour is valuable enough - and hopefully doesn't spread to factory workers etc. Ideally factory workers will be replaced by robots, so that we no longer have to worry about using up human lives to feed the "stuff" production machine. (By factory workers, I mean everyone who makes commodity (not bespoke) "stuff" you can touch.)

But I can certainly see a future where unskilled labour, and a lot of skilled labour, is done by machines. A capitalist economy based on scarcity won't work so well then; democracy won't stand for it.