I was at a popular tourist spot on the coast, about 25km from where I live. There were a couple of bikes parked next to me, and I got chatting to one of the owners. He told me where they had come from and where they were headed. They were in the middle of a day-ride that would see them notch up around 400km. He asked where I was from. I was a bit embarrassed to tell him that I had come only 25km and was on my way back home again. I was a bit embarrassed because I had a rack and bag on the back and probably looked like I could have been on an interstate tour (well, almost!), while their bikes were totally bereft of any form of luggage. (That's not my bike on the left, by the way, just a photo for illustration purposes).
But I have always liked having some sort of carrying-facility on my bike. Now, if you ride a cruiser with panniers, or a tourer with all the usual pannier and top-box luggage, this will be like "preaching to the converted" - and you'll be way ahead of me in carrying capacity. But for everyone else, read on!
Bikes in their native form (at least the ones I've had) are at a severe disadvantage when it comes to carrying stuff. And there is always stuff you want to carry. It's always a good idea to have some wet-weather gear with you, especially if you are going any distance. And there are other things it's good to have too. Even if you just want to pick up a paper, or some bread and milk, you need somewhere to put them. So I have, with one exception, always equipped my bikes with a rack. (The registered ones that is; I've had a couple of off-roaders that didn't get a rack of course).
When I had trail-bikes, they used to sell a small rack suitable for them. They weren't much different to a bicycle rack really, but it was somewhere to carry things. So I always had a rack with a couple of ocky-straps on it. When I went out for a day's trail-riding I could strap on a bag with some lunch and wet-weather gear in it. And if I was out and bought something, again there was somewhere to put it to carry it home. (Mind you, the ocky-straps did interesting things to a loaf of bread if I put that on there, but in general they were quite handy!).
I fitted panniers to one bike I had, and they were super-useful! Just flip open the lid and chuck things in. But maybe panniers aren't your thing; or not the bike's thing perhaps? But a rack and a bag are available for almost anything!
It's a matter of convenience; and I like the convenience of being able to carry things, and to have certain things with me whenever I go out on the bike. What do I carry? Well, there is the afore-mentioned wet-weather gear; that's a must-have! Plus I sometimes carry "alternate" gear; like a lighter-weight pair of gloves if it is a warm day but I prefer the thicker ones, that sort of thing. Another thing I carry is some basic first-aid stuff. And I have some wipes and tissues. Don't laugh, I know motorcyclists are supposed to be grubby and have hands stained with oil and grease, and just tuck into their munchies allowing their un-washed hands to add that nice taste of Castrol to the ham sandwich, but I prefer cleanliness. It's another thing that comes with being an old bloke I suppose! Plus wipes and tissues can be very useful for removing the larger splattered bugs from the helmet visor. And I often carry a cheap camera; to get some "happy-snaps" of the bike in new locations etc.
I said above that I have had a rack on all but one of my registered bikes. That bike was a sports-style bike; and I just thought a rack wouldn't suit it. Racks aren't particularly stylish, and having a bag sticking up behind the seat does tend to spoil the streamlined styling a bit! Ah, yes, so here we come to the "styling / cool-factor versus practicality" issue! But I have to say that it was annoying not having anywhere to carry things, and I was always looking inside the fairing and wondering where and how I could make some sort of carrying-compartment. I should have just put a rack on it! Now I would.
Perhaps one of the main criticisms of having a bag on the back is that they effect performance, handling, and fuel-consumption. And you've only got to look at them to see that they are hardly what you would term "aerodynamic"! But in my experience, any effect they have had has been so small as to be indiscernible. I think (and I emphasise the words "I think") I can feel the drag as the bike pulls the bag through the air, but no tests I've done bear this out.
I live quite close to an expressway, and when I got my current bag (it's actually the same bag as the one in the photo above) I did a couple of back-to-back tests to see if there was any difference. I took the bag off and gave it a big squirt onto the expressway and cruised along for a few kilometres at 110. Then I came back, put the bag on, and did the same ride. I came back and took it off, and then back again and put it on. If there was any difference in performance it was so small it was undetectable. There didn't seem to be any difference in wind-buffeting or stability with the bag on or with it off either.
The little instruction-leaflet that came with it said not to exceed 130kph with the bag on. So I took off down the expressway again, waited until there was no traffic around and sat it on 140. And again, there was no problem with stability and no discernable difference to the bag not being there.
I have ridden the bike (over a reasonable distance) without the bag, and checked the fuel consumption over the same route with the bag on. Again, there was no difference at all.
Of course, the bigger the bag, the more likelihood there would be that it would make a difference. If you've got enough luggage to accommodate a round-Australia trip strapped onto your bike then, yeah, it's going to make a big difference! But I'm talking about "convenience" bags; the sort of bag that slips onto a standard rack. (The one I have is 35-litres).
Now, even with these sort of bags, as I said, you've only got to look at them to see that they aren't in any way aerodynamic; so logic says that they have to make a difference. But, in practice, that difference is so small that any disadvantage there might be is far out-weighed by the advantages they provide!
So call me "un-cool"; call me "un-stylish", call me a "fussy old bloke", or whatever, but I'll stick with having a bag on the back; and enjoy the convenience of having what I want with me and being able to bring other things I want back home with me. Even if it makes me look like I'm on an interstate trip when I've really just wheeled down the road for a coffee! 

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